EDITORIAL: Mkhwebane and her splendid, unself-conscious ignorance
One would like to assume no-one could be so clueless, but this would raise the question as to Mkhwebane’s real motives
A few years ago, President Jacob Zuma’s cabinet issued a strong statement in which it described the SA Reserve Bank as "a crucial national institution" and pledged that "government would continue to ensure this independence was not compromised". This week, public protector Busisiwe Mkhwebane made a mockery of that pledge when she ordered parliament to alter the Bank’s constitutional mandate, to strip it of its primary function — to keep inflation low and stable.
In its place, Mkhwebane wants the Bank "to promote balanced and sustainable economic growth" while protecting the socioeconomic wellbeing of South Africans. The Bank should also consult parliament regularly "to achieve meaningful socioeconomic transformation".
The result: an entirely foreseeable 20c fall in the rand, and angst from those few investors who weren’t sitting in a dark room rocking slowly after last week’s mining charter debacle.
Thankfully, governor Lesetja Kganyago reacted promptly, vowing to launch an urgent review to set aside Mkhwebane’s order, which he rightly views as an assault on the Bank’s independence.
Mkhwebane’s ruling, bristling with unself-conscious ignorance, underscores, again, the stark contrast with her predecessor, Thuli Madonsela.
For a start, she doesn’t seem entirely familiar with the law — a disturbing trait for an advocate, let alone the public protector. Not even the constitutional court can order parliament to amend the constitution, say constitutional experts.
While Mkhwebane’s attempts to undermine the Bank were decidedly amateurish, it is still a deeply disturbing development given that the Bank’s independence is one of the last remaining pillars supporting SA’s investment case.
Mercifully, her fuzzy-brained order is unlikely to be implemented. But for someone in her position to be so breathtakingly ignorant of the function of a central bank is still arresting.
The fact is, the reason for SA’s high unemployment rate (27.7%) does not lie in tight monetary policy or inflation targeting. Nor, indeed, can monetary policy contribute directly to economic growth or employment in the long run.
To recap: prior to 1994, inflation was allowed to spike to almost 20% while the prime interest rate was regularly above 15%. The Bank’s commitment, in 2000, to keep inflation within a band of 3%-6% has resulted in the cost of living dropping significantly. Inflation targeting has worked.
This is important because it is the poor who are hit hardest by high inflation — they typically lack the investment income to help cushion the erosion of their wages. By keeping inflation low, the Bank protects the poor the most. In doing so, it creates a stable financial environment — a vital precondition for economic development. But the Bank cannot create economic growth or achieve socioeconomic transformation directly. For that you need fiscal, economic, industrial, trade and BEE policies.
These are the purview of treasury and other ministries. What the Bank does is support them by preventing runaway inflation. But it is precisely this role that Mkhwebane seeks to eliminate.
One would like to assume no-one could be so clueless, but this would raise the question as to Mkhwebane’s real motives. Would it be to cast the Bank as antitransformation to justify some future attempt to replace its management?
Kganyago has two and a half years left of his term as governor. Forcing him to take to the courts to defend the Bank against a populist mandate has all the makings of a set-up.
Mercifully, Kganyago and his team will not easily be cowed. And right-minded South Africans will be right behind them.