About this site

This resource is hosted by the Nelson Mandela Centre of Memory, but was compiled and authored by Padraig O’Malley. It is the product of almost two decades of research and includes analyses, chronologies, historical documents, and interviews from the apartheid and post-apartheid eras.

15 Dec 1999: Mboweni, Tito

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POM     My second last interview of the millennium. When I met you first, as I said I always have this image of you in my mind of wandering around the University of Durban at Westville and you were in a sweater and you had a notebook under your arm –

TM     I always have a notebook.

POM     The guru of the day who was instructing you, in fact it was on a day that Alec Erwin was addressing a bunch of students, he was then in the union, whatever union he belonged to, but Steven Gelb was the guru of the moment telling you how to run the economy or whatever. Then I remember moving on from that where you were so angry one day about the treatment you were receiving in the city in trying to find accommodation and then you were angrier still on a number of occasions when you said you used to go to those meetings and they would be full of white businessmen and they would sit there in a patronising way and tell you what the ANC government would have to do. And here you are 4½ years Minister of Labour, Governor of the Reserve Bank of South Africa. It's been a long journey.

TM     It's been a very long journey and I must say thank you very much for having included me in your research. Over the period sometimes it has felt a little bit too exhausting and too onerous a task but I think looking back it was a good thing that you did. I think I am looking forward to reading my whole transcript, the whole lot because I don't know where it is. Some parts of it I don't know where they are but it will be an interesting journey. I think I will also use some of the material for my own booklet that I want to write but I will wait for you to finish.

POM     As long as you give me credit.

TM     Yes I will, I will. I will say this – thanks.

POM     This poor aged –

TM     I'm trying to write a little booklet because I'm tired of people asking me questions about who are you, why at the age of 40 are you the central bank governor of SA when traditionally central bank governors were much older, some were 50 or 52, thereabouts, why? Incidentally it looks like in SA I'm the youngest Governor of the Reserve Bank but not in the world, there are other younger central bank governors. People ask me these questions all the time, why did you leave the cabinet? Now you are in the bank. What next? And maybe what next is where we begun, maybe next maybe the university. I have always had this love for teaching and for interacting intellectually with academics and students and I think it may not be a bad idea that somewhere in my fifties I go to university and spend time there researching, teaching, and relaxing a bit.

POM     I think in fact that would be a good idea for a couple of reasons and one that immediately comes to my mind is that by the time you get to that age there will be a generation who will have grown up who will never known of the struggle, who apartheid will be like "Ha! There they go again talking about apartheid, will they ever stop talking about it", and they will need to be re-energised, re-motivated.

TM     I think there will be a lot of intellectual material that will need to be put together and my contribution I suppose would be at the level of the political economy, what happened in the economy in the sixties and seventies and eighties and nineties, and how was the interplay between the economy and the politics, the growth of the union movement, why the rise of mining and the decline of mining, the heydays of high employment and the heydays of high unemployment, heydays of Afrikaner power, decline of Afrikaner power, how in the nineties in a sense there are contradictory forces at play for social democracy and for outright capitalism, is there a middle way. So all of those things.

POM     Why don't you expand on the last one a little bit?

TM     For example, there are those I observe in SA who see the current economic policy of the government as being a victory for the right wing, which I don't agree with. The fact of the matter is, I am sure you will recall that I talked to you about it some time ago, and I am sure you didn't make sense of what I was saying. In one of our interviews I indicated that the experience of the sixties and the seventies in most post-colonial states was that left wing or social democratic governments which followed a reckless economic policy found themselves eventually in the hands of the right wing, particularly those in terms of structural adjustment programmes.

POM     IMF.

TM     And then they lose control of that domestic economic policy. It has become clear to us in the studies that were done of what happened in the sixties and seventies in particular that it was actually in the interests of a social democratic government to pursue very conservative macro-economic policies. That ensured that in the medium to long term you maintain control of your policy direction and you are in a better position to deliver in the long run. We carried through that message into what we called the Mont Fleur scenarios. That was to conceptualise in an easy to understand way that notion that it is actually in the interests of a social democratic government to pursue prudent macro-economic policies which in the longer term will be in the interests of the company.

