Sep 10 2008

Why I’m negative on the rand – Part III

Published by at 4:30 pm under Opinion,South Africa

First published on my old blog on 10/12/2007.

I’ve alluded to the “frail-Mandela factor”, the “populist-Zuma factor” and the “let’s-get-rid-of-Trevor-Manuel factor” as grounds for being bearish on the rand in the next 12 months. There are more reasons for being negative, of which the most important is the “let’s-get-rid-of-Mboweni factor”. This factor has the potential to destabilise the rand in the coming months like no other. 

(And strangely, to date the SA media have hardly mentioned it….)

Tito Mboweni has been president of the SA Reserve Bank (central bank) since 1999 and has done an excellent job protecting the value of the rand, which is the primary goal of the central bank according to section 224 of the new Constitution of South Africa.

The president of the SA Reserve Bank is appointed by the president of the national government for a 5 year period. Mboweni’s second 5-year term will come to an end in 2009, but the decision about the renewal of his contract for another 5-year period will most certainly have to be made already in 2008 – while Mbeki is still in the chair.

How this decision is made and who is appointed as president of the SA Reserve Bank for the period 2009 – 2014 could be a major destabilising factor for the rand throughout 2008 – if it’s not handled carefully.

For instance, if Zuma is selected as ANC president in the next few weeks and the appointment of the president of the SA Reserve Bank is NOT made by Mbeki next year, but postponed until Zuma is in the chair, this will make the forex markets nervous no end.

And then, of course, there is the scenario where he is not appointed again, but a “more populist” candidate is appointed instead. Now, that would really cause instability. The worse case scenario: Trevor Manuel and Tito Mboweni go within months of one another.

No, no, there is still another (even) worse case scenario: Mboweni, Manuel and Mandela all leave the stage within a few months of each other. But, let’s not sound alarmist.

I couldn’t find anything in the Constitution, the Reserve Bank Act, or the regulations thereto, prohibiting Mboweni from accepting a third term. As far as I could make out, Mboweni could go on as long as he wanted to. And really, there is no reason to throw out a man who obviously knows what he’s doing. And is still very young. South Africa simply hasn’t got so many “potential central bank governors” hanging around, to just throw Mboweni out – and with him the government’s hard-won market credibility.

Nevertheless, at this point it seems very, very likely to happen. In fact, in the next 18 months South Africa could be without it’s 2 best functionaries in the Mbeki era, namely Manuel and Mboweni.

If the prospect of this happening doesn’t make the forex markets nervous in coming months, I’ll eat my hat.

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