Guest Column

Hyper-ventilated debate drowns out important SARB conversation

2019-06-10 09:09
Reserve Bank Governor Lesetja Kganyago during the monetary policy committee media briefing on Janaury 17, 2019 announcing the decision to keep the repo rate unchanged at 6.75%. (Photo by Gallo Images / Business Day / Freddy Mavunda)

Reserve Bank Governor Lesetja Kganyago during the monetary policy committee media briefing on Janaury 17, 2019 announcing the decision to keep the repo rate unchanged at 6.75%. (Photo by Gallo Images / Business Day / Freddy Mavunda)

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With crisis levels of unemployment and a GDP first quarter decline of 3,2%, we clearly don't have a balanced, sustainable economy. So, are the reserve bank's current policies adequate to assisting its constitutional mandate, asks Jeremy Cronin.

The ratcheting up of emotions around the South African Reserve Bank (SARB) risks shutting down a critical conversation we need as South Africans. The motivation behind ANC secretary general Ace Magashule wading into this space is, of course, entirely questionable. It's an internal ANC factional power-play, an attempt to trip up President Cyril Ramaphosa.

Does Ramaphosa re-assure investors? Or does he parrot word-for-word a clumsy ANC conference resolution? This is the potential fault-line on which Magashule and others are continuously scratching. But behind these factional interests lies the broader attempt to subvert anything, whether SARS, the criminal justice system, or the SARB, that stands in the way of the parasitic looting of public resources.

However, SARB governor Lesetja Kganyago is also not helping matters. Does Kganyago, with his near-hysterical "the barbarians are at the gate", really believe this reassures the market sentiment he believes he is nursing? More seriously, the imperious tone with which Kganyago dismisses any mildly heterodox discussion on monetary policy is problematic.

Our Constitution states: "The primary object of the South African Reserve Bank is to protect the value of the currency…" That part of the sentence is constantly quoted. But the sentence doesn't end there. It continues: "… in the interest of balanced and sustainable economic growth in the Republic." Protecting the value of the Rand isn't an end in itself.

With crisis levels of unemployment and a GDP first quarter decline of 3,2%, we clearly don't have a balanced, sustainable economy. So, are the reserve bank's current policies adequate to assisting its constitutional mandate? I agree with Kganyago and others that we shouldn't overstate what monetary policy can accomplish. Unemployment, inequality and poverty require coherent and coordinated multi-dimensional interventions.

But this doesn't mean monetary policy and its inter-face with fiscal policy should be left to its own devices.

Listening to the reserve bank, the dragon it believes it is slaying is hyper-inflation. The dire spectre of Weimar Germany and Zimbabwe are once again being evoked. Beware governments printing money regardless, we're told. Fair enough. But in both cases it was the collapse of productive output that was the real driver of crippling hyper-inflation. Wheel-barrows of money were merely a symptom.

The post-World War I punitive reparations imposed by the Versailles Treaty squeezed the German economy into a predictable default. In response, French and Belgium armies assumed control over the Ruhr industrial heartland. The Germans halted production, but kept paying the workers in the local currency. Demand soared relative to output. Exports stagnated and the only way the Weimar government could continue paying treaty obligations was to continue spending. This was the vicious cycle that underpinned hyper-inflation but also, subsequently, on the back of national grievance, the rise and rise of Nazism.

Zimbabwe's hyper-inflation also had its roots in the collapse of productive output and unresolved national grievances. It's easy to forget in the late 1990s Zimbabwe was being extolled by the IMF as a model economy, with lessons South Africa should emulate. However, Zimbabwe's alleged success masked the ravages of an IMF-imposed structural adjustment programme on the lives of millions of Zimbabweans. Moreover, whites (1% of the population) owned 70% of productive land. Enter Mugabe's populist attempt to resolve the deepening social crisis.

The 2000 land reform programme, essentially an elite land grab, destroyed 45% of food output capacity, and resulted in 80% unemployment. There was a knock-on into manufacturing. By 2007, only 18,9% of Zimbabwe's industrial capacity was being used. Export earnings crashed and manufacturers couldn't obtain foreign currency to import raw materials.

As in Weimar Germany, it was the collapse of productive output that resulted in demand rapidly outpacing supply. Too many Zim dollars were chasing too little supply. This was worsened by speculative hoarding as prices soared by the minute.

If protecting our currency necessarily involves concern for revitalising our productive economy, then additional questions arise. Full-on quantitative easing with near zero interest rates is probably inappropriate in our case. But what about "targeted quantitative easing", for example, with the reserve bank, working with Treasury, directing concessional credit through industrial financing institutions like the IDC?

There's much to discuss. Let's not allow the current hyper-ventilated debate to shut down a thoughtful conversation. 

- Cronin is a member of the SACP's central committee, and a former member of the ANC's national executive committee. He was a deputy minister between 2012 and 2019. His first collection of poems, Inside, was released to much acclaim after his release from prison in 1984.

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Read more on:    sarb  |  lesetja kganyago  |  jeremy cronin  |  ace magashule  |  monetary policy
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