POM     Did you not run into trouble within your own structures that were more left oriented?

TM     No, I mean the ANC at the end of the day.

POM     When socialism was in its heyday and you were sending guys to East Berlin and to Moscow or wherever to undergo training?

TM     No, not that. It was not about training in Moscow that made people socialists. It was their practical experience in SA that made them socialists, a point that's normally missed. You don't have to go to Moscow to be trained to notice that there are certain inequities of the combination of apartheid and capitalism, the way it manifested itself in SA, so the very notion of the Freedom Charter that said to create an equal society, people shall share in the country's wealth, people shall guard them, there shall be houses, security and comfort, peace and security, there shall be solidarity amongst people. So those sorts of things have really had South African roots, they developed here, but there have been occasions when we've had wonderful debates and we've actually enjoyed the debates.

     For example in 1992 at the ANC Policy Conference here at Nasrec in Johannesburg we debated for eight hours whether our policy document should contain the words 'nationalisation' and 'privatisation'. In the draft which I had put before conference I had put the words 'privatisation' and 'nationalisation' and we spent eight hours, eight hours, because I had said on a case by case basis and the international economic interests it may be necessary to nationalise some industries and at the same time it may be necessary on a case by case basis to privatise – ooh eight hours, at the end of which there's now a famous quote in the policy document of the ANC. It says, "A democratic state would consider whether to increase or decrease the public sector depending on the evidence before it."

POM     What document is this?

TM     1992, document of the ANC, it's called "ANC Policy Guidelines for a Democratic South Africa" and it goes under the heading "Ready to Govern".

POM     Let me ask you, when you came to the bank what state did you find it in in terms of transformation? What state did you find it in in terms of transformation, that is in terms of representativity?

TM     There isn't. As of now there is no transformation. About 88% of the management at the bank, the Reserve Bank, is white, male, Afrikaner. So there is no transformation to talk about. The bottom 40% of the work force is all black.

POM     Rectifying that is – ?

TM     It's going to be huge. What was decided is that we will develop a model.

POM     To access employees, is vertical and function of years.

TM     Years, time. So 1999 we have about 2020 employees. The problem is that, as I say, 88% of them in management are white Afrikaners. Now we have said by the year 2005 we must have 50% black, 50% white management, and 33% women. So how are we going to achieve that because people in the Reserve Bank don't resign very easily, they stay. So we're going to have to develop a model, by the year 2005 we must have these ratios achieved.

POM     If they don't resign very easily how many by natural attrition would go?

TM     They wait until they retire. About 10% but it would take you another 15 – 20 years before you can see anything. So the idea is to achieve that, let's say that is 2500 employees, so we increase it, so maybe by the year 2002 we have increased the staff complement to 2500 and cap it there and drive it down. So you increase the numbers but focus them in the management echelons of black people and women and they work there, they get training and they work and then as some of these ones begin to retire you slot people into those positions and then until you have reached your target then you will stabilise. Actually once we reach our target we may find that we need to recruit more young whites because you will have a significant number of blacks now, so to balance it because we want to build a non-racial society and we must be serious about it. Once we reach the necessary critical mass of blacks in the bank we must go out of our way to recruit whites as well so there's a balance. The danger in situations of transformation is that the pendulum swings completely in a Pan-Africanist position and we don't want that.

POM     What do you mean by the pendulum swings in a Pan-African situation?

TM     In other words all the whites are moved and that doesn't help to build a non-racial society because we can't imagine a non-racial society out there and not make sure that it happens where we are, which is psychologically what many people still have to go through. A non-racial society is fine as long as it's over there, but here they do something different. They don't practice what they preach. It's like many male feminists, they intellectually propagate feminism as long as it's over there, that's fine, but here they don't. So intellectually they think it's OK, intellectually it's all right, but in the practice, their own practice, it's not alright. They don't practice what they preach. So in my view as a strong adherent of non-racialism we must make sure that that non-racialism is practised where I work.

