Public protector’s Bank call shows her ignorance

The thing that has been missing in the backlash over the public protector’s instruction to parliament that it alter the Reserve Bank’s constitutional mandate, has been any recognition that the constitution is not just a technical document – it is fundamentally political.

It exists as a compact between the apartheid past and the present. For this reason, its drafters set the bar that prevents changes to the constitution relatively high. This is why constitutional amendments require the support of a two-thirds majority in parliament.

Public protector Busisiwe Mkhwebane has also shown scant regard for the process that should be followed when an amendment is proposed – which suggests that she fails to understand the limitation of her responsibilities.

After the adoption of the constitution on May 8 1996, each subsequent amendment was introduced by a member of the executive, usually the minister of justice, who would then convene a constitutional committee of parliament. There was an acceptance that all political parties needed to be involved, that they had to recognise the need for the amendment and be persuaded across the aisles about the way it was being crafted.

Now, for Mkhwebane to draft the wording of a constitutional amendment unilaterally, and then direct parliament to enact it extends so far beyond the remit of her office that it does more than just expose her ignorance – it portends significant danger.

What is implicit in Mkhwebane’s order that the Bank’s mandate be changed from one that primarily targets inflation, to one that is concerned primarily with growth, welfare and transformation, is that there is something wrong with the Bank’s current conduct. She implies the reason SA is in recession, and that unemployment has climbed to its highest level ever (27,7%), is because interest rates are too high.

Let there be no mistake: SA’s problem is not with the inflation targeting regime. In fact, it has succeeded in anchoring inflation expectations between 5% and 6% because of the credibility the Bank enjoys.

Rather, SA’s problem is all to do with the state’s profligacy, waste, mismanagement of resources, and its inability to execute policy, not to mention omnipresent corruption.

When national treasury provided the inflation targeting band in 2000, we included an “escape hatch”. It allowed the Bank to let inflation deviate temporarily from the target band if the economy was buffeted by exogenous factors, like a spike in oil prices.

In February 2010, then finance minister Pravin Gordhan clarified the Bank’s mandate in a letter to then governor Gill Marcus.

Gordhan made it explicit that monetary policy should be conducted in a “flexible” manner. The Bank should not pursue the goal of keeping inflation inside the band at all costs, and should have regard for growth when it hiked rates.

But he also acknowledged the role of inflation management in supporting sustainable growth. Countries targeted low or stable inflation to reduce the long-term cost of borrowing and provide confidence, stimulating investment, jobs and competitiveness. Low inflation is vital to protect the living standards of workers and the poor.

The key issue, though, is that the only instrument that central banks have at their disposal is their ability to raise or lower interest rates. Because of this, the Bank cannot, in the long run, create economic growth or achieve socioeconomic transformation directly.

For that you need fiscal, economic, industrial, trade and other policies. At best the Bank can support their efforts by keeping inflation low and stable – but it is precisely this role that Mkhwebane would seek to eliminate.

For Mkhwebane to suggest a set of responsibilities for the Bank, which it lacks the instruments to achieve, is to destroy the basis for balanced and sustainable growth.

Manuel is a former SA finance minister. This piece first appeared in Financial Mail.