Thebe Mabanga and Mail & Guardian reporters
The Myburgh Commission of Inquiry set up to investigate the collapse of South Africa’s currency last year is increasingly being viewed as the product of a struggle between “old guard” bureaucrats in the Reserve Bank and the liberalising regime of Governor Tito Mboweni.
Speculation is mounting in government and banking circles that the commission was triggered inside the Reserve Bank itself more specifically, by former Reserve Bank deputy governor James Cross as an attempt to rein in the liberal economic exchange-control policies advocated by Mboweni.
Cross who retired from the Reserve Bank last December due to ill health is widely seen as the source referred to by South African Chamber of Business (Sacob) chief Kevin Wakeford in his January 8 letter to President Thabo Mbeki.
He is viewed as having used Wakeford to convey a conspiracy theory based on his criticism of a bank-approved foreign exchange model to Mbeki. During his term at the bank Cross tried and failed to force a review of exchange control regulations.
This is seen as the reason for Mboweni’s unprecedented criticism of Wakeford’s call for a commission earlier this year, and could explain why Wakeford received a particularly harsh grilling from the Reserve Bank’s legal counsel at this week’s hearing for not approaching the bank directly with his allegations.
Contacted on Wednesday, Wakeford declined to say whether Cross was his source, saying he would not speak to the press until the commission has made its findings.
Cross could not be reached, but has told the Financial Mail he had no involvement with Wakeford.
The letter from Wakeford to Mbeki was a key catalyst in the establishment of the commission in January. According to Wakeford’s evidence, he approached the presidency on January 8 and met an unnamed “senior official” believed to be presidential economic adviser Wiseman Nkuhlu.
He then typed a report for Mbeki “within the hour” and handed it to the official concerned. On the same day, Mbeki’s office announced the establishment of the commission under John Myburgh a man who had had two run-ins with Mboweni while head of the Labour Court.
During cross-examination by the commission this week it became clear that Wakeford’s letter contained a combination of unsubstantiated allegations and what one financial analyst described as “flat-earth economics”.
Commissioner Christine Qunta described Wakeford’s testimony as “hearsay”.
“Wakeford ought to resign,” said Socit Gnrale chief economist Nico Czypionka. “I believe he has misled the president by making serious unsubstantiated allegations. This affair has harmed our credibility in foreign eyes.”
David Mashapalo, president of the National African Federated Chamber of Commerce, described Wakeford’s actions as “opportunistic” and a failed attempt to drive the formation of a merged South African Federated Chamber of Commerce, a process Mashapalo has consistently criticised.
During his final year in office Cross was increasingly resistant to, and critical of, the exchange-control regime pursued by Mboweni. Favouring tighter controls, he was particularly concerned about the “asset swap” model developed by South African financial institutions and approved by the Reserve Bank as a way of facilitating overseas investment by South African corporations.
In October last year two months before his retirement Cross himself instituted an investigation into certain of these asset swaps. These include the deals under examination by the commission and involving Nampak, M-Cell and Sasol.
The investigations have yet to be concluded, despite Cross’s departure.
When the commission began its work in March it focused on the broad dynamics of exchange controls. The second phase, this week, zeroed in on Wakeford’s allegations, with attention being focused on the mechanics of asset swaps.
Previous evidence indicated a broad range of reasons for the decline of the currency. As Wakeford conceded this week, these included the crises in Zimbabwe and Argentina, the slow pace of privatisation, labour market rigidity, high marginal tax rates compared to other developing countries, high crime levels and the lack of a coherent national strategy on HIV/Aids.
Wakeford had initially insisted that there was a “smoking gun” the asset swaps entered into by Nampak, M-Cell and Sasol, and handled by Deutsche Bank. However, the swaps were conducted with full Reserve Bank approval early last year, while the rand’s slide took place in late November and early December.
At the commission this week Wakeford backtracked significantly on the contents of his letter, insisting he had “merely been a messenger”.
More details of the current thinking within the Reserve Bank may emerge when the bank’s assistant general manager Chris Grove testifies before the commission on Friday.
The bank’s role in approving the asset swaps referred to by Wakeford is likely to come under intense scrutiny. It can be expected to do some finger-pointing to ensure it is not seen as having neglected its oversight role. It is likely to try to demonstrate the steps taken since the establishment of the commission to tighten the processing of asset swaps. Banking sources see this as a “belated self-vacuuming”.
Observers now believe the commission is unlikely to go beyond the broad comments made by banking experts at the start of the commission on the difficulties experienced by developing countries whose currencies are put under pressure by the global financial sector.
It could trigger the general review of exchange control regulations Cross was known to favour.
It remains unclear why Mbeki appointed the commission without approaching the National Treasury or the Reserve Bank, which is responsible for policing exchange controls.
One theory is that the president dislikes Mboweni’s flamboyant approach and high-profile attempts to liberalise the economy. Certain figures in the presidency felt this was an opportunity, as banking sources put it, “to put Mboweni in his place”.