Prior to Finance Minister Enoch Godongwana’s announcement, the proposal that the government draw down from the reserve account was dismissed by many as leftist badgering. Photo: Dwayne Senior/Bloomberg via Getty Images
Two decades ago, commentators were at pains to explain what some viewed as the ANC-led government’s sudden left turn following the re-election of Thabo Mbeki in the 2004 general elections.
Some of this debate was referenced in an article by Blade Nzimande, who was the general secretary of the South African Communist Party (SACP) at the time.
Nzimande noted that since the election, members of Mbeki’s cabinet — such as then public enterprises minister Alec Erwin — had seemed to change their tune on privatisation in favour of bolstering the country’s public sector. He maintained that this perceived dramatic policy shift was the shared delusion of those who would believe the governing party was anything other than “a broad left formation”.
As many have written previously, the ANC government has relied on maintaining a sort of ambivalence towards the leftist forces within its broad church. The party’s ability to balance political forces — to talk left, but walk right — is at the heart of its popularity. But, as recent history has shown, maintaining this equilibrium becomes more difficult as the economic crisis intensifies.
That said, the ANC government has seemed to pull off another great balancing act with the recent budget — specifically through its decision to tap the gold and foreign exchange contingency reserve account (GFECRA) in an effort to avert an apparently imminent fiscal crisis.
Prior to Finance Minister Enoch Godongwana’s announcement, the proposal that the government draw down from the reserve account was dismissed by many as leftist badgering. Some also warned that acquiescing to this proposal — which was initially made by the Institute for Economic Justice (IEJ) and subsequently endorsed by other economists, as well as the SACP — would open a Pandora’s box to profligate politicians.
While the government’s staunchest critics have continued to rebuke its every move, many analysts have since portrayed the treasury’s decision to tap the Reserve Bank-managed GFECRA as a rational one.
The government has enjoyed the added benefit of being seen as embracing of leftist thinking, though drawing down from the reserve account isn’t exactly a matter of ideology.
As journalist and political researcher Sam Mkokeli put it in an article after Godongwana’s budget speech: “The idea of using the forex reserves came from the Institute for Economic Justice, a think tank that calls itself ‘progressive’. The treasury did not dismiss its members as crazy armchair lefties. Instead, it embraced their idea of a way out of a difficult situation — a welcome sign that it is not impervious to the views of think tanks.”
The broadly positive view of the GFECRA decision is the result of the treasury’s careful framing of the move, namely in its emphasising that the funds will be used to stabilise debt rather than to support public spending and economic growth.
Indeed, while the IEJ should be credited for the initial idea, the treasury’s use of the GFECRA isn’t quite what the think tank had in mind.
Last year the IEJ proposed that the funds be used to close the expenditure gap. But, as many have pointed out, the budget locks in spending cuts over the medium term. In its analysis of the budget, the IEJ notes that the GFECRA funds have been used to accelerate the state’s debt reduction strategy, putting the priorities of financial markets ahead of developmental goals.
There is another upside to the government’s use of the GFECRA, at least for those interested in preserving the status quo amid a politically perilous election: Tapping the reserve account now, within the treasury’s strict parameters, may guard it against politicians who seem to be eyeing it.
In her analysis of the GFECRA announcement, Investec chief economist Annabel Bishop said the drawdown was timely.
“[G]iven political risk it’s probably better to use some of the GFECRA to reduce debt before the multi-party coalition government that is likely after the election, when parliament votes could see the GFECRA diverted less usefully elsewhere,” she wrote.
Bishop also noted that, by international standards, the profits of the GFECRA account “is very large and attracts interest from those seeking to nationalise the funds via nationalisation of the SARB [South African Reserve Bank] to get to the funds, as stated in some political parties’ manifestos”.
According to Bishop, using the funds to bring down debt may also reduce political pressure to nationalise the Reserve Bank — something both the Economic Freedom Fighters and certain sections of the ANC are pushing for.
A key concern among certain investors is that, through these elections, the ANC will make a sharp left turn, undoing all the progress that has been made in recent years to entrench the governing party’s conservatism. Some view the Reserve Bank matter as a signal that the ANC is susceptible to being swayed.
As was the case in 2004, this concern is probably misplaced.