Simon Segal
A repeat performance two years later, and still the markets and critics did not learn. The sky did not fall in when Derek Keys resigned as finance minister in October 1994. The equally sudden resignation of Keys’ successor from the private sector, Chris Liebenberg, again caused an over-reaction, especially from those traders who ignore the broader perspective.
The big difference this time round is that a black activist with no degree or financial sophistry occupies the post. The one key advantage Trevor Manuel brings to the ministry is more political power than most of his cabinet colleagues and an ability to take on interest groups. Manuel is a career politician, not a seconded businessman.
This is useful. In cabinets the world over, the finance minister’s primary role is political — to restrain his colleagues who want to spend their way to electoral favour. In a world where fiscal prudence is the norm, this question is of the utmost importance for South Africa, the focal point of business sentiment. Thus, one of Manuel’s key tasks is to address fears around the budget deficit and government debt.
The deficit, which Liebenberg last month projected at 5,1% of gross domestic product (GDP) in 1996/97 against 6% in 1995/96 (5,5% if transfers to the Central Energy Fund are excluded), is way above the internationally favoured norm of 3%. The total debt comes to 55,6% of GDP (56%), just below the 60% mark that international institutions consider prudent. But the trend in South Africa is ominous — in 1980/81 government debt was 30% of GDP.
These figures blight an otherwise impressive fiscal and monetary management under the government of national unity that boasts the most buoyant growth, lowest inflation, largest net capital inflows and most sizeable fixed investment in two decades.
Keys and Liebenberg certainly played no small part in this — as the markets’ reactions to their resignations bear testimony.
Both departures have been handled ineptly. It does no good for a country of South Africa’s developing stature trying to earn credibility to play musical chairs with its finance ministers.
Neither Keys nor Liebenberg resigned out of any major policy differences. Not used to the grind of politiking, their primary motivation is to return to private life.
Life goes on without Liebenberg. And the economy will survive. Liebenberg would be the first to note that Reserve Bank governor Chris Stals and the heads of both the department of Finance, Estian Calitz, and State Expenditure, Hannes Smit, are still around.
President Nelson Mandela has gone out of his way to demonstrate his seriousness towards government’s economic credibility in the eyes of local and international investors and development agencies. Manuel’s appointment, and that of deputy Gill Marcus, are in the same spirit.
He will have to earn credibility and demonstrate the ANC’s ability to manage the economy. In his major task of reining in the deficit, Manuel will use both options of rationalising spending and increasing revenue. The latter will primarily be through improving the efficiency of the new South African Revenue Service. His most awkward decision, however, will be lifting exchange controls. This is where market sentiment and building up a healthy relationship with Stals are so vital.