Why the SARB mandate should be aligned with the NDR

SACP says interpretation of Reserve Bank independence is increasingly outdated

Why it’s imperative to align the SA Reserve Bank mandate with the objectives of the second radical phase of the national democratic revolution

15 January 2019

On 12 January 2019 the ANC launched its 2019 general election manifesto at its 107th anniversary rally held in Durban. However, the manifesto is far more than the manifesto of the ANC alone, given the extensive and wide consultation that was followed within the ANC-headed Alliance and with other progressive social forces. The Alliance components, the SACP, Cosatu and Sanco, were involved in the manifesto drafting process and have accordingly endorsed the central thrust of the manifesto.

This was guided by yet another, equally important process, that of reconfiguring Alliance to function effectively and entrench both unity of purpose and unity in action as well as coherence in carrying out the shared programme of the national democratic revolution. The Alliance components are supporting the ANC in the 2019 general election campaign from the standpoint of the common Alliance platform. Democratic consensus-seeking consultation before all major decisions are made is very crucial, together with other principles that underpin the reconfiguration process.  

Umsebenzi Online will be carrying interventions focussing on the manifesto and the overall general election campaign process. The first intervention, below, looks specifically at the question of the mandate of the South African Reserve Bank (SARB; Reserve Bank) given the centrality that the issue gained after, and in the reactions that followed the launch of the manifesto.

The mandate of the Reserve Bank

Neo-/liberals, and conservatives alike, came out with guns blazing against the commitment in the manifesto which reaffirms “the resolution of the 53rd [reaffirmed by the 54th ANC] National Conference Resolution on the mandate of the SARB which states: ‘South Africa requires a flexible monetary policy regime, aligned with the objectives of the second phase of transition. Without sacrificing price stability, monetary policy should also take account of other objectives such as employment creation and economic growth’”. The neo-liberal-conservative nexus, represented mainly by the DA, announced through the bourgeois party’s Alf Lees that it would write to Tito Mboweni, the Minister of Finance, to seek clarity on the manifesto’s commitment on the mandate of the Reserve Bank. Lees further urged the Reserve Bank governor to “withstand the” so-called “coming onslaught”. All this is absurd, of course.

Firstly, as already indicated, the manifesto does not belong to Mboweni, both personally and in his current capacity as the Minister of Finance. If the DA wishes to obtain clarity, it should write to the national democratic revolutionary Alliance headed by the ANC. That is where Mboweni should correctly refer the DA in his reply as soon as he receives their letter. Secondly, the manifesto refers not to the current, but to the sixth government democratic term of office based on the forthcoming general election. Lastly, the DA is manoeuvring to violate the independence of the Reserve Bank as correctly provided for in our Constitution. That is, the DA has no legal standing or authority whatsoever to give the Reserve Bank governor any mandate or instruction.   

Instead of responding to the neo-/liberal-conservatives appropriately, prominent reactions from with the ANC were also conservative and out of order – rather than, to be true to the national democratic revolutionary genuine character of the ANC and the Alliance at large. Enoch Godongwana, chairperson of the ANC National Executive Committee’s economic transformation sub-committee, told the SABC just after the launch of the manifesto that the ANC is not proposing to change the Reserve Bank mandate. The following day, 13 January 2019, Mboweni tweeted: “The South African Reserve Bank, to the best of my knowledge, has always pursued monetary policy in a flexible manner and has always taken the optimal health of our economy into consideration. Nothing new about that.”  

Take note of the underlined/capped words/phrases in the commitment made in the manifesto:

South Africa requires a flexible monetary policy regime, ALIGNED WITH THE OBJECTIVES OF THE SECOND PHASE OF TRANSITION. Without sacrificing price stability, monetary policy should also take account of other objectives such as EMPLOYMENT CREATION and economic growth.”

The mandate of the Reserve Bank was not designed “WITH THE OBJECTIVES OF THE SECOND [RADICAL] PHASE OF [OUR DEMOCRATIC] TRANSITION” in mind. This is why in the first place the manifesto had to make the commitment to align the mandate with the second radical phase of the democratic transition. The commitment, inclusive of expressly prescribing EMPLOYMENT CREATION in the mandate of the Reserve Bank, would in the first place not have been made if there was no need for a change.  

The second radical phase of our democratic transition should decisively tackle the myth that Reserve Bank independence means not just operational but even policy and mandate independence. Successive Reserve Bank governors have conducted themselves as if they were the Ministers of Finance making macro policy for a democratically elected government. But this interpretation of Reserve Bank independence is increasingly outdated.

We are often told that the Constitution prescribes a narrow focus on inflation-targeting (or “price stability”) as the mandate of the SARB. However, this is not entirely true. The exact wording of the relevant Constitutional clause (224 (1)) is: “The primary object of the South African Reserve Bank is to protect the value of the currency in the interest of balanced and sustainable economic growth in the Republic.”  

The neo-/liberal-conservative advocates only get as far as the first half of that sentence. But the Constitution is clearly stating that protecting the value of the currency is not an end in itself – it must be subordinated to achieving BALANCED and SUSTAINABLEeconomic growth. We manifestly do NOT have, and never had, balanced and sustainable growth in South Africa. It is therefore entirely legitimate and constitutional to rollback the grossly imbalanced and unsustainable growth reality into which we are seemingly locked.

The neo-/liberal-conservative advocates will argue that this is “populism” and they will further argue that raising questions like this is interference in the constitutionally guaranteed “independence” of the Reserve Bank. But this, too, is a deliberate misreading of the Constitution. In fact clause 224 (2) of the Constitution reads:

The South African Reserve Bank, in the pursuit of its primary object, must perform  its functions independently and without fear, favour or prejudice, BUT THERE MUST BE REGULAR CONSULTATION BETWEEN THE BANK AND THE CABINET MEMBER RESPONSIBLE FOR NATIONAL FINANCIAL MATTERS.

And clause 225 of the Constitution reads:

The powers and functions of the South African Reserve Bank are those customarily exercised and performed by central banks, WHICH POWERS AND FUNCTIONS MUST BE DETERMINED BY AN ACT OF PARLIAMENT AND MUST BE EXERCISED OR PERFORMED SUBJECT TO THE CONDITIONS PRESCRIBED IN TERMS OF THAT ACT.

Clearly the Constitution does NOT envisage the Reserve Bank to act as a free-floating power unto itself, or that its mandate. The Reserve Bank is subject to legislation passed by a democratically elected Parliament. While the current SARB Act simply repeats the wording in the Constitution, there is absolutely no reason why this Act should not be amended to more clearly reflect the developmental responsibilities of the Reserve Bank, including EMPLOYMENT CREATION and ensuring strict adherence to the principles of BALANCED and SUSTAINABLE growth.

The prevailing growth path which is characterised by the persistent colonial-apartheid features, locked into imperialist exploitation and domination, and which reproduces the prevailing high levels of class, racial and gender inequalities, uneven development, unemployment and poverty, is both not balanced and not sustainable. South Africa should systematically eliminate the colonial-apartheid economic and broader legacy, as well as its underpinning imperialist exploitation and domination that together inhibit us from radically reducing, towards ultimately eliminating the persisting inequalities, unemployment, poverty and uneven development.

This article first appeared in Umsebenzi Online, the journal of the SACP.