The global financial crisis offers developing countries such as South Africa the opportunity not only to refashion their own economies, but to help create a new global financial system. But they will need a plan.
The coordination of macro-economic policy across countries is crucial. Developing countries must have a greater say at the International Monetary Fund, World Bank, United Nations and other global bodies. They must push for emergency aid for poorer countries that does not involve the IMF’s inappropriate conditions. They must insist on more freedom to come up with their own economic policies.
There must be better regulation of financial institutions, limits on executive pay and punishment for those responsible for the crisis, as well as the restructuring of credit-rating companies. They failed to pick up the United States’s subprime trouble. Yet they wield enormous power over developing countries.
China has unveiled a four trillion yuan ($586-billion) stimulus package to boost domestic economic growth. It will be spent on infrastructure development. France unveiled a €26-billion plan focusing on boosting investment in infrastructure, skills and technology transfer. Countries such as South Africa don’t have the means for these packages. Yet, with a smaller budget, South Africa can still be innovative.
Any stimulus package must consist of fiscal and monetary measures. South Africa already has a R400-billion infrastructure development going on. The downturn must be used to expand low-cost housing stock, employ the unskilled and unemployed on a mass scale in a combined programme of public works and skills development.
We could turn the army of unemployed into plumbers, electricians and bricklayers, while building the five million houses needed, plus dealing with the associated infrastructure shortages in townships, informal settlements and rural areas.
Tax breaks could be given to companies making new investments, creating jobs, using local products and generating new technology. By expanding the budget deficit by at least 1% over a restricted period a stimulus package could be financed to create jobs and boost investment and entrepreneurship, with income support to the most vulnerable.
Big black economic empowerment must be scrapped in its entirety or restricted to one person or BEE company per deal. Where BEE companies are supported, it must be on the basis that they are creating jobs, transferring skills, developing new technology and expanding the local manufacturing industry. This is also the moment to come up finally with a plan to rid the country of its dependency on exporting raw materials, so the economy is not so dependent on the vagaries of world commodity prices.
Strategic industries such as agriculture must be supported. Homeowners must also be protected; government and banks must find a way for those in trouble to renegotiate their home-loan deals. Poor families with children up to 18, who remain in school, should get a basic income grant.
The financial crisis means that skilled South Africans abroad may have more of an incentive to return home and government should lure them into the failing public service.
Government waste, corruption and inefficiencies will have to be dealt with head on. We cannot waste precious resources. Labour and business must work together to solve this crisis.
Developing countries must together find a collective mechanism to stabilise their currencies to avoid free fall in the financial crisis.
They must also introduce tough measures to punish currency speculators.
There has to be more flexibility on inflation targeting, lifting the upper band by a percentage point and extending the period, say two years, to reach it. The Reserve Bank must cut interest rates.
Tackling this crisis could be the basis of a new social pact between government, business and organised labour — a pact crucial to remaking the economy.
William Gumede is senior associate and programme director of the Africa Asia Centre, School of Oriental and African Studies, University of London