Mkhwebane vs the Reserve Bank: The judgement deserves a bite at the Constitutional Court

It’s incorrect for a Constitution to choose economic policy for a government before it’s even elected, writes YONELA DIKO

Public Protector Advocate Busisiwe Mkhwebane decided that she will not oppose the South African Reserve Bank’s (Sarb) application to overturn her findings that the mandate of the bank must be changed. What did this effectively mean for the recommendations she had made.

Firstly, if a motion is filed against you and you do not file a written opposition with the court, the judge could grant the other side’s motion automatically. That means the other side could get whatever she is asking for in the motion. It also might mean you lose the case, depending on the motion that was filed.

Ideally, Mkhwebane’s opposing motion would have depended on what is in Reserve Bank’s motion. If the bank included important facts in their motion that Mkhwebane believed were not true, she would have corrected those facts in her opposition. If the bank had cited the correct law or statute, but Mkhwebane disagreed with how the other side was applying or analysing that law, she would have provided her own analysis for the judge to consider and poke holes in SARB’s argument. There is, however, no way to know all this because Mkhwebane did not file an opposing motion. It’s also possible that the Judge invested minimal time on this application and decided to grant the application automatically, meaning, the real jury may well still be out.

On June 21, 2017, Fanie Brink, an Independent Agricultural Economist, said, ‘The Constitution of the country cannot be so prescriptive about economic policy because the state has already gone much too far to interfere in a market-oriented economy with various laws that disturb the free operation of market forces and price formation”. Fanie said that although he agrees that the Public Protector cannot make recommendations about the amendments to the Constitution to change the role of the Reserve Bank, the bigger problem is actually the fact that the Constitution is prescriptive about the implementation of monetary policy. It does not belong in the Constitution of the country.

Fanie raises a very critical point which the Constitutional Court would have had to wrestle with had this case been properly constituted at the high court and then challenged at the Supreme Court of Appeal, preferably straight to the Constitutional Court. The Constitution cannot be prescriptive on economic policies because that responsibility solely rests with the elected political party’s governing philosophy and ideology. Whether the political party that wins in the election cycle prefers to use Fiscal policy to expand or contract the economy or uses monetary policy or is a socialist government for that matter, economic policy will have to depend on what each political party had communicated in its election manifesto and not a constitutional prescription. It is therefore curious how the Reserve Bank Mandate ended up being a constitutional prescription.

When the Constitution says the role of Reserve Bank is to manage price stability, it is effectively instructing the Reserve Bank to interfere in the markets. Inflation is typically a signal to producers that there is too much money chasing too few goods and they should make more of those goods. It’s also a signal to consumers that a particular product has become more expensive as a result of high demand and they may choose to buy less of it and/ many will be discouraged to buy because of high prices. Either way, the markets are supposed to self-correct price increases. Of course, depending on whether you are a Keynesian economist or subscribe to Adam Smith’s invisible hand, your economic prescription will be guided by that ideology.

It is therefore incorrect for the Constitution to choose political and economic policy for a government before it’s even elected. Unless of course, the Constitution itself is a product of unelected people who were trying to hedge their fears in the divine book.

The second component that the Constitutional Court would have to consider is that, as prescriptive as section 224 of the Constitution is in saying that ‘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 Constitution still speaks of ‘primary object’ and not ‘the only object’, and it can be argued that the Constitution was anticipating that indirectly, it would be unconstitutional to ring fence the role of the Reserve Bank outside the mandate of the electorate to only ‘price stability’. How then can the Public Protector’s remedial actions, that Parliament should consider amending Section 224 to also include “promoting balanced and sustainable economic growth and ensuring that the socio-economic well-being of the citizens is protected” be unconstitutional?

The problem here is that, where the Constitution specifies the primary objective (and I argue it did not have to be so prescriptive) but does not specify the secondary or other objectives, then we are left to the whims of a Central Bank governor on how sensitive he or she is to unemployment or growth. This effectively means we are at the mercy of a Reserve Bank governor to determine the broader role of the Reserve Bank or our monetary policy.

Despite Kganyago’s recurring speeches of how powerless the Reserve Bank is in responding to our current economic challenges of low growth and unemployment, the Bank has enormous untapped power to directly stimulate or influence the flows of lending and spending that generate jobs. Doing so would fulfil the Bank’s often neglected “dual mandate”: to strive for maximum employment as well as stable money.

Kganyago’s excuses that legal or technical barriers won’t allow the bank to pursue the dual mandate reflects an institutional bias that favours finance over industry, capital over labour. The Reserve Bank has abundant precedent from all over the world for taking more direct actions to aid the economy, with the most recent examples being the steps taken by reserve banks around the world to save the means of production and financial systems during the 2008 crisis. The bank can also be given ample legal authority to lend to all kinds of businesses that are not banks to stimulate the economy.

If this case does not go to the Constitutional Court, then ANC policy pronouncements on economic policy are a fuss.

Diko is a political and social commentator

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