Umsebenzi Online Volume 21, Number 6, 18 August 2022
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Volume 21, Number 6, 18 August 2022 |
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Red AlertHold the South African Reserve Bank accountable, keep it firmly in check in the interest of the people |
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By Solly Mapaila, SACP General Secretary
In July 2022, on the 22nd to be specific, the SACP denounced the decision taken on 21st July by the South African Reserve Bank’s five-member Monetary Policy Committee to increase the country’s already high interest rate by 75 basis points. The highest interest rate hike by the Reserve Bank in 20 years raised the rate at which the central bank lends money to the banks, also known as the repurchase or repo rate, from 4,75 per cent to 5,5 per cent.
The Reserve Bank has produced no convincing scientific model for all members of the public to be satisfied that its high interest rate regime will this time around go to the source of the current global wave of inflation, rapidly produce inclusive economic growth, and increase employment. In particular, the current wave of inflation or unfolding global cost-of-living crisis is driven largely by factors with external origin in countries like South Africa.
In countries like ours, which depend on oil imports for fuel, increases in global market oil prices lead to domestic increases in fuel prices. Fuel from oil is a key ingredient of energy in production, transport and elsewhere in the economy, as well as in the household. The increases in fuel prices move to the affected products and services through the pricing models.
Recently, food prices increased because of the NATO-provoked war in Ukraine and the disruption of global value chains not only by that war but also by the COVID-19 pandemic. Food production has been disrupted by climate change in certain parts of our country and the world (the key driver of climate change is capitalist production, in which profit-driven interests put profits before people and the environment). This is another contributor to the global cost-of-living crisis, especially rising food prices.
It is amid all this and a crisis-high unemployment rate that the Reserve Bank is hysterically driving up the high interest rate hikes regime it is following. It appears the Reserve Bank is manoeuvring to make matters worse. The Reserve Bank Governor Lesetja Kganyago was campaigning for even more interest rate hikes when he recently appeared to be arguing for the reduction of the neoliberal inflation targeting range of between 3 and 6 per cent to 4 per cent or less.
Meanwhile, central banks elsewhere are seeking a road most suited to their national development, with low interest rate, prioritising domestic production and employment. For example, Australia maintained a low interest rate of 1,35 per cent in July, while its inflation rate in June was 6,1 per cent. At 1,25 per cent, Britain’s interest rate was lower than that of Australia, while its inflation rate was 9,4 per cent in June. Denmark’s interest rate of -0,45 per cent (YES, negative) in July was lower than that of Britain and Australia, while its inflation rate was 8,7 per cent. The United States had an interest rate of 1,75 per cent, while its inflation rate was 8,5 per cent in July, to mention but a few of those countries. In all these countries, which are also affected by the global cost-of-living crisis as their inflation rates show, unemployment is significantly low compared to the national disaster of the unemployment crisis in South Africa. Unlike South Africa, many of these countries are pursuing full employment or sustainable employment creation as an explicit fiscal and monetary policies or macroeconomic policy objective.
In our national situation, our constitution states that the Reserve Bank must, in exercising its powers and functions, do so in the interest of balanced and sustainable growth. In contradiction, and among others because of the high interest rate regime followed by the Reserve Bank, South Africa has dismally failed to realise the constitutional imperative of balanced and sustainable growth since the adoption of the constitution in 1996.
As South Africans, we must hold the Reserve Bank decisively accountable and keep it firmly in check democratically. South Africa is a democracy. We should not allow our country to slide into a dictatorship of a handful of individuals who might as well be serving the tiny minority of the wealthy nationals and foreign interests at the expense of the people as a whole, of whom the working-class, unemployed and poor are the overwhelming majority. Monopoly-finance capital has become the dominant section of the wealthy individuals who inform the worldview of imperialist credit rating agencies and control massive stakes in capital markets such as the Wall Street in New York, the United States, Paternoster Square in London, the United Kingdom, and Euronext in Amsterdam and Paris, in the European Union, to mention but a few.
The mandate of, and accountability by, the Reserve Bank must explicitly include sustainable employment creation and establishing a long-term and well-co-ordinated moderate interest rate framework to foster an inclusive growth path. This should include establishing a dual interest rate policy, independent of deposit or savings interest rates, with a favourable interest rate for industrialisation and the productive sector broadly understood, to build national production and encourage sustainable employment creation as an apex priority.
The high interest rate regime followed by the Reserve Bank does not go alone, in reality. It reinforces and goes hand in hand with the stagnantly low growth, which is not inclusive, a crisis-high unemployment rate, which now ravages over 12,4 million active and discouraged work-seekers. It appears South Africa’s high unemployment rate is part of the inflation targeting regime. What will happen in the economy starting at the end of their first pay, for instance, if the 12,4 million unemployed people find decent work tomorrow?
The high interest rate regime also goes hand in hand with de-industrialisation.
Because of it, people who want to start co-operatives and small enterprises find the cost of borrowing prohibitive. Those already running co-operatives and small enterprises find it difficult for their entities to survive. In the process, all key sectors of our economy are falling deeper into control by oligopolies. Transformation is reduced into hot air. This occurs in an environment where most affected entities regularly have to borrow to live up to their commitments, including remuneration, while they are awaiting payments for the services they rendered or goods they produced.
