Uncomfortable shoes for Cyril Ramaphosa to fill - and just one is his

20 January 2019 - 00:00 By peter bruce

For two days in a row, the front-page lead in Business Day has been about how "sacrosanct" the Reserve Bank's monetary policy mandate is. First it was the president, Cyril Ramaphosa. Then it was the Bank governor, Lesetja Kganyago. It's not even the end of January and already 2019 has the ANC throwing our economy around like it does plastic chairs.
They're practising for Davos, where they'll have to explain the ANC's election manifesto, which apparently seeks to change the mandate. The issue will die down but it's an ANC staple. Some ANC "thinkers" just can't bear the thought of money they can't grab and abuse. Fortunately, from Tito Mboweni down, ANC-appointed Reserve Bank governors have appreciated the chaos that would ensue if they were to pay less attention to keeping inflation (prices) stable and more to growing employment.
Which is what the Zupta wing of the ANC wants. More access to more money. How very radical of it.
According to my copy of the constitution, though, article 224 (1) says: "The primary object of the South African Reserve Bank is to protect the value of the currency in the interest of balanced and sustainable economic growth in the republic."
In other words, it is the point Kganyago and Mboweni, now finance minister, constantly make. The mandate already enjoins the Bank to look for growth (hence jobs) in the economy. Not good enough, cries the Left.
They have noticed that last year New Zealand added employment to inflation as its central bank's mandate.
But the comparison is flawed. Unemployment in New Zealand is less than 5% and inflation is around 2%. Its population is 4.8 million. With numbers that decent, a monetary policy tweak in the right direction might help (though it is worth recording that unemployment has crept up marginally since the mandate change).
In SA we face unemployment of up to 40%. There are 60 million of us. The only thing we have under any kind of control is inflation. To fiddle with that is simply to not appreciate just how poisonous inflation is and the damage it can do. It is the diabetes of economics. Ask the Venezuelans or Zimbabweans. There is no end of lessons.
The problem is politics. In theory, monetary policy, run by the Reserve Bank, is a technical exercise. Keeping inside its inflation targets is what gives it credibility. You keep prices stable by spotting price and other trends and pressures in advance and adjusting interest rates accordingly.
Of course you are aware of the effect of interest rate increases. Had the Bank not been, rates would already be higher.
But those interest rate adjustments often happen only because fiscal policy, which falls to the Treasury, fails. Either the Treasury is financing poor policies or it is losing money to corruption. Tax revenues fall as economic activity is strangled by the state itself. We now spend around R600m every working day to pay the interest on government debts racked up during the Zuma years.
To now ask of monetary policy that it drain your fiscal swamp and thin out the growing ranks of unemployed is grotesque. Monetary policy can reward good governance. It can't rescue the incorrigible.
Effectively, the argument for more intervention in the economy by the Bank is that it become a department of the state, like public enterprises or basic education, its job being to open or close the monetary tap as and when the jobs numbers demand it.
It is an apocalyptic scenario when taken to its logical extreme, but it's also the double life Ramaphosa must lead. Only one of his shoes is his own. So the manifesto he read out last week limps like a professional beggar. "The ANC believes that the South African Reserve Bank must pursue a flexible monetary policy regime . Without sacrificing price stability, monetary policy must take into account other objectives such as employment creation and economic growth," it said.
The same applied to prescribed assets. The party should "investigate the introduction of prescribed assets on financial institutions' funds to mobilise funds within a regulatory framework for socially productive investments . while considering the risk profiles of the affected entities".
On Eskom, the ANC would "reposition Eskom to play an active role in the renewable energy sector and promote public ownership in renewable energy infrastructure". That could mean literally anything.
Ramaphosa will dance like this for as long as he leads the ANC. The only positive is that the longer he dances, the more decrepit the old order becomes. That can't all be bad...

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