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A senior official in the South African ruling party said plans to nationalize the central bank will be shelved as the government struggles to get the coronavirus-hit economy back on track.
The country does not have the “massive resources” that may be necessary to buy out the bank’s private shareholders and spending the money would be unjustified in the current economic climate, said Paul Mashatile, general treasurer of the African National Congress.
“We wouldn’t want to rush in that direction because there are other implications,” he said in an interview. “Our opinion is that we want these resources to be channeled rather to infrastructure projects.”
The ANC decided at a conference in 2017 that the state should take over the Reserve Bank of South Africa, one of the few central banks owned by private investors, because the prevailing ownership structure infringed on the nation’s sovereignty.
Shareholders have no say in monetary policy decisions and the bank’s mandate to guarantee price stability is established in the constitution.
The opposition Economic Freedom Fighters, which advocates the state seizure of banks, mines and land, has been pressuring the ruling party to go ahead with its resolution for the state to take sole ownership of the bank and has introduced a bill that would trigger the process. .
The parliament’s legal advisor warned that the bill could be unconstitutional, because it would allow the shares to be expropriated without compensation, and ANC lawmakers have indicated they will reject it.
Central bank shareholders can seek a payment based on their total assets, including the $ 56 billion in gold and foreign reserves it holds on behalf of the country, Mashatile said.
“That can be a problem, it will make the bank very expensive,” he said.
Mashatile also rejected suggestions that the government change the rules on pension funds to force them to invest in state infrastructure projects that are a central tenet of an economic recovery plan the government is drafting in consultation with business and labor groups.
“It is not viable,” he said. “I think it just creates challenges between the government and investors because when you prescribe assets, you are basically saying to the fund managers, ‘They should invest in this project.’ You must give them flexibility to choose. I think it is better not to prescribe, but to create an environment for the pension fund to invest ”.
Other highlights from the interview:
- The Treasury should write changes to ease restrictions on how pension funds distribute clients’ money and make it easier for them to invest in infrastructure if they so wish.
- The government will not depend solely on private or foreign sector funders to drive new infrastructure investments, but will also redirect its own money.
- The central bank did a good job of helping offset the fallout from the coronavirus pandemic, despite criticism that it could have done more.
- The government already has a voice in how the central bank implements monetary policy and fulfills its mandate.
- The process of rationalization of state enterprises must be completed urgently.
Read: Bill to nationalize the Reserve Bank of South Africa back in the spotlight
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