/ 24 June 2008

Greenspan says investors concerned about SA

Investors have concerns about South Africa, United States economist and former Federal Reserve chairperson Alan Greenspan told a conference in Sandton on Tuesday.

He was speaking live via satellite from New York. Both the country’s power problems and next year’s election were cause for concern, he said.

He added that the South African Reserve Bank had no choice but to raise interest rates, even though pressures were coming from exogenous factors such as oil and food — the high prices of both were nevertheless ”real”.

”The price increases are real and they are filtering into the wage structure. Unless the central bank leans against them, you’ll get a highly unstable environment,” Greenspan said.

It was better to attack inflation ”in its early stages”.

”We learned this in the US in the 1970s, much to our chagrin,” he said.

Turning to the present US economy, Greenspan described it as being ”on the brink of recession”.

A rebound at this stage was not something ”in the immediate outlook”, he said.

However, intervention by the Federal Reserve in March caused the economy to show ”some signs of improvement” and reduced the likelihood of what Greenspan called ”a severe recession”.

He cautioned that the current global financial crisis would last for ”quite a while” and even into the next year.

Responding to criticism that it was the Federal Reserve’s lowering of rates that inflated the US housing bubble, Greenspan said he had explained to a recent critic, George Soros, that although this could be credible, ”the data doesn’t support it”.

”The housing bubble is an international phenomenon,” Greenspan said.

From 1987 to 2006 Greenspan was chairperson of the board of governors of the Federal Reserve. He currently works as a private consultant at his company, Greenspan Associates LLC.

Asked on Tuesday how he thought his tenure as Fed Chief would be seen by historians, he replied: ”I don’t have a clue.” – Sapa