Financial Times - March 7, 2000
S AFRICA'S FINANCIAL DISCIPLINARIAN
Central bank governor Tito Mboweni places stability above everything else, write Victor Mallet and Martin Wolf
When Tito Mboweni sits in the boardroom of the Reserve Bank of South Africa, the bank's 40-year-old first black governor must chuckle. There hang the pictures of his predecessors: a rank of grave white men. This former economic policymaker for the African National Congress has stormed a citadel of Afrikaner power.
The announcement, in 1998, that Mr Mboweni, the controversial labour minister, would succeed Chris Stals as governor was greeted with less than enthusiasm by the markets: the rand and bond prices plummeted. Many commentators decried the appointment of a politician, seeing a threat to the bank's independence.
Mr Mboweni was at pains to eliminate this perception, and succeeded. When he took over last August, it was a non-event. Everything he has done since is aimed at reinforcing his credibility as an orthodox central banker.
The most important step has been inflation targeting, announced at the beginning of his term. The governor insists on the bank's independence in making that commitment. The Bank of England, he notes disparagingly, "is not a free bank", but has to accept the target set by the chancellor of the exchequer. In South Africa, however, the government can only propose. This it has done, suggesting a goal of 3-6 per cent underlying inflation for 2002. He has accepted the proposal, though the bank's preference would be a target "specified as 6-3 per cent" - that is, as a declining trend.
Is this erstwhile politician committed to this target? Mr Mboweni's answer is firm: his "job is to manage the central bank and achieve the inflation target. I'm fully aware of the problem of unemployment, fully aware of the problem of poverty, but our job here is to hit our target. And if we hit our target and . . . if all other policies are properly aligned - and I insist on this - then we should have an environment of success.
"But if economic policies are going to rely only on monetary policy and the inflation target, or only on fiscal policy and the achievement of the budget deficit, that would be a big mistake, because all the other supply-side restructuring measures must come into the pot."
This commitment to stability, he insists, is not new to the ANC. It goes back to the late 1980s. "I'm not a rightwinger," Mr Mboweni says, "I'm a social democrat. But I know that a successful social democrat cannot be reckless on economic policy."
He is also determined to avoid discussing those other policies. "I won't comment," he says, "because I don't want other people meddling in monetary policy."
To underline his independence, Mr Mboweni notes that he has resigned all positions in the ANC. He refuses to discuss the labour market, where there is widespread criticism of policy rigidities he himself introduced. He is unwilling even to comment on fiscal policy. Central bankers who comment on fiscal policy "are wrong, particularly the ones at the European Central Bank".
The governor then explains how his independent bank operates. "We have a monetary policy committee, with 16 members. It's technocrat-heavy. There are four voting members. But we don't vote. We reach decisions by consensus." This, he notes with pleasure, is the old African style.
Moreover, he stresses, "we don't target the exchange rate. We target inflation. We will be concerned about the exchange rate to the extent that the depreciation is unwarranted and, secondly, may lead to second-round inflationary impacts."
Mr Mboweni's attitude to the currency is partly the fruit of experience. The bank's forward exposure reached a peak of $22bn in July 1998, though this is now down to $11.5bn. He is determined not to repeat that experience. "Importers, whoever, must take their own foreign currency risks," he insists. "Why should we take the risks for them? They must go to the market. From July 1998, we said we were no longer going to intervene in the foreign currency market. We learnt the lesson that you can't succeed in a crisis by trying to shore up your exchange rate. It was a major, major, major risk for the country."
That foreign exchange intervention had been a response to the emerging market financial crises of 1997 and 1998. What then can be done to reduce his country's vulnerability? Mr Mboweni gives the textbook response: "Good policies, good policies, good policies and management, management, management."
Would more resources from the International Monetary Fund have helped? "I'm more concerned about what happens here, nationally, because if you do things wrongly here, you get into trouble. We have to make sure that our financial regulation is correct, that we have good policies and that we have good management."
Many would agree that the new South Africa is well managed. So is Mr Mboweni disappointed by the response of foreign investors? "There are times when, yes, I do feel disappointed that the response has not been as good as we would have liked, in particular that the flow of foreign direct investment has not been as one would have expected. But, on the other hand, last year about R54bn ($8.9bn) flowed into the bond and share markets of South Africa. That's not chicken feed." There has also been substantial investment by car manufacturers. "But, in general, there's a long way to go."
How far then would the central bank governor ascribe investor reluctance to South Africa's neighbourhood? His response is strong: "We are proud to be African. We would not want to turn ourselves into some kind of island in Africa. The political leadership talks a lot about the need for an African renaissance and in my work as governor I want to engage and interact more with the African central bank governors.
"I am the only central bank governor from Africa who attends the monthly meetings of the Bank for International Settlements," in Basle, Switzerland. There, Mr Mboweni is asked to present what is happening in the continent. He is also determined to share what he learns with his fellow African governors.
He is no less committed to the immediate region. "This is, in any case, what we as South Africans have to offer investors. So, always we have a South African perspective, but also a southern African perspective."
Mr Mboweni, who trained in development economics at the University of East Anglia, in the UK, presents himself as the very model of a modern central bank governor. "This is a very good time," he says. "I'm enjoying myself and I wish I could feel like this for the next four years of my contract."
He will be happy to continue "for as long as I'm not bored. I can't cope with boredom".
What then? The governor refuses to talk of a political future. He mentions, instead, "going into the private sector or academia, going fishing, or even becoming high commissioner at the Court of St James". For a man with his energy, much of this sounds like a fairy story.