Mungo Soggot
Reserve Bank Governor Chris Stals’s key annual address this week drew consensus among economists that South Africa’s top banker is caught between a rock and a hard place.
But while there was agreement that the economy’s vital statistics — huge imports, a shaky balance of payments, and crippling debt levels — were far from healthy, there was little unison on what Stals should do about it.
Edey Rogers economic consultant Edward Osborn captured the essence of mainstream opinion, saying the speech was an elegant explanation of why Stals felt he could do nothing: he had to lift interest rates to attack the current account deficit on the balance of payments, but could not because real interest rates are so high and the economy is waning.
The National Institute for Economic Policy, a left-wing economic think-tank, bucked the mainstream acceptance of Stals’s inability to act, attacking him for abdicating from his responsibility by blaming everything on the business cycle.
Senior economist Asghar Adelzadeh said that with the economy cooling down, Stals had to cut interest rates immediately to help stimulate growth. He agreed with Stals that the crucial problem in the economy was the current account deficit, but felt the governor should use monetary policy to beef up industry so as to dampen import demand.
He had similar criticisms of government’s economic policy — its macro-economic strategy was aimless, and contained no clear targets or strategies to create employment. In particular, he lashed out at the approach of cutting import duties more rapidly than the General Agreement on Tariffs and Trade required.
Adelzadeh suggested the government isolate those imports that should be discouraged — especially ones, such as luxury cars, that did not help create jobs.
Old Mutual chief economist Dave Mohr said the most striking feature of Stals’s address to the bank’s annual general meeting was that he signalled inflation was no longer his chief enemy. Instead, Stals now had the current account deficit in his sights.
But Mohr was not convinced the economy had slowed sufficiently in the first half of the year to lead to the slowdown in imports Stals desperately needed to see an improvement in the balance of payments. He estimated gross domestic expenditure in the second quarter had risen a seasonally adjusted quarter on quarter and annualised 8%.
Rand Merchant Bank chief economist Rudolph Gouws said the fall in inflation in April to a 24-year low of 5,5% was “not a flash in the pan, but part of a fundamental downtrend that started in the late 1980s”.
In an apparent attempt to terminate sporadic speculation of his imminent resignation, Stals ended his speech by saying he looked forward to welcoming back the bank’s shareholders at next year’s AGM.