Brait economist Colen Garrow says that while the government’s inflation-targeting and exchange-control policies are overdue to be fine-tuned, it is unlikely that any tangible announcement will be made on Wednesday in Finance Minister Trevor Manuel’s budget speech.
For one, he said on Monday, volatile and uncertain markets count against any substantive departure from what the government’s stance on the exchange-control matter has been since 1995 — that is, a commitment to a phased and gradual abolition of these capital restrictions.
“This is disappointing, especially considering the inequitable position which arose after tax and foreign-exchange amnesty allowed those South Africans who had taken funds illegally offshore to keep potentially unlimited amounts of funds offshore, in exchange for payment of penalty levies,” said Garrow.
Law-abiding citizens, however, remain restricted by the R2-million limit on private currency accounts.
“Has the time not come to scrap these ceilings?” asked Garrow.
On the matter of the inflation target, the price mechanism needs to be adjusted to cope with South Africa’s development needs.
“This can be done by widening the targeting range to 3% to 7% while investment spending by key utilities gets under way; redefining the price target to exclude necessities such as food and fuel; as well as redefining the explanation mechanism,” explained Garrow.
“It appears that quarterly testimonies to the parliamentary finance committee are used in lieu of the explanation mechanism. This is not an adequate substitute since the explanation clause deals explicitly with those exogenous factors which unsettle CPIX, but which allow monetary policy to be left unchanged,” he concluded. — I-Net Bridge
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