POM     Are you subject to the same laws, the laws that you passed, regarding each year having to give an audit of who's at what level and how you're closing the gap between the workers on the one side and the - ? So the bank is not statutorily exempt from that?

TM     No.

POM     To whom is the bank accountable as an institution?

TM     Well it's accountable to parliament but it is accountable to the people of SA, but structurally we do so through parliament. That's why I will spending a lot of my time in parliament in the interaction with the committee, answering questions before the committee, explaining things to the committee and the committee sessions are open to the public. That's how we hope we can have as broad as possible interaction. The SA Reserve Bank is a creature of statute and the law that forms the SA Reserve Bank is passed by parliament so the bank derives its mandate from that law as passed by parliament.

POM     In terms of policy making and decision making how is the bank now different under your stewardship than it would have been under Chris Stals or his predecessors or during Afrikaner regimes?

TM     Well there's one key difference. One of the first things that I did was to establish a Monetary Policy Committee, an MPC, made up of the Governor, the Deputies –

POM     Of whom there are?

TM     And other officials of the bank. You know our website? There's a website, I think it's worldwideweb.resbank.com.za. You will find most of the things I'm talking about there. But for the purpose of this discussion we have an MPC which decides the monetary policy. That wasn't there, it's a new thing. The other administrative system that I've put in place as well which you will also find on this, it's a committee system. There's a Governor's Committee, which is this one, these people here, then below it is the Management Committee. We have a Payments Committee, a Budget Committee, Monetary Policy Implementation Committee. Under this one you have a Procurement Committee.

POM     All these committees I can get off the web?

TM     Yes, I think all this information is there.

POM     What I'm saying is I understand when you were appointed that your primary concern under the constitution is you are required to protect the currency and control inflation, and as far as I recollect when you were appointed you said your primary emphasis would be on controlling inflation. Now I've a couple of questions, (i) I'm a big fan of Joseph Stiglitz who has now quit the World Bank and taken on to attacking the Washington Consensus.

TM     Did he jump or was he pushed?

POM     I would say he got pushed. His criticisms were becoming more strident all the time.

TM     Did he come from the NGO movement?

POM     Yes initially. He's got a very distinguished university pedigree too as an economist. But he says, I want to ask you, (i) how does control of inflation contribute to job creation, (ii) how does it contribute to economic growth? He quotes on inflation, this is a lecture he gave, the very same speech he gave in Helsinki in 1998, it's called the 'Wider Lecture', and he said: -

     "Probably the most important policy prescription of the Washington Consensus stabilisation package was controlling inflation. The argument for aggressive pre-emptive strikes against inflation is based on three premises, the most fundamental is that inflation is costly and should therefore be averted or lowered. The second premise is that once inflation starts to rise it has a tendency to accelerate out of control. This belief provides a strong motivation for pre-emptive strikes against inflation with the risks of an increase of inflation being weighed far more heavily than the risk of adverse effects on output and unemployment. The third premise is that increases in inflation are very costly to reverse. The empirical evidence of a large number of studies shows that only high inflation is costly. When countries cross the threshold of 40% annual inflation they fall into a high debt low growth trap. Below that level, however, there is little evidence that inflation is costly. In 1995 more than half the countries in the developing world had inflation rates of less than 15% a year. For these 75 countries controlling inflation should not be an over-arching priority."

TM     All I can say to him, alleluia, I think he's talking a lot of rubbish.

POM     OK.

TM     He's talking a lot of rubbish. Go into a factory and ask a worker how their pay packet is like when inflation is high and they will tell you that it's not good. Inflation erodes the value of the money of the poorest. That's my thesis. Why do I say so? Because the rich can always hedge against inflation in all kinds of ways. So I think his thesis is untested, I don't know where he gets it from.

POM     He says empirical, this is a large number, I'll get you the list of all the studies.

