In September 2013, more than two years after it had first started trying, the South African Reserve Bank finally got to meet then public protector Thuli Madonsela.
The meeting was not everything it had hoped for but the bank received what it considered to be an important assurance: it would get a five-day head start before Madonsela released any finding that related to a change of its powers or responsibilities.
From as early as 2011, the bank had fretted that a new investigation into the apartheid-era bailout of Bankorp, later bought by Absa, could address one of its core functions: to prevent a run on banks when things go bad. It had not an inkling yet that the investigation would ultimately target an even more core and constitutionally mandated function – inflation targeting.
In February this year, documents now before the courts show, the Reserve Bank made sure that Madonsela’s successor, Busisiwe Mkhwebane, knew exactly what it intended to do during that window of opportunity.
If the public protector wanted to strip it of its powers to do its job, the Bank told Mkhwebane, “the Reserve Bank requests that the public protector give it fair warning, before the publication of the final report, so that it may take steps to obtain urgent interdictory relief from the courts to prevent the implementation of the remedial action pending a review.”
The bank had not anticipated the report having anything to say about its mandate to protect the value of the currency, because that was not in question. But it remained concerned, as it had since 2011, that even just speculation about a change to its powers could spook the markets, with serious long-term consequences.
On Monday June 19, those long-held fears came true, albeit in an entirely unexpected fashion.
At a gathering of Reserve Bank staffers watching Mkhwebane on television, there were loud groans when she announced she wanted Absa to repay R1.125-billion for an apartheid-era bailout.
The Reserve Bank had argued, persuasively it thought, that the complicated bailout had not left any money to be repaid.
The groans fell quiet when she proclaimed that the bailout had benefited only a “handful of shareholders” – rather than the financial system as a whole, as the bank still maintains.
By the time she announced that she had drafted a new clause for the Constitution to govern the Reserve Bank, “you could hear a pin drop”, one staffer recounts.
Then all hell broke loose. One group wanted an immediate rewind so Mkhwebane’s exact words could be checked. Another group wanted to continue to follow the press conference in real time. But the dispute was quickly rendered moot when the phones started to ring.
“Everyone was calling everyone else,” a staffer says. “Everyone we know in banking was calling us, people in the bank were phoning one another, there were people running around trying to shout over other people. Family started calling us. Friends called, asking if they should sell their shares.”
The big question was: Had Mkhwebane taken it upon herself to rewrite a part of the Constitution unilaterally, without any warning whatsoever?
For an institution where every word is scrutinised before being said in public because of the potential effect on the markets, it was critical to find out, fast. But the Reserve Bank would have to wait, along with everyone else.
While Mkhwebane was still speaking, court papers show, a lawyer for the Reserve Bank asked her office for a copy of the report. He was rebuffed. A copy would be sent to the Reserve Bank governor “shortly”, he was told.
In fact, it took many more hours, time during which the markets plunged.
During that time, it seems that some enterprising brokers transcribed some of Mkhwebane’s comments from an online video feed, compared it with the Constitution, and realised that she had simply written out the Reserve Bank’s mandate to protect the value of the rand. Word spread fast, and the rand quickly lost 2% of its value.
And this was all because Mkhwebane did not know what she was doing, according to the Reserve Bank.
“She directs an amendment to the Constitution to improve the socioeconomic conditions of South Africans but takes away the very powers from the Reserve Bank that are designed to achieve this,” bank governor Lesetja Kganyago said in an affidavit this week, which is part of the bank’s bid to have Mkhwebane’s findings overturned.
“Low inflation helps maintain the value of the money in your pocket. This is good for all South Africans but especially the marginalised and the poor – those without the information or the power to protect themselves from inflation.”
Mkhwebane has a radically different view. The Reserve Bank mandate “is only benefiting a few, but then we are saying let everyone benefit”, she told the SABC in an interview.
What exactly she wants the Reserve Bank to do to benefit everyone she has not said, though her report provides some clues. She was seeking to “look into reform of the republic’s monetary system in order to realise government’s commitment in improving socioeconomic inequalities in society”.
Further on, she refers to a “belief that, once the state takes control of creating money and credit, numerous benefits aimed at alleviating economic ails or ordinary economically disadvantaged people may be achieved”.
“She thinks the state should just print money so that everyone can be rich,” the Reserve Bank staffer says.
The mandate of the Reserve Bank has been the subject of a long-running debate in the ruling tripartite alliance.
Trade union federation Cosatu opposes inflation targeting entirely, the South African Communist Party (SACP) wants the preservation of employment to take precedence over inflation targeting, and the ANC has struggled for years to come up with a firm position.
“In the context of the current prolonged period of low economic growth, the role of fiscal and monetary policy in providing short-term stimuli to the economy are both severely limited” reads the ANC’s discussion document on the economy, which will be discussed at its policy conference this weekend.
Cosatu immediately welcomed Mkhwebane’s intervention, the SACP quickly dismissed it as being in the interests of the Gupta family (which has had several run-ins with the Reserve Bank), and the ANC dismissed it as being well beyond her powers, without saying much about the principle.
“It has nothing to do with being the issue of taking a certain side or being politically motivated, but it’s purely on checking how can this report benefit the South African citizens going forward,” Mkhwebane said when she released the report.
Various officials did not want to comment on the issue before the policy conference, but they agreed Mkhwebane had shaken things up.
“We would have been talking about land, land, land,” one said about the conference. “Now she’s making us talk about the Reserve Bank.”
By Wednesday this week, Mkhwebane had not yet decided whether she would oppose the Reserve Bank’s application to have her report judicially reviewed. She would not be able to do so until well into next week, her staff said.
The ANC’s policy conference is due to be concluded by mid-week.