/ 3 October 2008

The markets and us

As the global markets have gone into meltdown, South Africa is relatively isolated — but only relatively. Our banks and financial system have at best limited direct exposure to the underlying problem, the subprime mortgage bubble in the United States.

Credit extension, which has all but ceased in major markets, is likely to remain tight even if the Paulson bail-out plan gets sufficient political traction to be implemented. The fallout in the US, where a number of venerable institutions have failed or have had to be bailed out, has spread to Europe. Central bankers have been daily pumping billions into financial markets to keep the system functioning, but have not been able to encourage banks to lend to one another.

Attempts to contain the problems on Wall Street and insulate it from the real economy are failing. South Africa is exposed on multiple fronts. Commodity prices, the backbone of our economy, have mostly fallen –and are continuing to fall — on expectations of lower global economic growth.

We are also committed to major spending on energy and infrastructure provision. Most observers say this money will be harder to raise and more expensive. Private, foreign money may be unaffordable. In Eskom’s case this may mean that we will see a greater drive to use what we have more efficiently, with obvious environmental benefits.

It may also see the fiscus being tapped for funds, with the taxpayer being sent the bill.

Market crises historically would have seen a flight to gold as a safe haven and out of oil as economies are seen to slow.

Gold prices have rallied, and oil remains relatively strong, even though many believe that the world’s major economy, the US, will go into recession (two successive quarters of negative growth). Doomsayers see a depression (an extreme form of recession) as possible.

The rand has weakened and is expected to weaken further as commodity prices weaken. But if you analyse the subprime fiasco it appears that the US has perpetrated a giant con trick on investors across the globe.

It has sold securitised mortgages on the basis that they’re as safe as houses. An edifice sustained by not much more than legerdemain has been exposed.

Wall Street’s reputation has been sullied by inadequate regulation in a drive to retain the position of the world’s leading financial centre. This raises the prospect of more direct investment by investors in countries that have got their acts together.

It also suggests that it might be an opportune time to look for new ways to improve the domestic economy. We may need to do a whole lot of things better and cleaner, because foreign money will be in short supply.

The rape of justice goes on
In the heat of the political moment we have barely noticed that the rape of justice continues apace. The SACP now wants Parliament (its new handmaiden) to summon the National Prosecuting Authority before it to deal with the possibility of political meddling raised by Judge Chris Nicholson in his judgement, which last month cleared ANC president Jacob Zuma’s path to the presidency.

The reds should be reminded that Parliament is not a slaughterhouse for various unsacred cows. It is representative of the people and should be a home of best democratic practice.

The new post-Polokwane ANC has already turned Parliament into a sausage machine of vengeance politics, if you consider the unseemly haste with which it passed the Bill to axe the SABC board and to rip the sting from the Scorpions.

Democrats should insist that the NPA will not be summoned and that the appeal it launched against Nicholson’s judgement should be treated with the same respect with which the ruling party and its allied structures treated the initial finding.

If it reacts any other way, the party will show that its support for the rule of law is based only on how far that rule goes in its favour.

This is not an empty fear, for all that is consistent in the ruling party right now is revolutionary inconsistency.

While the governing alliance has always used Zuma’s axing as deputy president prior to a court case to show that he was victim of a political conspiracy, it did the same thing to Thabo Mbeki.

The NPA has fired a 16-part salvo at Nicholson’s judgement, alleging, centrally, that the judge overreached in several instances by ruling on points unnecessary and by making political interventions.

We hold no brief for the NPA but, for the sake of the rule of law, it is essential that the appeal process is allowed to continue unhindered by the bluster of the militants.