TM     There are many, many other studies which will show that he's completely cuckoo. I think he's got it wrong. But that's the first thing I was telling you, that inflation erodes the buying power of the poor. The rich can hedge. The middle to upper classes they can hedge in various investment instruments. They will be fine but for the lower working class people it's very bad. Secondly, I don't think the evidence is still there that the higher the inflation rate, the more the employment. In fact in today's world you are likely going to find a situation that the higher the inflation can actually result in higher unemployment. Why? Who wants to invest today in a high inflation environment? Investors from the markets? They say a high inflation environment is an erosion of their investment, they run away.

POM     OK. Now you have brought down, the bank has brought down inflation quite dramatically in the last few years. Right? And yet net direct foreign investment is negative.

TM     Where?

POM     In South Africa. More money is being invested abroad by local business than capital inflows into the country according to your own latest report, unless I am misreading it. It says: -

     "The Reserve Bank Quarterly points out that while we're still attracting foreign capital inflows, that the inflow in the last three years was more than fully accounted for by the inflows of portfolio capital. These in fact were at a record of R29.9 billion. Foreign direct investment has actually been negative in each of the first three quarters this year by R3.3 billion suggesting that South African companies continue to invest more abroad than foreigners do here, the reverse of what is needed for both job creation and bearing in mind that direct investment can't be withdrawn as easily as portfolio investment which is notoriously volatile. It's difficult to persuade foreign investors to invest when locals don't. As the Bank puts its finger on the nub of the problem with ample production capacity in the manufacturing industry, new investments are targeted and maintaining existing capacity or implementing a new technology. In both cases you can bet that the investment is more likely to destroy than create jobs."

          So you lower – ?

TM     No, no. I thought you were saying, let's go back to the Stiglitz argument, the theoretical argument that he was putting through is that an inflation rate of up to 40% - I only need to look at Brazil and I will tell you that this man is cuckoo, absolutely cuckoo.

POM     OK. Well let's go back to -

TM     At a theoretical level he's wrong and at an empirical level he's wrong. You see there used to be the conventional wisdom that there's a trade off between inflation and employment. I think it's a classic mistake but that has been discounted now. I tell you if I made a pronouncement tomorrow that I would like to see an inflation rate in SA of 20% come in, this country is buggered, it's gone to the dogs.

POM     So has your head.

TM     Nobody is going to come into your bond market. Your debt is gone. The private sector wouldn't take your debt. Why? Because people have had the experience where they've put money into government bonds and those particular countries then experience high inflation and people have seen their paper turn into nothingness before them. So I don't know what kind of countries Stiglitz thinks he will be running.

POM     Because there was hyper-inflation in Germany in the twenties and people demanded to be paid per hour.

TM     And you had to carry a huge basket to pay for things.

POM     But I want you to go back to your argument about low inflation and the poor. There was a study carried out by Stellenbosch last year in the midst of the economic crisis, recession, whatever you want to call it, and they found that whites were really worried about it and remained pessimistic about the future while blacks remained optimistic about the future. I thought about it and I came up with my own explanation, that was that all this crisis in currency or whatever doesn't affect the poor because the person living in a squatter camp has so little that he's not losing anything when the value of the rand goes up or down. He's buying in the informal sector from somebody on the ground, it's a locally produced commodity. It's fruit or its vegetables or its potatoes or whatever, meat, which is locally produced, it is closed off from the outside influences, the external influences that affect inflation, like even wage levels, and that for the poor targeting inflation, for the poor and unemployed targeting inflation doesn't make a hell of a lot of difference in their lives because they don't go to supermarkets to buy.

TM     They actually do because you will find that the local trader actually sometimes charges them a premium. They're better off going to supermarkets sometimes.

POM     You've had work done on this?

TM     I've seen it in practice. I've seen people. What happens is that the local trader goes to the supermarket, buys from them and charges a premium and the local trader is not just selling vegetables, he's in all kinds of things. Even the poor need a radio sometimes. Have you been to those squatter camps? Have you seen how many TV sets are there?

