Steady hands: Then finance minister Trevor Manuel in his office with, from left, Jabu Moleketi, Pravin Gordon and Lesetja Kganyago before the 2005 Budget announcement. Of the four, only Kganyago remains in the public sector, as governor of the Reserve Bank. Picture: TREVOR SAMSON
Steady hands: Then finance minister Trevor Manuel in his office with, from left, Jabu Moleketi, Pravin Gordon and Lesetja Kganyago before the 2005 Budget announcement. Of the four, only Kganyago remains in the public sector, as governor of the Reserve Bank. Picture: TREVOR SAMSON

In the winter of 1995, former president Nelson Mandela asked Trevor Manuel, then minister of trade and industry, to come to his office. Thabo Mbeki, then deputy president, was in Mandela’s office when Manuel arrived.

Mandela said: "Chaps, look, Chris has come to me and says he needs to leave." Chris Liebenberg, then finance minister, had agreed to table the March 1996 budget. After that, said Mandela, "I think I must appoint Trevor."

"Keep this thing under wraps," he advised. "And, Trevor, you must use this time wisely to learn about what happens in the finance ministry."

Gill Marcus, who had returned from exile a few years before, chaired the portfolio committee on finance in Parliament. She had realised, as had Liebenberg, that the country inherited from the apartheid government was essentially bankrupt. "We were virtually in a debt trap, having to borrow to pay interest," she told me.

Worse, nobody knew exactly what the debt was. Andrew Donaldson, then a young Eastern Cape economist, joined the transitional finance department to cost the ANC’s reconstruction and development programme adopted in 1993.

"What is G?" he and an ANC team of economists asked. Nobody knew. The Bantustan administrations had sucked up money; government pension funds were insolvent; and "off-budget" spending and debt were unknown. G was the symbol for government expenditure.

It would take the new government 18 months to consolidate the debt and even longer to bring it down. By the 1997-98 budget, debt-service costs constituted 21% of expenditure — just R1bn less than education, a policy priority.

Debt had been hopelessly overpriced under apartheid. The government often borrowed more than it needed and invested it at a return less than the interest it was paying. Moreover, the Reserve Bank had built up enormous negative reserves, often in futile defence of the currency. Known as "unfunded forward cover", it sold dollars it didn’t have. This added to the country’s debt — "a great black hole" as Donaldson described it.

The key to cutting debt was, therefore, not only to borrow less by raising more revenue, but to borrow smarter.

The team that ran the country’s finances in the Mandela period may have been new at governance, but they were well prepared. There was Manuel, who had known for a year before that he would become finance minister and had headed the ANC’s economic desk. There was Maria Ramos, an ANC economist who had gone into the Treasury a year earlier and built up a team of smart young recruits. One was Lesetja Kganyago, who played a key role in restructuring debt. He is now governor of the Reserve Bank.

There was Tito Mboweni, an economist and labour minister in the Mandela government. He spent a year as adviser to the then governor of the Reserve Bank, Chris Stals, before becoming governor in 1999.

Marcus, who would succeed him, chaired the finance committee in formidable style, demanding accountability from government departments about spending. When she became deputy finance minister to Manuel, Barbara Hogan succeeded her and continued the robust tradition of holding departments to account.

She also welcomed sharp new people onto the committee, including Nhlanhla Nene, who was later to become finance minister before being spectacularly fired in 2015.

When Marcus became deputy finance minister, she recruited Pravin Gordhan into the South African Revenue Service (SARS). Gordhan had chaired Parliament’s constitutional affairs committee. A pharmacist by training and a long-time community activist, he was puzzled by the offer. But Marcus was adamant. "I said we need someone who has the strength of character and that strength of purpose … [and] the ability to organise people. The only person who could make it happen was Pravin, and Pravin was very reluctant. It took a lot of persuasion. It took months!"

