Central bank governor of the year 2001: Tito Mboweni, governor of the South African Reserve Bank


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After two years in the job, the South African Reserve Bank’s governor Tito Mboweni has earned the respect and admiration of his peers and market players. His biggest success has been in bringing inflation under control.

Keeping control over the economy in post-apartheid South Africa is not an easy job. After decades of white minority rule, when the privileged few prospered on the back of the country's extensive natural wealth, the sudden change to fully-fledged democracy and the rising expectations of millions of newly-enfranchised citizens could well have led to instability.

Like so many of its neighbours, South Africa could have been faced with internal strife, new social divisions and new forms of exploitation. That the new republic has come through its early years in pretty good health speaks volumes for those who took up the reins of power, and none more so than Tito Mboweni, governor of the South African Reserve Bank.

When Mboweni took office in 1999, the outlook for South Africa was not encouraging. With the rand in free fall and price stability a distant dream, the economy could easily have deteriorated still further. But, recent disputes over privatization notwithstanding, Mboweni has brought all his skill and experience to bear to halt the slide and guide the nation on to a smoother course.

One of the first acts was to change the cornerstone of South African monetary policy, which had rested on an avowed mission to defend the value of the rand. Mboweni accepted a new mandate from the government. It is now the main role of the central bank to achieve price stability and bring inflation under control. "Our main challenge has to be to hit the inflation target - a band of 3% to 6%," says Mboweni. Sticking to this has been the basis of the relative economic stability that South Africa now enjoys.

The move to an inflation target-based policy was made early in 2000 in order to focus on the creation of conditions that would encourage sustainable growth. The change in policy was not problem-free. "The new framework was introduced last year," says Mboweni. "This meant that we had to introduce new forecasting models and totally reorganize the way in which the bank works. Now, the monetary policy committee meets regularly to discuss its strategy on inflation and we had to introduce a new communications strategy to get the message out."

Mboweni is convinced that the abandonment of the policy of defending the currency at all costs was the correct decision: "The rand can find its own level. We have to focus on inflation. Overall, we react only when we see the inflation target in danger." Nick Pagden, managing director in investment banking at Merrill Lynch in South Africa, is a supporter of Mboweni. "He has been very strong and has pursued a reasonably tight monetary policy," he says. "On the inflation rate and interest rate policy, he has done very well."

So far, the policy has achieved notable success. From a level of around 9%, the consumer price index (CPIX) has declined steadily over the past year, reaching as low as 6.1% in the first quarter of 2001. Mboweni is confident that the trend will continue: "I'm very pleased to say that the trend in CPIX is very much one of downward movement," he says. "Our very latest figures show a rate of 6.4% - this is very close to our target, so we are making very good progress on this."

Russell Loubser, chief executive at the JSE Securities Exchange in Johannesburg, is impressed with Mboweni's performance: "Mboweni has done a fantastic job. He has succeeded admirably in getting inflation down to the target level." The stability created by the governor's policies has also aided the currency. Jos Gerson, chief economist at Merrill Lynch in South Africa confidently predicts a much more stable rand over the next five years.

Gerson says of Mboweni: "He is an excellent manager. The main features of his tenure so far have been continuity and stability." Under Mboweni, argues Gerson, the Reserve Bank has achieved a record of smoothing the business cycle in South Africa far more effectively than in the years before he took up the post. "Things are very different to how they were in the past. I think we will see a period of slower growth than previously, but that growth will continue to be steady."

Gerson also credits Mboweni with improving the structure of the bank. "He has greatly improved the intellectual capacity and diversity of the bank," he says. He feels that Mboweni has pulled people in from the universities who would not have taken such positions before, and has followed the advice of some excellent minds.

The bank has also acted to address the problem of South Africa's net open foreign currency position. In 1998, South Africa's exposure was dangerously high, amounting to some $23 billion - a serious threat to economic stability. This has now been reduced to $4.8 billion. "If all goes well," says Mboweni, "this problem should be dead and buried by the middle of 2002." Mboweni's success in tackling this problem has been a major achievement and has helped to restore some confidence in the beleaguered rand.

Mboweni began his association with the African National Congress (ANC) while in exile in Lesotho in the early 1980s. He served as labour minister between 1994 and 1998, then joined the Reserve Bank as advisor to governor Chris Stals who he succeeded in August 1999.

Mboweni has been prepared to court controversy. He has taken a strong line on the problems in Zimbabwe, which he sees as a destabilizing influence on the whole of southern Africa. Mboweni has stressed that Zimbabwe must act to resolve its problems, or face the disapproval of its neighbours. Loubser says: "His public stance on Zimbabwe has been very brave. He has faced criticism from Zimbabwe but has stuck to his position. He must be commended for his bravery on this."

He is planning a further reorganization of the Reserve Bank. "We are trying to move the bank from being an Afrikaner institution to one which is more representative of modern South Africa," says Mboweni. "This means introducing more black managers and changing the organizational structure and culture of the bank. This has been both helpful in our work and very exciting."