POM     I sure have. I've seen more TV sets – I often look at them and say, "My God, I don't have a TV set as big as that."

TM     There are some nice cars there too.

POM     And some nice beautiful stereo systems.

TM     So they also go to the supermarket. The squatter camp is a combination of a number of things. It's a combination of the housing crisis side by side with significant percentages of poverty. Squatter camps by definition are not poverty. They are people who have lived, say, in Soweto in one house, it's got too big, then there's no housing stock so a chap leaves home, sets up a base somewhere whilst he's looking. I've seen mayors of city councils living in squatter camps. They are by no means the poorest of the poor.

     But let's come back to the main point. The main point, whatever the argument, is let's not – because we don't have much time. The point is that the approach we've decided to take is one of inflation targeting. We think that this in the current combination of circumstances in economics and politics it is probably the appropriate thing to do because otherwise what should a central bank do? Just distribute money and sit around and wait?

POM     I want you to link that to attracting foreign investment. You've low inflation, you've got GEAR operating according to schedule. Everyone says the macro-economic fundamentals are absolutely sound and yet you have a local business that rather than investing –

TM     Let me talk about that by the way. I've come through that school of thought.

POM     I'm quoting from your own report.

TM     No, no, that chap is making an interpretation.

POM     No, he's quoting from what the central bank says.

TM     I don't think he says local business won't invest.

POM     Here. "We are still attracting foreign … direct foreign investment is negative in the end."

TM     That's not a quote.

POM     Well it's taken from the report.

TM     No, but that's his interpretation.

POM     I want a copy of the report before I go.

TM     But it's not a quote. Let me explain to you what's happening. Forget about that fellow.

POM     This is in the Financial Mail 10th December.

TM     I know, that's Michael Coulsen, he's not an authority on the matter. Just put him away for a while. What's happening is that there's been a lot of build up of financial wealth in SA by a number of companies whose capacity in SA is exhausted. I will give you an example: SA Breweries. How much more beer do they need to produce in SA? Because in terms of the market they're feeding the market actually. That was a problem for South African competition because they dominate the beer market. So how much more do we want from them?

POM     Why aren't they exporting?

TM     They are exporting.

POM     Well there's lots of room for beer.

TM     But also we have encouraged them to set up bases in Tanzania, in Zambia as part of SA's own economic investments into Africa. At the same time for them to continue to access capital internationally, from the US, from London and so on, and for them to conquer new markets they need to establish bases around the world. BMW produces BMW cars from Germany. It doesn't just export them only from Germany. There's a plant in the US, there's a plant in SA. If that's good for BMW why should it be wrong for SA Breweries to establish bases in other parts of the world? Their home is still here, the major shareholders, primary shareholders are still here. Actually we've seen a lot of benefit in terms of these listings abroad ourselves because as the listings happen shares are traded there and the pay-back comes as shares exchange hands and it's been good for the Reserve's position, the Reserve Bank, because we're getting dollars as people buy those shares there. Now that's what happened with Breweries. Let me take another company.

POM     But that Brewery, one of your primary examples of an efficient, competitive industry or company, is not creating jobs in SA, it's creating jobs in Tanzania and so on.

TM     The point I'm making, how much more beer do they need to produce in SA?

POM     You're saying that they can't produce it competitively here to export. They have to go to Tanzania.

TM     It's in our favour actually to go to Tanzania because if the regional economy collapses they would come here. Rather they were part of creating some economic base in Tanzania, helping the Tanzanian economy grow and so on.

     The second company that's active internationally is Billiton, it used to be Gencor. They've got projects here, they've got other projects abroad. Now a mine that they own in Chile there's no way in which we can say they mustn't go and invest in the mine in Chile because what are they going to do? The mine, the shaft, is in Chile. A South African company must allow it to grow and to conquer markets. Similarly with Anglo-American, they are mainly a mining group. They can't dig those mines and bring them here.

