Lesetja Kganyago has a problem most central bankers would envy: people listen when he speaks.
The governor of the South African Reserve Bank has earned that attention. In a recent public lecture at Unisa, he offered a compelling account of how emerging markets have travelled from the serial crises of the 1990s towards something altogether more valuable, namely resilience.
South Africa, on his telling, is an interesting case study.
A quarter of a century ago the country had effectively exhausted its foreign-exchange reserves, inflation was high, interest rates were brutal and the rand was being defended at considerable cost. Since then, central bank independence, inflation targeting, a floating currency, stronger financial supervision and the rebuilding of reserves to about $74bn have transformed the macroeconomic architecture. South Africa has endured repeated global shocks without a systemic financial crisis. Despite GDP per capita having gone backwards for the better part of 15 years, that still deserves more recognition than it usually receives.
It is particularly important because we have developed an unfortunate national habit of blaming monetary policy for failures created elsewhere. Kganyago is surely right to resist that. South Africa’s growth crisis was not caused by inflation targeting. Our peers adopted similar macroeconomic frameworks and mostly grew considerably faster.
The real wrecking ball was the ANC, in the form of former president Jacob Zuma’s institutional destruction. State capture hollowed out government, crippled state-owned enterprises and left municipalities unable to perform functions so basic that South Africans now celebrate when the taps work. Private investment inevitably suffered.
Kganyago’s diagnosis is therefore difficult to quarrel with. South Africa has become more resilient without becoming more prosperous.
His more provocative argument is that the country must decide whether it genuinely wants growth. If it does, growth cannot be item seven on a list containing every competing political objective imaginable. As he puts it, borrowing from economist Lant Pritchett, perhaps we need less “growth with adjectives” and considerably more actual growth.
Again, hear, hear.
And yet there is a small but important question lurking behind all this: how much should we be hearing from the governor about matters beyond monetary and financial stability?
It is a question raised indirectly by a recent Economist article about central bank communication. Central bankers once cultivated a deliberate sense of mystery. Montagu Norman’s maxim was “never explain, never excuse”; Alan Greenspan became famous for language so opaque that understanding him sometimes appeared to be evidence you had misunderstood him.
Central banking has lately travelled sharply in the opposite direction. Forward guidance, press conferences, forecasts and interest-rate projections have become policy instruments themselves. Expectations matter enormously, because borrowing and investment decisions depend not simply on today’s interest rate but on where people think rates are heading.
But communication has brought its own dangers.
Say too little, and markets are left guessing. Say too much, and central bankers can be trapped inside forecasts that prove wrong. Worse, extensive commentary can create the impression that unelected technocrats possess an answer to every economic question.
Reining it in
That is where South Africa, and specifically the governor, should tread carefully.
The Bank’s independence is an extraordinarily precious institutional asset precisely because monetary policy has been deliberately insulated from normal political pressure. But independence comes with the corresponding obligation of institutional restraint.
A Reserve Bank governor has considerable authority without having stood for election. That arrangement is legitimate because the Bank has a clearly defined mandate and because political interference in monetary policy has historically produced some spectacular disasters around the world.
The danger arises if the governor increasingly comes to be regarded not merely as custodian of monetary stability but as another participant in debates over industrial policy, infrastructure, regulation, labour markets and the wider programme of government.
Kganyago may be entirely correct about those subjects. Indeed, I think much of what he said at Unisa was correct.
But that’s not quite the point.
If an independent central bank is perceived to respect carefully the boundaries of its authority, it builds political capital. When it inevitably makes a mistake — central banks being staffed by humans rather than Delphic oracles — that credibility provides protection.
But if the governor begins to look like a policymaker on broader economic issues, the question eventually arrives when politicians start asking: “Who elected him?”
In South Africa’s combustible political environment, particularly as elections loom, that question would not remain academic for long. Arguments over the Bank’s independence, mandate and ownership have hardly disappeared.
The Economist makes a related point: effective central bank communication ultimately rests less on verbosity than on credibility. European Central Bank president Mario Draghi’s famous promise to do “whatever it takes” to preserve the euro during the region’s sovereign debt crisis worked because markets believed him. Authority came from accumulated trust, not word count.
So this is not an argument for Kganyago to retreat into Greenspanian mumbling.
South Africa benefits from a governor willing to defend sound economics, explain why macroeconomic stability matters and puncture fashionable nonsense about the causes of our stagnation.
But there is wisdom, as I’ve learnt from my years in broadcasting too, in knowing where the microphone ends.
