SA Reserve Bank governor Lesetja Kganyago says it is better to have unpopular central bankers than allow runaway inflation in order to please populists.
Speaking at the Association of Black Securities and Investment Professionals’ (Absip) conference just few hours before a panel was due to debate the nationalisation of the central bank, Kganyago told black professionals that SA had no space for “macroeconomic adventurism”.
“This notion that to get growth going we must allow inflation to go up is not just reckless, it demonstrates a lack of understanding of how a modern economy works,” he said, responding to calls for an expansionary economic policy to boost investment.
Kganyago’s sentiments come at a time when the central bank is fighting to keep its independence after the ANC resolved during its 54th national conference in December 2017 that the bank should be nationalised. As recently as last month the party’s communicator, Phelisa Nkomo, issued a bizarre statement asking the Bank’s monetary policy committee to “prioritise the plight of poor South Africans”. The party’s head of economic policy, Enoch Godongwana, quickly retracted the statement.
Kganyago, who had to stand in for President Cyril Ramaphosa at the last minute, told delegates that given the rise of populist policies lately, he felt the need to school everyone on “the lessons of the economics of populism”. The governor said while he did not dispute that populism spoke to ordinary people about real problems, he had a problem with populist leaders who pretend there are easy solutions for difficult problems.
Citing examples from Latin America and some African countries, Kganyago warned that populist policies such as adopting expansionary economic policies during periods of high inflation were “poison to an economy”. Any growth achieved in the first year would not last, and there was no guarantee that employment would increase.
“The economy can overheat even when other factors of production are lying idle; [the country will still remain] with unemployment and factories operating below capacity,” he said.
The governor was critical of populist solutions that call for the redistribution of the existing stock of wealth instead of growing the pie. He was scathing about how proponents of popularism were not interested in real work or developing the country but only wanted to point fingers and say someone was stealing the country’s wealth. Kganyago warned that no constitutional law could be produced to bring about national prosperity without a sound macroeconomic framework.
“If the state declares war on market mechanisms, and condemns it, it starts to break the engine that generates wealth,” he said.
Kganyago said while the Bank had “no business interfering” in the nationalisation and land expropriation debates, he thought there was a need for a wider debate on land use in the country.
Lazola Mayekiso, CEO of Sanlam Investment Management, one of the sponsors of the gathering, said she hoped Kganyago would deliver this lecture to politicians, because everyone needed to be more sober when having this conversation.
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