The high interest rate regime is against inclusive growth and employment creation. However, it is beneficial to those who control monumental amounts of money (capital), the multimillionaires and billionaires of this world who want no less than—but at all times want to accumulate more than—what they already accumulated. From this alone, it clearly appears that the high interest rate regime is not independent from their policy influence, wishes, and interests. In this environment, some bureaucrats could actually pay more allegiance to the interests of the filthy rich in finance capital, nationally and globally. It is a national imperative to insulate tightly and safeguard our monetary policy space, as we should do with our entire national policy space, from manipulation or influence by external elements and neoliberals, regardless of where they are based, as well as their domestic mouthpieces and agents.
Given the revolving door of appointments between the National Treasury and the Reserve Bank on the one side and the commercial banks and other profit-driven financial interests on the other side, it is possible that some bureaucrats could actually use their positions to serve those interests as part of their exit strategy—i.e., as part of their road to the next appointment in the profit-driven financial sector.
By background, some bureaucrats had a stint at imperialist-controlled institutions, such as the Washington-based International Monetary Fund (IMF). The IMF is notorious for imposing neoliberal policies on many countries, with devastating economic and social consequences. However, it has never taken responsibility for its actions. If truth be told, the revolving door of appointments between the National Treasury and the Reserve bank on the one side and the commercial banks and other profit-driven financial interests on the other side is actually the entry point of state capture. We must all be worried about this and deal with it through decisive democratic state regulation.
Besides, there are two sources of the profits heaped up by the commercial banks and other sections of finance capital that are worth drawing attention to at this stage.
First, all social classes of people, the workers and peasants (smallholder, subsistence and poor farmers or self-employed agricultural labourers) in rural areas and elsewhere, and firms across the economy, as well as the government itself, deposit with the banks their savings and momentarily “unemployed” money (or money they do not need for immediate use). None of these banks is a public bank, which is against the vision of the Freedom Charter.
Second, people with income that they only consume gradually deposit it with the banks or financial institutions.
While the small sums of money deposited by people belonging to social classes such as the working-class and the peasants appear in themselves unable to function as capital, in reality, as with the other deposits, those sums constitute a financial power—gathered together in the hands of each bank or financial institution.
The funds from members of the public, public institutions, and firms in different sectors of the economy are among the key sources of the financial capital that the banks deal in lending at higher interest rates than they themselves borrow or offer for savings. At 9 per cent, the lowest lending rate called the prime rate that the banks impose is currently 3,5 per cent higher than the repo rate. It is actually a tragedy that the Reserve Bank does not determine lending rate parameters across the “structure of interest rates” also known as the “yield curve”.
As a result of financial exploitation that prevails because of the unregulated or liberalised aspects of credit extension or lending, the banks impose higher interest rates than the prime lending rate on most people, saying they fall into a high-risk category. The banks force the victims of this financial exploitation to pay back far more than they borrowed in interest rates. Those worst affected include the workers and lower sections of the middle class and public servants, the teachers, nurses, doctors, lawyers, to mention but a few, as well as small businesses and taxi owners. Black people are the most affected, because of the highly problematic racial and associated geographic profiling by the banks and commercial insurance companies.
Every time the Reserve Bank raises the repo rate, it simultaneously increases household (and private sector) debt. As this happens, among those affected, especially the workers and lower sections of the middle class, it compels others to think that borrowing more to survive is the solution. This, in reality, plunges them deeper into a debt trap.
For those who have a home loan or bond with a commercial bank, every time the Reserve Bank raises the repo rate, it leads to commercial banks increasing their already exorbitant compound interest rates. The same happens with those who have other variable interest rate loans for other use values, products such as motor vehicles. Their household debt rises not because they increased the number of their loans but because the Reserve Bank, followed by the commercial banks, increased the interest rate.
We are not arguing for a consumerist debt—for we are against the ideology of consumerism driven aggressively by profit-driven interests through aggressive marketing, among others. There are loans such as home loans that are necessary under the prevailing income distribution realities that many people find themselves in. The same applies to the loans that those who want to start co-operatives and small enterprises or those who are already running the employment-creating entities find necessary in their operating environment.
Reality in countries such as Japan defy the logic followed by the South African Reserve that its high interest regime is absolute and indispensable vis-à-vis inflation. In mid-June, Japan maintained an interest rate of -0,1 per cent (YES, negative), which is still the case up to the present. Meanwhile, its inflation rate was 2,4 per cent.
Related to many of the issues raised above, we will also not abandon the imperative of overhaul transformation of the entire financial sector to serve the people, while we are waging the just struggle for the establishment of a diversified developmental public banking sector. This state banking sector should include national, sectoral, provincial and municipal/district banks. All these state-owned banks must be well-governed and competently managed to serve the financial needs of the people and transformation and development, guided by a comprehensive industrial policy tied to sustainable employment creation as a priority. In addition, South Africa must build an enabling environment, including through legislative means and the regulatory framework, for worker- and community-controlled co-operative banks and financial institutions, credit union leagues and savings schemes to emerge, thrive and grow a as critical pillar of a transformed financial sector. There is no reason, in principle, why this national development imperative should irritate any person either at the Reserve Bank or the National Treasury with the interests of the people at heart.
Building a powerful, socialist movement of the workers and poor is the way forward to assert the voice of the people in the policy space. This is as critical now as building popular left and patriotic fronts to bring together taxi industry associations, the small business sector, peasants, workers and the unemployed who need work or who want to start co-operatives, to mention but a few, to fight the battle for an enabling monetary policy and overhaul transformation of the financial sector. This would require a comprehensive high impact industrial policy which must guide monetary, fiscal and international trade policies.
Solly Mapaila is the SACP General Secretary.
Umsebenzi Online is an online voice of the South African working class
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