The Congress of South African Trade Unions has noted and welcomes the ANC Lekgotla position on the expansion of the mandate of the SA Reserve Bank, as communicated by the Secretary General of the ANC, Cde Ace Magashule. We remain unwavering in our argument that the SA Reserve Bank cannot afford to continue to only focus on price stability, as pursued through inflation targeting but should consider broader economic development imperatives.
Our own perspective of a South African economic growth path includes issues of social equity, redistribution and environmental sustainability and moves beyond the narrow definition of economic growth, which is based on the GDP growth rate and per capita income growth.
Currently, the objective of monetary policy is to ensure price stability or to fight inflation as well as protecting the external value of the Rand. With regard to price stability, this has been interpreted as zero or low inflation. As a result, the South African Reserve Bank (SARB), mandated by the National Treasury has targeted inflation to be within the mystical range of 6-3%. If inflation, as measured by CPI or headline inflation, exceeds 6% the SARB would then use the interest rate policy or in this case, the repurchase or repo rate, to bring inflation down to the target range.
We want to see efforts to change the source of the SARB’s power to pursue inflation targeting. That source is section 224 (1) of the Constitution which states that the primary object (or the mandate) of the South African Reserve Bank is to protect the value of the currency in the interest of balanced and sustainable economic growth in the Republic. (2) The South African Reserve Bank, in pursuit of its primary object, must perform its functions independently and without fear, favour or prejudice.
The Reserve Bank has done considerable damage to this country’s economy under the guise of independence. After the democratic elections in 1994, ex-apartheid minister Derek Keys and the South African Reserve Bank (SARB) under another apartheid apparatchik Chris Stals decided to scrap the Currency and Exchanges Act of 1933 and the adoption by the SARB of what is called “flexible exchange controls”, to facilitate capital flights out of South Africa.
This led to a mass exodus of large corporations like Anglo-American, South African Breweries, Dimension Data and Old Mutual from the country they had exploited for over a century to settle abroad.
Prior to the adoption of the Constitution various commentators and intellectuals, including Dr Chris Stals, the former Apartheid governor of the Reserve Bank, who served as a governor between 1989 and 1999 argued that the interest rate policy cannot be used on a discriminatory basis. For instance, it should not favour certain groups in the society such as black farmers, black industrialists and black workers. And that any intervention in the market should be through inflation-targeting using interest rates to control inflation and not through administrative controls e.g. price and rent controls.
It was argued that in order to ensure the independence of the Reserve Bank it should be protected by the Constitution a wish or demand, which was fulfilled through section 224(2). It is our considered view then that narrowly targeting inflation ignores the long-term impact of colonialism and apartheid in favour of satisfying narrow interests of those already with resources including foreign investors.
As workers, we favour an approach that incorporates both the developmental imperatives and also protect the currency because these are mutually reinforcing rather than contradictory.
Unfortunately, in the current reality that is dominated by finance capital, higher inflation rate suggest structural imbalance and it becomes an impediment for investors in productive sectors, including our own companies as they become hesitant to invest if they are sure that the value of that investment is going to plummet.
We, therefore, acknowledge that price stability is important even from a point of view of radical socio-economic transformation, as long as we currently depend on capitalists for job-creation and growth.
The mandate of the Reserve Banks of the American and other global-north countries includes employment creation. The New Growth Path that has been virtually replaced by the Neoliberal NDP called for a loose monetary policy but a tighter fiscal policy in order to create five million jobs.
South Africa needs a central bank that will pursue an inclusive monetary policy and that will regulate the finance sector with a view to ensuring that there is a redistribution of income and wealth to all South Africans as mandated by the Freedom Charter.
As argued by Joseph Stiglitz in his book The Price of Inequality, focusing on inflation is wrong when a large part of the cause of inflation is imported in the form oil prices and food prices and when the only beneficiaries of this policy are bondholders. The current policy of low inflation has entrenched apartheid economic policy of separate development, income and asset inequalities. An ordinary person without a job would prefer a job over mild inflation.
The greatest impediment to social stability facing South Africa is our 37% and growing level of unemployment. Unemployed people cannot buy goods. They cannot help sustain economic growth yet the SARB and its mandate do not speak to how they will help grow the economy in a manner that reduces our unsustainable levels of unemployment. Yes, workers cannot eat inflation nor afford to see it obliterate their meagre wages; neither can workers take care of their families whilst being jobless. The SARB’s mandate must be amended to compel it to tackle both unemployment and inflation with the same levels of determination. In addition to targeting employment, the reserve bank should align its policy to industrial development, introduce foreign exchange controls and impose quantitative controls on commercial banks to ensure that a quarter of their loans go to priority sectors that drive the growth path and create jobs on a larger scale.
Currently, the Reserve Bank is only notionally independent as it generally subscribes to the dominant and conventional economic policy dogma, which is a failing policy received from finance capital – even at the expense of real producers of wealth in mining and manufacturing. The SARB is captive to the narrow interests of the rentier financial capitalists, some of whom are its shareholders – a reality that renders the notion of its independence preposterous.
The independence of the reserve bank in a multiparty bourgeois system is indispensable but we want the bank to be independent of both private interests and also independent from a reckless or captured government. The policies of the Reserve Bank currently reflect the neoliberal posture of the National Treasury, meaning that a captured government cannot be entrusted with the Reserve Bank.
COSATU wants a fully publicly owned Reserve Bank that will account to the public through their representatives in Parliament on the implementation of this broad mandate we are calling for.
As it happens in other developed countries, the Governor of the Reserve Bank must by legislative mandate, regularly account to parliament with regard to the overall work of the bank in securing the financial system, as well as on the decisions taken by the Monetary Policy Committee.
COSATU has noted the public sparring over this matter by some ANC leaders on this matter. We call on the President of the ANC and the Country Cde Ramaphosa to rein in the free agents that are running amok at Luthuli House.
The President must lead and not allow these political vandals to run amok whilst our economy is bleeding because his silence will simply mark a green light for the factions to play games with workers’ lives. People like Tito Mboweni are shareholders at the Reserve Bank and they are conflicted on this matter, so they are representing their interests. The President should simply announce a logical and clear path to ensuring that the SARB mandate is adjusted to ensure it tackles unemployment and inflation, as well as the modalities of a rational process to bring the SARB in line with international norms in terms of it being owned by the public.
Issued by COSATU
Sizwe Pamla (Cosatu National Spokesperson)
Tel: 011 339 4911
Fax: 011 339 5080
Cell: 060 975 6794