Why it’s not for Public Protector to make economic policy

Cape Town - The SA Reserve Bank (SARB) is still studying Public Protector Busisiwe Mkhwebane's report on the loan granted to Bankorp and will thereafter announce its response to the findings and remedial actions, it said on Monday.

Mkhwebane wants the government to recover public funds "unlawfully" given to Absa Bank. She announced her findings after her investigation into the SARB’s assistance to Bankorp - which Absa bought in 1992 - between 1985 and 1995. She wants Absa to repay R1.125bn, but the bank maintains that it owes nothing to government.

Changing the Constitution

In her report, Mkhwebane recommended changes to the Constitution, which protects SARB's independence. A two-third majority is needed in Parliament to change the Constitution.

Constitutional Law expert Pierre de Vos of the University of Cape Town told Fin24 that the Public Protector can’t order Parliament to change legislation - and this would include the Constitution.

Mkhwebane's proposed amendments include the removal of a reference to the protection of the value of the rand by SARB. She wants Parliament’s justice committee to get the ball rolling in this regard. Currently SARB has a mandate from government to keep inflation between 3% and 6%.

READ: Rand tanks as Public Protector opens Pandora’s box on currency laws

The rand lost 20c to the dollar on the news and sank by 1.44% to trade at R13 to the dollar by mid-afternoon. By early evening it was trading at R12.92/$.

Abri Du Plessis, an economist and portfolio manager at Gryphon Asset Management, told Fin24 that it was the Public Protector's report as well as the new Mining Charter (gazetted last week) that mostly influenced the rand on Monday.
 
"It all warns of an environment that becomes more and more investment unfriendly, especially from the perspective of foreigners," explained Du Plessis.
 
"I am at this point in time not too worried about the SARB meddling, because a change in the Constitution will need a two-thirds majority which I cannot see happening. The Mining Charter is more negative and it looks like foreign investors are selling their stocks."

The role of the Public Protector

Economist Mike Schüssler told Fin24 that the big question should be what the role of the Public Protector is. He emphasised that the Public Protector is certainly not an economic policy-making institution or a body writing the Constitution.

"The primary objective of the SARB is to promote balanced and sustainable economic growth in SA, while ensuring that the socio-economic well-being of the citizens is protected," said Schüssler.

“The SARB, in pursuit of its primary objective, must perform its functions independently and without fear, favour or prejudice, while ensuring that there must be regular consultation between the bank and Parliament to achieve meaningful socio-economic transformation.”

Schüssler said the rand would fall and interest rates on the long bonds rise if the markets or investors or even SA pension funds see another person who "meddles in economic policy".

The making of economic policy

"The fact is that economic policy is something made up by government, labour and business as well as investors over a lengthy period of time. One also notes that other successful countries around the world do have policies that balance unemployment and inflation and these days inflation targeting does that too," said Schüssler.

"If one looks at formulas like the Taylor Rule, which our central bank also works with, it balances the output gap and inflation expectations. So our bank does look at social aspects in a way. The transformation the Public Protector talks about is not described here, but alludes to black economic transformation.

"The money we use has a value, not a colour. The same with interest rates. Interest rates are charged at the same rate for the same risk. The rand has an exchange rate with other currencies. Should we trade 30% of the rand with, say, only Kenya and 70% with the dollar? That is nonsense. So what she is talking about is not defined and it is not written in a way that markets can understand."

The Office of the Public Protector told Fin24 that the Public Protector has now discharged her Constitutional mandate and cannot comment on the issues raised in her report.