Manuel says SA should weather market turmoil

South Africa’s solid economic fundamentals should help it weather current turmoil in global financial markets, Finance Minister Trevor Manuel said on Wednesday.

“For South Africa, we remain confident that our monetary and fiscal frameworks provide sufficient and needed flexibility to maintain a healthy pace of economic growth despite the financial turmoil,” Manuel said in a speech at the University of Stellenbosch, near Cape Town.

“Should world growth slow, South Africa will of course not be immune, but as global current account imbalances unwind, the sources of world growth will continue to slowly change,” he said in the speech, a copy of which was sent to Reuters.

South Africa’s rand currency and stock markets have swung wildly over the past few weeks amid turmoil in financial markets in the face of a global credit crunch with its origins in the United States subprime mortgage sector.

But Manuel said local banks had indicated that they had “little or no exposure” to subprime lending or to hedge funds with sub-prime assets.

Countries with solid macroeconomic fundamentals, particularly those with high foreign exchange reserves and current account surpluses, were better placed to weather the market storm than others, he added.

“South Africa has done well so far, and should continue to do so unless there is a significant slowdown in global growth that leads to a rapid fall in commodity prices,” said Manuel.

Analysts say a firm price for gold—of which South Africa is the world’s biggest producer—has helped cushion the rand against some of the effects of the global meltdown.

Manuel said a slowdown in global growth and a fall in commodity prices would be a concern, given South Africa’s current account gap, which narrowed only slightly to 7% of gross domestic product in the first quarter of this year from 7,8% in the final quarter of 2006.

But he said South Africa’s fiscal and monetary policies were flexible enough to address negative economic shocks should they occur, citing the Reserve Bank’s inflation targeting, a floating exchange rate and the accumulation of foreign exchange reserves. - Reuters

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