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The Reserve Bank in Pretoria. Picture: SUPPLIED
The Reserve Bank in Pretoria. Picture: SUPPLIED

The raid on the unrealised profits arising from translating the foreign exchange reserves into rand is the most dangerous manoeuvre since 1994. This is not because it is illegal or runs counter to practice elsewhere. The move is within the law and doesn’t amount to a breach of the SA Reserve Bank’s independence.

But it is still dangerous, for two reasons. First is the raid’s demonstration effect — it has woken politicians to the fact they can get money from the Reserve Bank. Legally this time round, but who knows about the future? Second, the post-raid language the Bank and National Treasury have used to explain the transaction opens the door to all manner of silly policy proposals and manoeuvres in future.

It is telling that the Bank has had to pull off James Brown-type financial dance moves to get the cash to the National Treasury — this says it is not a normal transaction.

The Treasury’s explanation that “other countries do it” doesn’t make for sound public policy-making. Other countries do many silly things that shouldn’t be emulated. Serial sovereign defaulter Argentina comes to mind.

The context that informs each country’s economic policy choices is mostly specific to that country. That is why there is no off-the-shelf formula for raising a country’s economic growth potential. Each successful country has done it based on its own circumstances, including the endowments it had at the start.

That is also why central banks worldwide all implement monetary policy but are structured and governed differently. As the Bank for International Settlements pointed out early last year, while central bank balance sheets were broadly similar, “the composition of assets and liabilities varies in function of individual mandates and can change over time”.

The SA Reserve Bank is one of a handful of central banks that have kept private shareholders. Interestingly, “other countries have done it” was the argument used by the ANC when pushing through the resolution that the government should buy out the Bank’s private shareholders, an issue finance minister Enoch Godongwana and President Cyril Ramaphosa have thus far kicked into touch.

Bankrupted SOEs

Then there are the reasons the transaction had to be done. Treasury had to raid these unrealised profits not because the country had been hit hard by an external or domestic shock, but largely because politicians have mismanaged the finances. Government has also been slow (a generous description) in implementing the reforms necessary to raise the country’s economic growth potential. Even the fiscal consolidation path, which government embarked on in 2013, has failed to deliver.

The breathing space this foreign exchange reserves windfall creates will allow the same people to continue down the same silly policy path. After all, the ANC, whose successive administrations have bankrupted numerous state-owned enterprises (SOEs), wants to create more: a state-owned bank and the National Health Insurance scheme being the most prominent. Between 2008/09 and 2021/22, the government pumped R310bn into SOEs — 70% into Eskom and most of the remainder into SAA.   

Regarding the first point, the Treasury’s raid of the unrealised profits demonstrates to politicians that it is possible to get money out of the Reserve Bank. Under Nelson Mandela and Thabo Mbeki, politicians did not get this close to the Bank’s vaults. Not even the rascal of KwaDakwadunuse got close to the perimeter.

However, prompted by NGOs the Treasury has shown that political storm troopers can have a go at the central bank. This will embolden future politicians. The constitution and the legal moat that secures the Reserve Bank’s independence won’t matter any more.

After all, we are talking about people who have stolen public monies in defiance of the Public Finance Management Act and Municipal Finance Management Act, people for whom the law is a mere piece of paper. We are also talking about a crowd that keeps doing the very things that got government into this fiscal mess: putting money into SOEs and sucking it out at the other end as quickly as it arrives.

So, the Bank and Treasury may argue there is a constitutional and legal moat that protects the Bank’s independence, and that accessing the foreign exchange reserves windfall doesn’t amount to a crossing of that moat. But the deal’s danger is that it demonstrates to future politicians that when they have mismanaged government finances they can turn to the Reserve Bank. After all, other countries do it.

• Sikhakhane, a former spokesperson for the finance minister, National Treasury and SA Reserve Bank, is editor of The Conversation Africa. He writes in his personal capacity.

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