Ferial Haffajee
South Africa’s delegation to the annual World Bank and International Monetary Fund (IMF) meetings in Washington this week jet home on a buoyant note.
Certainly they are more buoyant than their East Asian and Latin American counterparts, who return to economies more damaged by the quakes in the world system than South Africa has been. The World Bank and IMF chiefs, who hardly mentioned Africa, were reportedly impressed with Minister of Finance Trevor Manuel’s performance.
Although the rand has lost more than 20% of its value in the global crash and interest rates have soared, South Africa has steered clear of considering the Malaysian and Hong Kong decisions to reintroduce capital controls.
In Washington this week, Department of Finance Director General Maria Ramos again reassured audiences South Africa would not retreat into protectionism. Her position was entrenched after the disclosure this week that the international ratings agency, Moody’s, has not downgraded South Africa’s investment rating.
Developing economies face two options in dealing with the fallout of global economic distress. The first is a Malaysian-style national option which includes the introduction of capital controls, or a tax on international transactions. The second is a global option where affected nations toss themselves into the fray and push instead for international reforms.
This is the position South Africa is adopting. Ramos has reportedly become an active participant in efforts to reform the Bretton Woods institutions – the World Bank and IMF.
Manuel and Minister of Trade and Industry Alec Erwin have on several occasions expressed their support for a new supra-financial authority to cool down the hot money responsible for much of the destruction.
At the same time there is a growing chorus for more openness in international finance, better banking systems and water-tight corporate governance. Mervyn King, author of the King report on corporate governance, said this week South Africa had been singled out for good corporate practice. He said donors and investors were increasingly looking for countries with good corporate governance practices, because these tend to be able to make their repayments.
He cited Indonesia as an example of bad practice, where chief executives regard companies as their own and the country owes $9-billion.
South Africa found its voice in Washington, and did what it became so good at in the apartheid years: baying for change. Manuel criticised a “paucity of leadership” among the Group of Seven leading industrial nations which dilly- dallied over what to do, and Ramos railed against their lack of a “sense of urgency”.
While World Bank president James Wolfensohn joked that Africa should be happy it hadn’t been mentioned, businessman Cyril Ramaphosa said: “I have read of bold measures that that may be embarked upon to rescue the economies of South-East Asia and Brazil. But no mention is made of Africa. I do not witness excitement and discussion about holistic economic regeneration of Africa.”
Back home, economists have been watching the South African performance. Rand Merchant Bank economist Dawie Roodt says the IMF and World Bank have been impressed by South Africa’s fiscal policy and its efforts to privatise.
He argues for further liberalisation, particularly of the labour market. Roodt says a judicious cut in interest rates of less than 1% “to test the water” would be about right.
To his left, economist Patrick Bond says the time is right for a heftier cut in the prime interest rate and a reintroduction of the financial rand.