The national executive committee (NEC) of the ANC, in the person of secretary general Ace Magashule, emerged from its June 1 to 3 lekgotla this week to say, among other things, that “the ANC government considers constituting a task team to explore quantity easing measures to address intergovernmental debts to make funds available for developmental purposes”.
“These measures should consider inflationary impact on the currency and the poor and all must be done to cushion them. This is consistent practice by developed countries to save their economies.
Quantitative (not quantity) easing (QE) has been extensively used in some developed economies since the 2008 financial meltdown, with central banks monetising assets such as government bonds and advancing funds in exchange for these bonds, to put liquidity into the financial system to encourage banks to lend and promote growth. But having transferred trillions of assets from the financial sector to the balance sheets of central banks, QE has, at best, had mixed results, inflating equity prices and exacerbating the divide between the haves and have-nots.
Magashule’s statement, that the “ANC NEC lekgotla agreed to expand the mandate of the South African Reserve Bank beyond price stability to include growth and employment”, caused Finance Minister Tito Mboweni to put down his cooking utensils and launch a spirited defence of the independence of the central bank. And the ANC’s economics transformation head, Enoch Godongwana, on Tuesday night said the ruling party had not taken a decision to expand the mandate of the Reserve Bank, despite what Magashule had said.
It appears that rather than supporting the hard work of transforming state-owned enterprises into entities that can pay their own way, Magashule speaks for a faction that wants to shake down the Reserve Bank for cheap money.
At least for now, the Ramaphosa reformists in the persons of Mboweni and Godongwana have produced a strident response.
We do not know precisely what Magashule intends, but, for instance, transferring some of Eskom’s debt to the Reserve Bank’s balance sheet would constitute moving a problem elsewhere rather than fixing it. The worry is that the Zuma era has reduced our finances to such a parlous state but populists such as Magashule still get to speak on behalf of the ANC, because globally there is debate on what the role of central banks should be.
In the United Kingdom, for instance, 94 academics and representatives of civil society this week called for the next governor of the Bank of England to serve the society as a whole by accelerating the transition of finance away from risky fossil fuels, to not use policies that promote inequality and to favour investment in productive activities rather than speculation.
A key difference between South Africa and developed economies, where these debates are most pronounced, is that they have low to no inflation, allowing for central banks to make use of unconventional policy tools such as QE.
Expecting a central bank to do this in the context of a country such as South Africa, where inflation remains a problem, would be an ask too far for most central bankers.