     It is true that you will see a pattern of SA companies, big companies investing abroad. My only argument with the SA companies that are investing abroad, it's only one: why should they change their primary listing from Johannesburg to London? That's the only problem that I have with it because you can achieve the same objectives by being primarily listed here and a secondary listing in London or New York. I mean Sappi, the paper and pulp company, is primarily listed here, a secondary listing in New York and London. It's doing well.

POM     What would you say about the flow of – would you say that net capital - ?

TM     It will balance out. This is an initial period during which SA companies are active. It will balance out. I know that people say no, no, no, but it's an old style thinking that says domestic companies must only invest domestically but it's a nonsensical argument, it doesn't work. Ford Motors must just stay in the US? Toyota – at the same time we want Toyota to invest here but we don't want our own companies to invest abroad. It's an imbalance.

POM     In fact when the American auto industry collapsed to the Japanese and the South Koreans and whatever and the Germans, the companies in South Korea and Japan and Germany created more jobs in America producing their cars there than the jobs lost by American companies in terms of the numbers they laid off. In fact the numbers employed went up not down.

TM     As I say in this initial period it looks like there is too much SA company investment abroad but there is no way in which a very clever company that knows it's making profits in SA, and their main base has been SA, is going to kill off a South African investment in favour of another investment. If SA Breweries abroad decides to stop beer production here another beer company is going to take on the market. Actually one of our problems with SA Breweries is that it's a monopoly in the beer market. That's a problem. I still think it needs to diversify some of its activities but there's no way they're going to leave this market. They're making their money from here.

POM     What factor in investment flows – say if I had a company and I have $100 million profit at the end of the year and I have three choices, I can distribute it to my stockholders, I can invest in expanding the company at home, I can look for a foreign market to invest it in or I can put it into capital flows. Now if I put it into capital flows it means I've instantaneous mobility of capital, I can move it from here, from London to Johannesburg to Frankfurt to Hong Kong and swing it around, take advantage instantaneously of every opportunity that arises to maximise my return. Why wouldn't that be a more rational course for me to take than to say I will plough $100 million into building a factory in country X whose economy may or may not improve and I will have to deal with management and labour and all the problems that go with that and it will be quite a number of years before I get a return on my $100 million? In the instantaneous information mobile world we live in doesn't moving your money into capital flows yield a greater return in the long run than putting it in a different … ?

TM     What is it that made you decide to be a university professor? What is it that made Maxine decide to come and work for me? What is it that made me decide to do what I've done? What is it that makes somebody decide to sell oil? What is it that makes somebody decide to become a hedge fund? What is it that makes somebody decide to be a Goldman Sachs or a JP Morgan or a Merrill Lynch? What makes somebody think that they should be Standard Bank or Nedcor? We can't look for single solutions to what are complex –

POM     No, what I'm asking you is – it's a question I'm asking.

TM     I'm developing the answer to show my duplicity of options. There are people who think like that. I don't have to put up with that, go and borrow money from banks, I'm going to be a hedge fund. That's what they do. There are others who believe that they want to be bankers and they want to do that, who just want to produce Mercedes Benz or BMW. It's a reality and maybe that high leverage financial sector is not as accommodating to as many players as we think. Just like maybe the beer market internationally may not take more than ten good breweries in the world. So if I can't fit in the breweries I will go and produce Mercedes Benz or BMW because I must make a living, I'm an entrepreneur, I look for opportunities. If I think opportunities are in the garment industry then maybe I can do better in the garment industry. My abilities are only in the garment industry, I will go to the garment industry. I may wish to go to the hedge fund business but I don't understand it. Only Merryweather and Scholtz understand it, maybe, and Soros. So I go where I think I am better able to make a living and pay for the school fees for my kids.

POM     Yes but if you're a large corporation you're not thinking in those terms. You're thinking of –

TM     But at the end of the day you've got directors, you've got executive management, you've got shareholders. At the end of they day they are involved in that business because they want a return on their investment.

