EDITORIAL: Ace’s leftist rhetoric hurts the poor the most
ANC leftists rarely come up with a solution for our ailing economy
From Venezuela to Zimbabwe, one of the great ironies is that self-proclaimed left-wingers claiming to be the only ones who have the people’s best interests at heart, tend to be prone to reckless actions that hurt the poor the most.
Here, they rail against the “1996 class project” and white monopoly capital. Those concerned about maintaining the country’s economic stability and creating the conditions conducive for wealth and job creation are dismissed as tools of this monopoly capital.
But they rarely come up with solutions themselves to improve the lot of the poor. The opposite is almost guaranteed.
The latest demonstration is the intervention last week by Ace Magashule, the ANC secretary-general, and his outlandish statements about the Reserve Bank and monetary policy. And that came on the very day that Statistics SA data showed how desperate the economic situation in the country is, with GDP having contracted in the first quarter by the most in a decade.
Zimbabwe is close enough for us to know almost first-hand what happens when the central bank is turned into the government’s piggy bank to fund uncontrolled borrowing.
It wasn’t that long ago that Stats SA released another set of numbers confirming the country’s jobs crisis, with the unemployment rate, including discouraged workers, edging towards 40%. As Bank governor Lesetja Kganyago said last week, this economy is on its knees and can do without more kicks.
Magashule dropped a bombshell on the markets on Tuesday, saying not only did the ANC want to change the central bank’s mandate but also wanted it to print money in order to deal with the nation’s debt problem.
It doesn’t take a genius to work out what the consequences of the latter would be. Zimbabwe is close enough for us to know almost first-hand what happens when the central bank is turned into the government’s piggy bank to fund uncontrolled borrowing, so that the money can be thrown into a black hole of mismanagement and corruption.
So the market’s response was swift and brutal. The rand ended the week with its biggest drop since February, when Eskom-induced blackouts had analysts scrambling to downgrade their growth forecasts.
In a week in which the dollar was broadly lower on expectations that the Federal Reserve will cut rates in 2019, the rand emerged as one of the biggest losers among emerging markets. So just on the currency moves alone, the country was left much poorer than it was a week ago.
It still remains to be seen how long-lasting the effect will be or whether the damage limitation, first by finance minister Tito Mboweni and Kganyago before President Cyril Ramaphosa finally got involved, will be effective.
If they fail to convince bond investors, the people whose capital we need to finance our deficits, we will pay the price via higher bond yields. That directly harms the country’s poorest because money that should go into hospitals and schools will be going towards paying bondholders instead.
This is just one way populists harm the people they claim to represent.
One of the ironies of this week is that before the rand’s drop, which pushed it above R15/$ for the first time since October and weaker than R19/£, the country seemed to be well set for an interest rate cut, which could come as early as July.
The inflation outlook, admittedly aided by a weak economy, had improved and the currency had stabilised, gaining about 1.5% against the dollar between the March and July meeting. It all seemed to be coming together with the Federal Reserve, even before Friday's disappointing jobs data, indicating a willingness to cut US interest rates if the global outlook darkened enough.
A dovish Fed would ordinarily reduce the chances of capital flowing out of emerging markets such as SA, and would therefore be supportive of their currencies. That then makes the job of containing inflation easier, creating the space for the central bank to offer some interest-rate relief.
A volatile currency may make the monetary policy committee, which at its last meeting voted 3-2 against a rate cut, think twice before loosening policy. Which would be another way that Magashule's actions have harmed the country.