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SARB affidavit pokes holes in Public Protector report

Jun 27 2017 21:28
Lameez Omarjee

Johannesburg – An urgent court application by the South African Reserve Bank (SARB) pokes holes in the remedial action ordered by the Public Protector, which calls for the bank’s mandate to be changed.

The SARB filed the application at the North Gauteng High Court on Tuesday. It follows a remedial action made in a report released by Public Protector Busisiwe Mkhwebane on June 19. She ordered that the portfolio committee on justice and correctional services initiate a process to change the constitutional mandate of the Reserve Bank.

READ: SARB files urgent court application against Public Protector

The Reserve Bank’s primary objective is to protect the value of the currency, in the interest of balanced and sustainable growth, the affidavit read. But Mkhwebane wants this to be changed to ensure the socio-economic well-being of citizens is protected. The remedial action orders the Reserve Bank exercise its powers by consultation with Parliament to achieve socio-economic transformation.

“This is not the role of the central banks. It is the role of the elected representatives of the people,” said Reserve Bank governor Lesetja Kganyago.

The remedial action proposed by Mkhwebane had a “damaging” impact on the country and threatened the central bank’s contribution to the financial system’s stability, he explained.

The Public Protector’s report is the result of a complaint lodged by Paul Hoffman in 2010, stating that the findings of asset recovery firm CIEX were not implemented by government. The CIEX report indicated that a bailout from the Reserve Bank to Bankorp, bought by Absa, was unlawful and that the misappropriated funds had yet to be recovered.

The extent of the complaint pertaining to the Reserve Bank was limited to it having recovered the money owed to it, explained Kganyago. “All amounts owing and due to it were paid back before the office of the Public Protector was even created.”

Kganyago said this information was made clear to the Public Protector in interviews and submissions from the SARB. However, the report by the Public Protector claims that money still needs to be claimed back from Absa.

READ: ABSA: No obligation to pay R1.125bn bailout

“This is a glaring error but this is not the focus of the application,” said Kganyago.

Nowhere in the report does Hoffman’s complaint link to the primary objective or mandate of the Reserve Bank, the affidavit read. The complaint does not relate to the Reserve Bank’s conduct in pursuing its mandate either.

Further, the report makes no findings on the primary objective of the Reserve Bank. “Not one of the findings relates to the Reserve Bank’s function in protecting the value of the currency.”

The SARB indicated that a day after the report’s release, Hoffman went on national radio confirming his complaint had nothing to do with the Reserve Bank’s mandate.

“The Public Protector’s investigation was not concerned with the Reserve Bank’s constitutionally entrenched powers. Nor could it be. The Public Protector has no mandate or power to investigate the Constitution’s allocation of powers to different organs of state,” said Kganyago.

Proposed amendment to the Constitution

Kganyago pointed out that the Public Protector cannot take remedial action on a matter she has not investigated, and as such the Reserve Bank was not a subject of the investigation.

“The Public Protector has no power to instruct the chair of the portfolio committee to secure a constitutional amendment," he said. The affidavit showed that the Constitution has its own conditions for amendment, this being a two-thirds supporting vote by the National Assembly.

“The Constitution leaves the power to amend the Constitution in the hands of the elected representatives of the people who are members of the National Assembly.”

The fact that the Public Protector is not empowered to amend the Constitution indicates the remedial action should be set aside.

ALSO READ: SARB seeks urgent court review to set aside Public Protector’s ‘unlawful’ action

The remedial action is also in breach of the separation of powers as it intrudes on the legislative domain and “encroaches on the exclusive domain of Parliament”, the affidavit reads.

The remedial action is “irrational” in that it is taken with the objective to promote socio-economic development, but removes one of the key tools the Reserve Bank uses to achieve this. Protecting the value of the currency ensures balanced growth in that it allows exporters and importers to engage productively in the economy, and means that economic growth is sustainable, the affidavit highlighted.

It ensures that imbalances are not generated that can cause a crisis or throw the economy into a severe downturn.

Kganyago indicated that the remedial action did not follow a fair process, as the Reserve Bank was not given an opportunity to comment on the required constitutional amendment. 

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