LUKANYO MNYANDA: Too much reserve about the Bank

Much has been said about President Cyril Ramaphosa’s state of the nation address, most of it negative. Seeing that it was his third in about 16 months, I wasn’t expecting that much from it.

For me, a commitment to actually implementing the pledges in his February 2018 speech would have been enough. Much of the disappointment had to do with the feeling that the big things — from Eskom to restoring SA’s fiscal health — were once again kicked down the road.

It was almost four months ago that finance minister Tito Mboweni announced the intention to appoint a chief reorganisation officer for the power utility. Instead of announcing who the person would be, the president merely reiterated that promise. 

The idea is not universally liked as there is still no clarity about how this person would work with the board and who would be held responsible for key decisions and performance metrics.

But, rightly or wrongly, government made the decision that this was a necessary step. Yet it has still not implemented the decision, which can only add to the perception that the president doesn’t fully appreciate the crisis the utility is in.

The Reserve Bank is too important to allow this cloud of uncertainty to persist.

By now there should have been a CEO and a new plan to address Eskom’s fiscal crisis. Instead, there was a mere front-loading of aid that was  announced as far back as February. Even then there was scepticism over whether the R230bn package would be enough. Eskom is not the first utility to go bankrupt and the sooner we accept the need to restructure its debt the better.

But the one thing to be happy about was that Ramaphosa finally showed that he could be decisive when it comes to the pointless debate about the role of the Reserve Bank. It wasn’t always like that. Before the recent controversy over ANC secretary-general Ace Magashule’s comments on the subject, Ramaphosa himself caused much damage with a statement committing the government to buying out the Bank’s private shareholders and linking this to the country’s sovereignty.

“Rising prices of goods and services erode the purchasing power of all South Africans, but especially that of the poor. Inflation further undermines the competitiveness of our exports and our import-competing firms, putting industries and jobs at risk. For these reasons, our constitution mandates the SA Reserve Bank to protect the value of our currency in the interest of balanced and sustainable growth,” he said on Thursday.

Why couldn’t that have been said months ago, regardless of the impending elections? The mandate of the Bank was hardly at the top of voters’ concerns. It is also a good thing that the debate about the ownership of the Bank has been done away with. Expropriation of the Bank without compensation was never on the agenda, so it was never clear what the economic and moral justification may be for allocating scarce resources to that particular agenda.

Late as it was, Ramaphosa’s intervention now means Bank governor Lesetja Kganyago and the monetary policy committee (MPC) can make their call on interest rates in July without the suspicion that they are bowing to political pressure. Anybody who has been following the Federal Reserve in the US will appreciate how quickly even one of the most important central banks in the world can lose credibility when politicians interfere with its policy-making role.

The argument has been made that the rate increase of November 2018 was a mistake and should have been reversed already. Some economists, citing lower inflation outcomes at home and dovish central banks abroad, see a rate cut next month as a foregone conclusion. Some think 25 basis points won’t be enough as that would merely take us back where we were in November. So, the argument goes, the Bank needs to double up on that.

Such a debate would not normally cause alarm, but given the atmosphere created by the Magashule statement on the Bank’s mandate, it would have been extremely damaging. Now that the debate has been settled, there’s hope that rational debate about policy can commence.

Kganyago and the rest of the MPC are not infallible and their decisions should be up for debate. Criticism that they don’t take sufficient account of growth and employment when making decisions is not in itself a bad thing. The problem arises when the critics, instead of looking at the individual, take aim at the Bank’s mandate.

As one of SA’s pre-eminent economists noted last week, almost tongue in cheek, if the government doesn’t approve of Kganyago’s approach it can simply replace him with Chris Malikane, the one-time adviser to former finance minister Malusi Gigaba who has rather unconventional views on monetary policy.

And the government will get an opportunity to do that in about five months. Which is yet another case where Ramaphosa can show decisiveness. Francois Groepe left his role as deputy governor in January and the term of his colleague, Daniel Mminele, is due to finish at month-end.

The Reserve Bank is too important to allow this cloud of uncertainty to persist. The state of the nation address should have given us finality.