Sound monetary policy post-Mboweni under threat

Tito Mboweni, Governor of the South African Reserve Bank, has indicated that he has no desire to serve beyond the two terms as chief of the bank. It is a decision that feeds conspiracy theories, especially when the end of his term almost coincides with the beginning of the new populist government of the ANC. The SACP and Cosatu have made it known that they desire a loose monetary and fiscal policy. Cosatu has threatened the independence that the Reserve Bank has enjoyed since 1994 with mass action if interest rates continue to rise — a threat born of ignorance of the challenges to the mandate of the Reserve Bank of implementing sound monetary policy.

The aims of monetary policy differ from one country to another. The Federal Reserve Bank in the US has a dual mandate of maintaining both price stability and low unemployment, while our Reserve Bank is bound to maintain inflation within specified parameters; this has caused much obvious irritation to Cosatu and the SACP, who rather want interest rates reduced “to alleviate poverty”. It is a short-sighted and dangerous view that inflation should be left to its own devices.

Although economic growth is not the responsibility of the Reserve Bank, it nevertheless has to weigh up its monetary policy decisions against the overall effect on the economy. The pursuit of expansionary monetary policy — that is, the policy of increasing money supply in the economy by reducing interest rates or maintaining them at a less-than-optimal level — is what the SACP, Cosatu and left-oriented ANC members are leaning towards.

This simplistic idea is in all probability informed by the notion that lower interest rates lead to higher levels of capital investment and thus increased employment for the poor masses. However, the current global economic climate requires of central bankers to pursue policies aimed at long-term economic sustainability instead of short-term populist policies.

Monetary policy does not operate in a vacuum; fiscal policy decisions affect medium- to long-term monetary policy decisions. The National Treasury has also been in the firing line of leftists in the ANC NEC who suggest expansionary fiscal policy, which involves increased spending and more government borrowing. It is no secret that the Jacob Zuma administration, if he is not wearing orange overalls then, will be pursuing populist policies intended to appease the masses and vociferous alliance partners. A false image has been created about Zuma that he is a man of the poor and, as such, certain expectations from the mass electorate will need to be fulfilled.

Perhaps Tito Mboweni recognises that his job at the Reserve Bank would then be more difficult than ever before; that the requisite good relationship between his office on the 32nd floor of the glass building on Church Street in Pretoria and the National Treasury may be jeopardised by a reckless pursuit of short-term political objectives; that the independence of the Reserve Bank, although sacrosanct in terms of the South African Reserve Bank Act, may be grossly undermined. The current ANC has made clear that respect for the rule of law and the independence of institutions of the state are the least of its concerns. Mboweni’s values — while he may not want to admit to it publicly — emerge to be incongruent with those waiting to assume power at the Union Buildings.

I do not think that any of us would be amiss to conclude that the new president of the country would appoint a “Zuma loyalist” deployed from within the ANC NEC to head the Reserve Bank and to “implement the party’s policies”. While we may want to believe that the monetary policy committee is not a one-man show, recent political developments where those believed not to be Zuma loyalists have been purged strongly suggest that nothing would stop the ANC from pressurising the new governor to surround himself with those who are sympathetic to their leftist cause. We may, in fact, see more than just one Zuma loyalist deployed to the shiny glass building in Pretoria.

It is becoming progressively more apparent that “independence”, in whatever form that it manifests itself — be it of thought and conduct or otherwise — is met with worrisome disdain within the ANC. A nonsensical notion of collectivism is the weapon used to suppress those who choose to exercise reason when idiocy appears to prevail in the higher structures of the movement.

The attack on the deputy president of the ANC bears witness to such lack of tolerance to those who are not Zuma’s stooges. Among the leadership of the current ANC, Kgalema Motlanthe has been the only person making sober pronouncements on issues affecting the beleaguered president of the party who increasingly appears to be more ceremonial and powerless to rein in party miscreants. It is without doubt that Motlanthe is much more principled and strong-willed than most of his fellow comrades who, rather than insisting on rationality as their highest value, insist on blackmailing the public. The mindless attack by the ANCYL miscreants on Motlanthe is unfortunate.

The criticisms against President Thabo Mbeki prior to the Polokwane conference were specifically directed at his alleged intolerance of criticism and his dictatorial tendencies. Yet the new leaders of the ANC are a reflection of everything that they stood against when going to Polokwane. While they accuse Motlanthe of being inebriated by power, their conduct confirms their own state of overwhelming intoxication. It is therefore worrying that the good standing that the country sought to maintain in the international economic arena may be reversed by the Mantashes, Malemas and Phosas of this world.

It is vital that we continue to protect economic policy from narrow political exigencies whose costs to the economy may be catastrophic. The poor masses, whose hopes and dreams for a better life rest on a sober approach to and implementation of economic policy, both fiscal and monetary, cannot afford the probable costs of failure. The perils to economic prosperity lie within the current ANC. Controlling inflation is fundamental to long-term economic prosperity, and such prosperity should not be deferred in the interest of political thoughtlessness.

The revered monetarist Milton Friedman argued that one cannot safely claim to have tamed inflation unless one has contained the money supply; as we have all learned, the medicine is bitter to swallow, yet necessary. It would be important for the country that when Mboweni vacates his office, the incumbent governor resist by all means any destructive interference by the ANC, Cosatu and the SACP on monetary policy decisions. What we do not want is a Gideon Gono (governor of the Reserve Bank of Zimbabwe) as the chairperson of the monetary policy committee.