Special Hearings — Business Hearings — 1997-11-12

MR GLAMINI: Thank you, Chair.  Dr Stals, there are two questions.  The first question is about;  did the bank ever make any political representation to the Government in so far as politics interfered with its goals;  that is the goals of the bank with regard to financial stability?
 If it did, what was it?  If not, perhaps you might like to explain as to why not?

DR STALS: It's difficult.  What do you mean with political presentation to the Government or representation to the Government?
 I refer to one incident and that's one of the very few where I as chairman of the debt stand still committee and Frits Loydwieler, the late Frits Loydwieler as mediator for the foreign banks in the debt re-assuring negotiations went to political leaders in South African and took a very clear message to these political leaders from the international banking community on precisely what you're referring to;  political representations and the very clear message that the international banking community was looking for political reforms in South Africa and not so much for changes in economic or monetary or physical policies.
 So that is one example.  I think again I certainly do know that my predecessor, the late Gerhard de Kock had many discussions.  I quoted one of the public speeches he made where he said that we need the commitment to political reforms otherwise we cannot solve the economic problems of South Africa.
 There were one or two occasions where there were intervention in the Reserve Bank policies which again I think was public knowledge at the time;  when a State President instructed the governor of the Reserve Bank that he should not increase the bank rate and for six months we could not increase the bank rate and during that six months period we lost half of the foreign reserves of the country.
 Yes, certainly there was a big debate at that time, but that was a special incident of political intervention in the policies of the Reserve Bank and I think the experience of that six months contributed a lot to the more correct attitude of later Prime Ministers, or later State Presidents and later political leaders in the country.
 So, the Reserve Bank, yes, I will time 76 years from time to time obviously you will find that there will be differences of opinion between the political leaders and the policies of the Reserve Bank, but that is exactly the time where central bank must stand up and must show its independence and must be prepared to do the right things.
 What can the central bank governor do if he cannot convince the Government to accept his policies?  Well, the only honourable way is to resign and this has happened many times in many countries in the world, but in the 76 years of history of South Africa it never happened before.
 I think we still have the power to convince the politicians to do as we say they should do.

MR GLAMINI: Yes, thank you, Dr Stals.  My last question is from the speech by Dr De Kock when he outlined the four basic requirements.
 He mentioned the maintenance of law and order as one of those requirements and why I am interested in it is because the way law and order was maintained during those times, to me it leaves much to be desired and I just want to get to an understanding whether Dr De Kock when he put maintenance of law and order as one of the requirements;  did he understand the way the Government was implementing that especially in the Black communities, all the repressive mechanisms that were used to make sure that there was law and order?

DR STALS: Yes, I must say again that it is not normal for a governor of a central bank or for the central bank to try and even give advice in public or guidance to a Government on what the political policies should be, but even so with the difficult environment in which we had to operate with the absolute 100 percent certainty that many of the frustrations and the problems for the central bank had a political origin and not a pure economic or financial origin.
 I think it was fully justified for Dr De Kock to make that statement at the time, but exactly how much he understood obviously Dr De Kock was a man with a very great interest.  He also worked very closely with the Government, with Ministers at the time when he was special advisor of the Minister of Finance.
 So I would say I must think, yes, I am sure that Dr De Kock must have known how the system worked, but his general statement there, thirdly law and order must be maintained, well, I think that is in support of the need to have stability;  social, political, financial, economic stability in the country.
 I think one should really interpret it in that sense and not any endorsement of the way or the specific system that applied in the maintenance of law and order at the time, but more a general philosophical statement that you need law and order in a country if you want economic development.

CHAIRPERSON: Dr Ally and then Mr Kese.

UNKNOWN: Dr Stals, there is actually another history approach to the South African Reserve Bank which would argue that it was profoundly influenced by politics;  that you actually cannot separate politics from the South African Bank, even from its very origin as you yourself indicate in your longer submission;  that it was during a crisis in the relationship between South African and Great Britain and particularly over the question of who controlled the issue of South Africa's currency.
 Should it be the Bank of England or should South Africa have its own independent central Reserve Bank which would have control over currency and that right from the outset there was always a very strong tension around the question of whether this should be a bank like the Bank of England.
 A Reserve Bank with a right of autonomy or a state bank;  that 1919 conference there were indications especially from the supporter of what was Hertzog's party at the time, called for a state bank.
 The (indistinct) throughout the history of the Reserve Bank that tension plays itself out and that one of the things - one of the criticisms against the Reserve Bank was when the Nationalist Party came into power in 1948, one of the things they set about doing very deliberately and very consciously, was changing the composition of the South African Reserve Bank, its profile.
 That before that the Reserve Bank had been very English with the Bank of England playing a very very strong influence and after 1948 it became overwhelming Afrikaner with more and more of its people in leading positions being drawn from the Afrikaner community.
 And that its role was not just a lender of last resort, which we accept, but it was also the bank to the Government and a Government which after 1948 became an Apartheid Government.  
 Now, I accept your statements on professionalism and the need to apply those standards, but was that not applied in the context of serving a Government with a particular ideology, especially when the Government itself was quite conscious of the importance of this bank and the importance of changing the nature of - or at least the profile of that bank after it came into power.
 Because it had the power to appoint part of the board of the Reserve Bank?