South Africa’s Finance Minister Trevor Manuel said on Tuesday high levels of indebtedness were a strain on the economy and defended the country’s tight fiscal and monetary policies.
The powerful Congress of South African Trade Unions (Cosatu) has repeatedly called on the government to loosen fiscal and monetary policies to ease the plight of the poor and workers it says have not benefited from an economic boom.
Cosatu has particularly slammed the central bank over 500 basis points of interest rate hikes implemented since June 2006 to stem inflation, which has partly been fuelled by credit-driven consumer demand.
”We have highly indebted households, we live on debt, we don’t save for tomorrow,” Manuel said at the Mail & Guardian‘s Critical Thinking Forum.
”You can only live like that if you are extremely highly leveraged. That’s not a basis for sustainability and that’s what’s wrong with the economy,” he added.
He said the Reserve Bank was mandated by the Constitution to ensure price stability through its inflation-targeting policy. The central bank is striving to bring targeted CPIX inflation back down to within a 3% to 6% band from present levels of about 11,6%.
”Price stability is important because it is inevitably the poor and workers who lose in an inflationary environment,” Manuel said.
Earlier this year the government revised its budget surplus for 2007/08 up to 1% of gross domestic product from 0,8% and said it expected it to stay at about 0,7% over the next three years.
On Tuesday Manuel defended the surplus, saying it was necessary to cushion the country against external risks in the face of its wide current account gap, presently at 9% of gross domestic product.
”If you try and run current account deficits and fiscal deficits simultaneously you will expose yourself to enormous risks, enormous volatility,” Manuel said. – Reuters