The ANC is divided over the macroeconomic policy changes signalled in its manifesto.
The Mail & Guardian has learned that the national executive committee is split between those who do not want a post-election order to alter monetary policy and those who believe that the Reserve Bank’s mandate should be changed to take account of employment and other development imperatives.
Although ANC leaders have said the manifesto is a ”unified position”, they conceded that no consensus has been reached on issues such as the Reserve Bank’s inflation targeting policy. ”There is robust debate on inflation targeting, but no consensus has been reached on it,” said ANC NEC member Enoch Godongwana.
Jeremy Cronin, a fellow member of the NEC and a member of the ANC’s economic transformation committee, shed light on how the ruling party may alter existing policy after the election. ”There seems to be an attempt to suggest that the ANC aims to undermine the Constitution and the mandate of the Reserve Bank, which is not the case,” he said.
In its discussion of macroeconomic policy the manifesto calls for a change in the mandate relating to both fiscal and monetary policy. This has given rise to concerns that the Reserve Bank’s role may be changed to include ”developmental imperatives”, such as job creation, which would require amendments to the Constitution.
Cronin said the Constitution impels the bank to protect the currency in the interests of sustainable and balanced economic growth.
He said this second imperative is very broad and what constitutes sustainable growth is likely to be hotly contested in the future.
The party’s incoming policy tsars may use sustainability to ensure that the Reserve Bank takes into account employment and other pro-poor targets when it determines interest rate policy.
Cronin said a review of inflation targeting could be expected but the current debate is not only about whether inflation targeting is useful, but also whether the current band of 3% to 6% should be maintained.
”There is a lot of obfuscation by people who dogmatically believe in following inflation,” said Cronin. ”But the wider mandate of the [Reserve Bank] has shifted even in the last year.”
Government, in the form of the national treasury, and the Bank have indicated that, while they still support inflation, targeting a more flexible approach is needed, said Cronin.
Hence the bank’s most recent decision not to hike interest rates. ”We can’t be lax about inflation but we cannot be dogmatic regarding inflation targeting either,” he said.
Other observers believe a constitutional change of the bank’s mandate is unlikely but a revaluation of inflation targeting is on the cards.
”The debates will focus not so much on the mandate of the Bank, which is, in fact, quite broad in the Constitution, but on whether monetary policy should continue to be pursued within an exclusive inflation-targeting framework,” said Len Verwey, manager of the political information and monitoring service budget unit at Idasa. ”Such discussions would be useful and, if well-mediated, would enhance the participatory democracy aspect of economic governance.”
Verwey said serious consideration could be given to a shift in the inflation target range, 5% to 8% for instance.
Abandoning inflation targeting altogether would be unwise, he said, because there is little evidence that there is a long-term trade-off between growth and inflation.
”A higher inflation rate than our main trading partners means reduced competitiveness of our exports, which would be bad for growth and job creation, given that we are a small open economy with an export-oriented growth strategy.”
High or uncertain inflation also affects the poor, who do not generally have assets that generate returns in excess of the inflation rate and whose incomes tend not to keep up with inflation. As a result, their purchasing power is eroded.
Verwey said ”the maintenance of a moderate and non-volatile inflation rate is regarded as a key indicator of good fiscal governance”. The suspicion that South Africa was abandoning its commitment to inflation targeting would have a negative impact on investment inflows, he said.
Miriam Altman, executive director of the centre for poverty, employment and growth at the Human Sciences Research Council, pointed out that the manifesto broadly prioritises a developmental economic policy. As it stands, fiscal policy must naturally promote issues such as the creation of employment and economic growth, she said.
”It is physically difficult to target employment and industrial outcomes per se using monetary policy instruments. These are more the job of fiscal policy instruments.” But ”employment should be an important consideration when deciding monetary policy,” Altman said.