POM     If I were to be rational for me, say as a member of a board of directors, if I said at a board meeting, "We've $100 million to spare. I suggest that rather than, there have been plans under consideration to open a plant in Mexico and my God there are corrupt officials down there and there's this kind of regulation and that kind of regulation and you're going to run into all kinds of problems and you've got to train the labour force and you've got to - "

TM     I'm a member of the board and I raise my hand and say, "You want to take your share and go with it? Take it. I am better off in this company. But look at the history of our development and our returns, it's much better than it would have done in stock markets. They crash, all kinds of things. As a member of the board I don't think I want to be in that kind of business but if you want to be in that business take your share, go." I've seen it happen in family owned businesses where a member of the family says they want to pursue different things. Take your share my brother, go for it. We stay here. We're traditional, we are miners so we will mine. We will mine gold, we will mine platinum, zinc and so on, we will stay there. You want to go and risk, good luck, there's your share.

POM     Just back to monetary policy, particularly controlling inflation and creating jobs.

TM     The role of monetary policy is to make sure that there's bank stability, but also the role of the central bank is to make sure that there's financial stability, by which I mean stability of the banking system.

POM     That the banks are sound.

TM     Sound, because if you don't have a sound banking system it means that your corporate banking is bad, your merchant banking is bad, your retail business is bad and your transmission mechanisms are not in play. And controlling inflation means trying to achieve the lowest possible inflation rate, in our case for an emerging market and stability of your …  So we sit and look at various factors that we look at to determine which way interest rates should go. In today's world it's very complicated. It's not as easy as in the olden days. We have to take account of the totality of financial and bank stability. To what extent will investors in New York and London, Tokyo, Frankfurt, Chicago respond if our rates are 600 basis points below the US benchmark in their terms? If they are 600 basis points below why should they bother to invest in the market here when actually they can get a better return in their 30 year US Treasury. You wouldn't invest somewhere where you know you're losing 600 basis points, you wouldn't, and the tricky part for us is whatever decision we take we must make sure that there's a little bit of a margin that can still encourage portfolio flows into the country. Why is that important? It's important that our market continues to be active and liquid. Secondly, precisely because of the FDI programme our deficit on the current account will for a while be financed by portfolio inflows either into equities or into bonds. Now you may say the money that comes into bonds is in and out. Yes it's in and out but that money that comes into the bonds, the government debt for example, is locked in for a period and the government has got some source of income. If the bond yields here don't compare favourably with the bond yields in the US or in Frankfurt why should - ?

POM     The main benefit from capital flows, mobile capital flows which are locked in for a while, is that they serve to bridge, to finance in foreign exchange terms.

TM     No not foreign exchange. The current account. Balance of payments.

POM     The current account, yes. Sorry the deficit on the balance of payments.

TM     If we didn't have that then we run into balance of payments problems and we go to the IMF very soon.

POM     OK.

TM     We don't want to do that.

POM     In a global economy, you've addressed it in a way, how much independence does an independent Reserve Bank have?

TM     In terms of the markets?

POM     Yes.

TM     Nobody is independent of the markets. If you make a wrong decision the markets will punish you.

POM     I know but don't you find it odd somehow to think that we are the only intelligent species on the planet and that we allow the impersonal forces of the market, driven by the invisible hand that Adam Smith referred to, to determine economic outcomes? They say the market determines.

TM     I think it's an interplay between the market and the people. The people themselves, the market is people, and I see them at Goldman Sachs, I see them on the New York Stock Exchange whenever I'm there. I see them shouting up and down at the Chicago Mercantile Exchange. The market is people coming to sell and others coming to buy. That's the basic logic and agreeing on the price whether it's a bond, whether it's an equity.

POM     But they're not creating wealth.

TM     Why not?

POM     On buying and selling, they're transferring existing goods.

TM     No, no, some are new, some are new issues altogether.

POM     But when it comes to –

TM     The equities, new issues. They could be raising funds to build a factory.

