Pushing up interest rates to achieve inflation targets does not make sense, chairman of insurance giant Sanlam Ton Vosloo said on Thursday.
The SA Reserve Bank itself had suggested that high inflation expectations were caused by external economic shocks, he told the national congress of the Afrikaanse Handelsinstituut in Kempton Park.
Monetary decision makers, nevertheless, opted to raise interest rates by 400 basis points during the past year. ”This monetary strategy is then purportedly justified by the policy framework of inflation targeting,” Vosloo said. In view of the development dynamics South Africa had to live with, inflation targeting as policy strategy in its current form was questionable.
”In terms of the creation of prosperity and the motivations of internal and overseas investors … the raising of interest rates to achieve inflation targets does not make sense,” Vosloo said.
He lauded the government’s fiscal discipline but said its approach to increase the international component of South Africa’s debt portfolio to protect interest rate curves was not sustainable. ”It is, therefore, important that the successful privatization of, among others, Telkom, Eskom, Transnet and Denel be carried through.”
Vosloo also noted that the International Monetary Fund had pointed out to the government the need for a more aggressive approach to finance the battle against HIV/Aids.
”That something urgent has done to be done to address this pandemic is a recurring theme — in the internal debate as well as in international circles.”
Turning to black economic empowerment, Vosloo said this was crucial for creating prosperity and sustained economic growth. The context in which this should happen was, however, not always clear. At policy level, the government had done laudable work, but its policies had not always been properly communicated. Recent examples included the leaking of the draft Mining Charter, the government’s stance on Zimbabwe and the political debates on HIV/Aids.
Poor communication and an apparent lack of transparency were costly shortcomings, Vosloo said. Evidence this was the volatility of the rand. It tended to weaken at the slightest negativity. ”The price we pay for this is high and is seen in poor real economic performance.”
On the New Partnership for Africa’s Development (Nepad), Vosloo said the programme clearly outlined the aspirations for Africa’s rebirth. Though the objectives had been described as too ambitious by some, this idea of a Marshall Plan for Africa set out a clear framework for development.
”(This is) an empowerment initiative that does not beg for handouts but one that calls for a self-driven development programme,” Vosloo said. – Sapa