Advocate John Myburgh adjourned the rand commission on Friday after hearing that the South African Reserve Bank (SARB) had resolved its differences with Deutsche Bank about hedging transactions, conducted for three South African companies.
The SARB’s exchange control department (Excon) issued a statement to the rand commission saying they had resolved concerns with Deutsche Bank and Deutsche Securities about the details of structured finance deals worth more than R3-billion undertaken by Deutsche’s London branch on behalf of Sasol, Nampak and M-Cell.
”Excon is of the opinion that the review proceedings have resolved the concerns which have been raised by Excon and, accordingly that this matter has now been satisfactorily finalised,” the statement said.
Deutsche told the commission that its London branch, as a non-resident, did not have to disclose its dealings. SARB had been investigating the Deutsche Bank deals since October.
The statement was released after Excon and Deutsche Bank held an in camera hearing at the commission.
Excon said the hearings were kept confidential for policy reasons, because the proceedings fell within section 33 of the SARB Act of 1989.
”Accordingly such information cannot be made available to any party other than those involved in the review proceedings.”
Finance Minister Trevor Manuel in his closing remarks to the commission reaffirmed government’s commitment to a gradual relaxation of exchange controls and brushed aside calls for a ”big bang” approach to forex relaxation.
”A sustainable development path requires that certain conditions be in place before proceeding to full capital account convertibility,” he said.
”We have touched on these before in our testimony to the commission, but they include insuring that appropriate macro-economic fundamentals are in place, that a sound and well-regulated financial system exists to promote financial stability, including prudential regulation, and that social safety nets are in place to protect the poor against the potential social cost of globalisation.”
Treasury director-general Maria Ramos had been expected to testify at the commission on Friday, but Manuel took her place.
Manuel said internationally it was broadly recognised that a gradual approach to liberalisation was advisable and should occur late in the process of economic reform.
”The International Monetary Fund has stated that it considers the present pace of exchange control liberalisation in South Africa to be appropriate.
”Prudent liberalisation must consider factors such as the sequencing of economic reform and the strengthening of the balance of payments.
He said it was not possible to set a timetable for the gradual relaxation of exchange controls, but rather such policy will be monitored and reviewed continuously.
”Gradualism” has also had the benefit of avoiding policy reversals in the face of currency crises, Manuel said.
He said the effectiveness of exchange controls in protecting South Africa’s foreign reserves had been borne out by the fact that there had been substantial growth in the country’s reserves from approximately two weeks of import cover in 1994 to current levels of approximately 24 weeks.
Manuel said numerous factors could have influenced the rand’s 37% fall last year.
”Certainly, global financial conditions following the events of September 11 last year were not conducive to capital flows to emerging markets, including South Africa. This has the effect of creating an underlying weakness in the currency.”
Manuel said the soundness in government’s macro-economic fundamentals were justified by the rand’s 38% appreciation against the dollar in the last five months from its record low of R13,85.
”The recent strengthening of the rand suggests a recognition among investors of the soundness of the South African economy and that the depreciation of the rand last year was clearly overdone.”
Manuel said because South Africa was an open economy it was inevitable that ”from time to time” there would be turbulence.
”It is tempting at such times to look for quick fixes or hasty policy responses. But this, invariably, leads to unintended consequences and policy uncertainty.”
He said it was heartening to note from the testimonies provided to the commission that there was a general recognition by that government’s macro-economic policy was well-directed and put on a sound, sustainable footing.
Manuel said since macro-economic stability had been achieved, government’s focus had shifted to micro-economic reforms aimed at promoting the competitiveness and job creating potential of South African industries.
He said the government would also focus on strengthening the balance of payments through the promotion of exports and attracting longer-term capital flows such as equity investment and foreign direct investment.
”This, in turn, will provide the foreign currency flows necessary to support further capital account liberalisation,” he said.
Manuel defended the SARB’s reduction of the net open foreign position (NOFP), saying it had lowered the rand’s vulnerability to speculative attacks and had reduced South Africa’s sovereign risk premium.
”The NOFP stood at $2,9-billion at the end of March 2002 and has ceased to be of major concern to the international investment community,? he said.
The commission, headed by Myburgh, was appointed by President Thabo Mbeki on January 8 after he received information from various sources, including SA Chamber of Business chief executive Kevin Wakeford, that dubious transactions may have contributed to the fall in the rand.
Wakeford was present at the commission’s session in Sandton on Friday.
Myburgh said the commission’s final report would be made available ”as soon as possible”. Justice Minister Penuell Maduna said at the release of the commission’s interim report earlier in May that the final report would be released at the end of June. – Sapa