POM     But if leaving new issues aside, if we look at what the bulk of trading is in existing companies that are –

TM     But even there, let's look at Nasdec and look at the technology stocks and see how many of the new technology companies are actually coming onto the Nasdec. That's new worth. Yes there are a lot of current shares which are trading all the time but one must not – even then because the trading also determines to what extent is there still value in the shares in that company or not because if I feel that a company's results show an improvement in the company it means that company is creating wealth, therefore I will be more excited in buying their shares but if they're losing market share –

POM     Losing money.

TM     - then I don't buy because there's no wealth in that company. Why should I put my money in a company that's losing? I think normally we just look at these people shouting and screaming and we think that they are not doing any analysis of what's happening in the real economy because without the real economy you can't have a share market. You can't. There has to be a motor company, there has to be a manufacturing company, a technology company which is the base for these shares that trade because the shares are the shares of real companies, not of fake companies.

POM     Now you came in for both criticism and praise for your intervention into the Stanbic/Nedcor merger dispute. Were you trying to send, and I'm not going to go into the details of it because it's beyond me, but were you trying to send a message, the message being that the Reserve Bank is an important implement of transformation in this country and that it will – we're here!

TM     They completely misunderstood me there actually. Do you have that article here?

POM     No that was a profile done of you.

TM     There was a strange statement there that not since the elections of 1994, they said in the Financial Mail, not since the elections in 1994 has a black public figure made white economic power seem so insignificant and that that was a defining moment for them in the transfer of power. I thought that was very strange and very stupid. I don't know how they could have come to that because all I did was, as custodian of a sound banking system, it had become clear to us that the fight between Nedcor and Standard was going beyond reasonable limits. They were involved in this huge bun fight and maybe it's gone now since I spoke. Have you noticed it's subsided? Actually I'm seeing the Chairman of Old Mutual just now, but it has subsided now and so I said, "Please cool off, take it easy, cool off, because we want to ensure that you conduct your commercial business in a commercially reasonable way. We are not taking sides, we will make up our minds in due course but we won't be influenced by all this reckless talk that's going on. Please cool down." I was very harsh on one chap who is the Financial Director of Old Mutual in London, I said he should know when to open his mouth and when to shut it.

POM     But you did it very – kind of whatshisname?

TM     That was a bit naughty.

POM     One last question and then I'm on my way. The price of gold.

TM     Not that good this morning. 280 at ten.

POM     A lot of this economy still depends on movements in the price of gold.

TM     Well let's just say mining.

POM     Well, and your reserves.

TM     Internationally it's still important.

POM     And it would have been - the companies or the Reserve Banks around the world who were going to IMF are going to unload large stocks of gold would have had a pretty serious impact on the economy here and you got them to agree to stagger their doing so. Had they not done so would you have faced a problem.

TM     I think the gold price was going to go below 230 and if it went below 230 most of mines would close.

POM     So you depend –

TM     The mines?

POM     Yes. What I'm getting as it that there is only so much that SA can do to determine its own economic fate, that there are forces out there in the global economy that impose constraints over which you have literally no control.

TM     But fortunately it's not just SA but it's everybody else in the world. If I have a factory in the US and the US decides to impose such unreasonable policies to make it difficult for me to continue to have my firm in the US I'm going to close and go to Korea. It's in the nature of the globalisation. It imposes certain constraints on all of us and globalisation does expect a particular level of behaviour from all of us.

POM     Last question. How has the last ten years changed your life?

TM     Not much.

POM     Are you the same Tito Mboweni you were ten years ago?

TM     Yes. It may not be because of the ten years, because maybe I've aged a little bit. When we first met I was 31, I'm now 40 going for 41. Maybe I've aged a little bit greyed a little bit, changed my hairstyle.

POM     Mind, beliefs, lifestyle?

TM     No, that's not – I am still a social democrat. I will always be.

POM     On that note I will leave you.

This resource is hosted by the Nelson Mandela Centre of Memory, but was compiled and authored by Padraig O’Malley. Return to the Nelson Mandela Centre of Memory site.