The team — in the Treasury, SARS and the Reserve Bank — was schooled for the tough world of finance. They built an institutional culture that lasted two decades. Today, when institutions risk erosion in a few quick political moves, it is worth reflecting on this history.

The first task of the democratic government was to restructure the dysfunctional finances of apartheid.

This was not easy. There were scant controls over personnel administration in many provinces. But just when Treasury officials — including Kuben Naidoo, now a deputy governor of the Bank — managed to "close the tap" on spending, along came the unpopular arms deal, which irked many of them.

Notwithstanding this setback, the finance team began to reach higher-hanging fruit. Gordhan and Marcus drove reform at SARS, making it more client-friendly and rooting out corruption, particularly in tax rebates on exports.

In one case, a large retail company had claimed refunds on a supposed export of 76-million bras to Lesotho (with a population of about 2-million), prompting Gordhan to quip that the bra "has replaced the blanket as Lesotho’s national dress". A decade after Gordhan became SARS commissioner, individual and corporate tax rates had been cut and revenue had grown from R184bn to R558bn.

At the Reserve Bank, a new institutional culture set in. After inheriting uncovered exchange liabilities of negative $25bn in 1999, Mboweni eliminated the liability altogether by 2004. Instead of selling dollars it did not have, the Reserve Bank embarked on a different strategy: buying excess dollars whenever they were available.

In the 2001 budget, real noninterest spending increased 4%. "It is instructive to reflect on how different things might have been," Manuel told Parliament.

"Debt-service costs rose during the 1990s, from 15% to over 20% of the budget in 1998-99, steadily eroding the resources available for the delivery of services. If that trend had continued, the headlines for today’s budget would have been ‘Interest on debt now R10bn more than spending on education and rising’."

Partly he was referring to the macrostabilisation policy of Gear, which the left-wing partners in the ANC alliance opposed, more because they thought there was insufficient consultation. However unpopular, Gear made it possible to avoid going to the IMF or the World Bank for "structural adjustment" support.

By the 2007 budget, there was a surplus. Manufacturing and employment had grown, tax revenue had increased faster than the growth rate and public spending had gone up by nearly 10%. The country’s investment rating was steadily upgraded to a BBB+ with a positive outlook.

That was a decade ago.

There has been a global economic recession since, yet conditions were worse in the immediate post-apartheid period. The political leaders took decisions that stabilised the country at a critical time. More importantly, they began building strong institutions.

Most of the team in place 20 years ago — at the Treasury and the Reserve Bank — were still there until a week ago. Gordhan was in his post. Kganyago is governor of the Reserve Bank

 Most of the team in place 20 years ago — at the Treasury and the Reserve Bank — were still there until a week ago. Gordhan was in his post. Kganyago is governor of the Reserve Bank.

Many senior Treasury officials, such as Ismail Momoniat, head of tax policy, and Donaldson, have been there for more than 20 years.

Last week, Lungisa Fuzile, who joined the Treasury 20 years ago and rose to director-general, resigned. Gordhan is out, as is his former deputy, Mcebisi Jonas. Senior SARS officials, such as Ivan Pillay (who played a key role in busting big tax fraud cases), are gone.

If the Reserve Bank is threatened, we face a rockier future. Once a central bank steps in to finance a deficit, then a country reaches the brink.

It was a lesson the country’s first finance team in democracy took to heart.

When Manuel attended an economics conference in 1992, before the ANC took power, he was given a Zairean note worth 5-million zaires, issued by Mobutu Sese Seko.

When the Mobutu government tried to pay its soldiers with the currency, they rioted when they realised it could buy nothing — hastening the dictator’s downfall.

Manuel was given three Zairean notes. He gave one to Mboweni, one to Mbeki and kept one.

It was a salutary reminder then, as it should be now, of what can happen when an accelerating deficit, coupled with a lack of accountability and the collapse of institutions, takes hold of a country.

• Green is a journalist and author of Choice not Fate: The Life and Times of Trevor Manuel.

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