Last week, I wrote about the Public Protector’s decision to direct Parliament to change the constitutional mandate of the South African Reserve Bank*. Inexplicably. Because the constitutional mandate of the SARB was, at best, irrelevant to the case. And if it was relevant, then it was bizarre to find the way that she did (I’ll explain why further down).
*Full confession: in a moment of Universal karma, I spent the entire article referring to her as the Public Prosecutor. Some people thought that I was making a point. Actually, I was just having an early morning brain misfire. Yikes.

The SARB: nationalisation is NOT the issue

Obviously, no one in the Finance Ministry or the SARB could really ignore this kind of grand-standing. Putting the content matter aside, a Public Protector that takes it upon herself to simply ‘direct’ a constitutional amendment? Constitutional amendments require referendums and extraordinary Parliamentary majorities. Not the instruction of Busisiwe Mkhwebana.

So there have been a number of legal challenges to her ruling.

And yesterday, the Public Protector’s office announced that she would not be defending the SARB’s challenge to her directive.

The text of the Public Protector’s Withdrawal

Here’s the original press release:

In her Report, the Public Protector found that an amount on R1.125 billion was an illegal gift to Bancorp/ABSA Bank and the matter was referred to the Special Investigation Unit (SIU) to approach the President to re-open and amend proclamation of May 1998, in order to recover misappropriated public funds unlawfully given to Bankorp/ABSA Bank.

Subsequent to the issue of the aforesaid report, the South African Reserve Bank (“SARB”) instituted an urgent High Court application to review and set aside of paragraph 7.2 of the Report essentially dealing with the proposed amendment of the constitutional mandate of the SARB.

Today, the Public Protector filed her Answering Affidavit in respect of SARB’s Judicial Review Application issued on 27 June 2017.

In her Answering Affidavit, the Public Protector explained the reasons for arriving at the remedial action recommending the amendment of the Constitution. In this affidavit, the Public Protector submitted that the mandate of SARB is narrowly stated in section 224(1) of the Constitution, as there are central banks in other countries that have relatively multiple or broader mandates, such as to include, as primary objects and not as consequential or secondary objects, the promotion of full employment (job creation) and balanced economic growth, or other socio-economic objectives. She further explain that the US central bank is one such example, including central banks of China, India and the United Kingdom which has additional mandates other than just price or currency stability.

From the investigation conducted, it appeared to the Public Protector that the major motivation for the “lifeboat” was the fear of a “run on the banks”, which could result in adverse financial impacts and uncertainty amongst local and international investors and depositors. It is not evident that the socio-economic well-being of South Africans, including as regards the diversion of money that could have been used for job creation and other socio-economic objectives featured in the assessment of whether or not the “lifeboat” ought to have been extended.

In her view, such a failure to assess the other socio-economic objectives were probably enabled, and could continue to be enabled, by the narrowly stated mandate of the SARB. If left unchanged or reviewed, this narrowly stated mandate could continue to enable decisions to be taken that prejudice the socio-economic interests of ordinary South Africans, including as to the realisation of full employment or job creation. It was for this reason that the Public Protector considered that a possible review and broadening of the SARB mandate would provide a long-term effective remedy to possible prejudicial decisions by the SARB underpinned by the narrowness of its mandate.

Having considered the legal advice from the Senior Counsel, which advice she accepted, the Public Protector, Advocate Busisiwe Mkhwebane has decided not to oppose SARB’s review application.

Here’s the paraphrasing:

1. I was not wrong about the SARB’s mandate.
2. I can’t see any evidence of how the SARB’s actions to protect the economy meant that they were protecting the socio-economic well-being of South Africans #economyforwhat
3. But I’ve been told that I can’t tell Parliament to change the SARB’s mandate.

Point of Information 1: Timing, ma’am.

This line:

“In her view, such a failure to assess the other socio-economic objectives were probably enabled […] by the narrowly stated mandate of the SARB.”

The problem is: this “narrowly stated mandate of the SARB” did not exist at the time. The mandate in its current form only came into existence in 1996. The events of the case that she was ruling on took place between 1985 and 1995.

Point of Information 2: Also, awkwardly, about that mandate…

The mandate that existed at the time of the case was NOT narrow. Here it is (from the original South African Reserve Bank Act of 1989):

To be clear, that mandate encompassed two primary objectives: both monetary stability and balanced economic growth.

So this ‘lifeboat’ gift took place when the SARB mandate actually included the provisions that Advocate Mkhwebane feels are missing from the current one. And the lifeboating still took place.

In fact, we might well conclude that the presence of a broad mandate permitted the SARB a little too much freedom. Perhaps the freedom to engage in a “lifeboat” gift to a retail bank, framed as necessary to prevent detrimental effects on ‘balanced economic growth in the Republic”?

Just saying.

Rolling Alpha posts opinions on finance, economics, and sometimes things that are only loosely related. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha.