24 April 2002
The South African Communist Party (SACP) has closely observed the work of the Commission of Inquiry appointed by President Thabo Mbeki to investigate the fall in the Rand's exchange value (led by Advocate John Myburgh). As the SACP said when the commission was launched in January, the commission might help to help to clarify some of the factors behind the rand's precipitous depreciations, and it might even help to bring to book individuals and institutions involved in illegal speculative activities. But what is obvious is that, once more, a few have got to be even wealthier and they are doing everything they can to hide and justify their profit maximisation at the expense of our country at large.
The SACP does not share the opinion that this Commission of Inquiry on its own will get to the bottom of our currency problems.
The Rand is a commodity that is traded like any other commodity. The main objective of currency traders is to make a profit with little, if any, consideration of the social and economic impact of their activities. The Rand is one of the most liquid currencies and thus more susceptible to a run on the currency. This acts as an unaccountable blackmail against our government and it subjects the sovereignty of our country and its policies to the fickleness of the currency markets and those who benefit from volatile currencies.
In the last decade we have witnessed a massive growth in speculative investment at the expense of productive investment. This pattern further increases the growth/slump cycle, reducing the time-span between each recession. Underpinning this patter has been the increasing concentration of capital into the hands of financial capital. For example, in the year 2000, twelve of the top 15 companies in South Africa were banks, investment houses or insurance companies. Financial capital has grown remarkably in the last five years at a time when economic growth was relatively slow in real terms and job creation has decreased.
THE NEED FOR A REVIEW AND CONSOLIDATION OF EXCHANGE CONTROLS
One of the issues to have emerged from the hearings is that, at least, of the limited exchange control regulations in place were not, in practice, being observed by banks and other foreign exchange dealers. In their testimony, some of the banks indicated that when the Reserve Bank drew their attention to their existence and said they would be enforced, this provoked something of a minor panic and a run on the currency. Several submissions have also referred to the vagueness and lack of clarity of these regulations. The SACP condemns this attitude demonstrated by banks that regulations do not need to be observed. This is fundamental disrespect of our country's constitution and legal framework.
The SACP also rejects the proposal put forward by several submissions to the commission that the answer is to remove all exchange controls. Such proposals are self-interested proposals being put forward by institutions that make profits by moving funds offshore. In a context where it has been widely acknowledged that the international financial architecture is dysfunctional to developing countries in which nothing effective has been done to reform that architecture, it would be folly for developing countries to abandon the remaining limited defensive measures in their arsenal.
This approach does not consider the impact of divided flows on the currency, nor the longer term implications of previous South African firms becoming transnationals and listing on stock exchanges where their results are measured in hard currency terms. For example, one of the main objectives of the South African Breweries in trying to acquire Millers was that it needed to boost its hard currency as opposed to Rand earnings to maintain its performance on the London Stock Exchange. As a result, South Africa is becoming increasingly not the focus but just one area of operation of such companies. Besides, when they applied to list offshore they said this would enable them to increase their investment in South Africa - through promise has not materialised. The reality is that profit is made abroad and it is not accounted, taxed or invested in South Africa.
In the view of the SACP, it is not a mistake that this migration to offshore investments by South African capital has been led by financial capital. And thus the listing of Sanlam and Old Mutual in the London Stock Exchange. According to Reserve Bank reports over the last few years, financial capital has, on average, grown by 62% in the last five years (refer to table below).
Type of Institution Assets in R billions Nominal change 1996-2000
As the SACP, we argue that this growth is also related to the increase in speculative investment and off-shore investment whilst little has been directed to productive investment inside South Africa.
THE WAY FORWARD
The SACP believes that the Rand's decline does require a measured and carefully considered response. This needs to include the mobilisation of defensive measures to insulate the productive economy from the destabilising effects of speculative movements in currency markets, and a response to the inflationary pressures that will be generated by the present decline in the value of the Rand.
As it is clear from the commission's hearings, explanation's for the Rand's decline cannot be reduced to conspiracy theories. Addressing our currency problems requires an overall approach to our economy. The SACP has noted with great concern the chorus of voices urging government to respond with a rescue package including an IMF loan, the removal of remaining exchange controls, raising of interest rates and a commitment to accelerated privatisation. The SACP views such proposals, emanating as they do from economists linked to major banks, as self interested, ideologically driven attempts to lock us further into a policy framework that will be incapable of delivering development orientated growth.
As the SACP it is our considered opinion that a solution must be found in the direction of measures to limit the scope for speculative activity, rather than in further exposing ourselves to the vagaries of speculative markets and once again attempting to appeal to sentiment. Specifically, the SACP calls for a review and consolidation of exchange controls. The review must also include the following:
The SACP also reiterates its calls for Prescribed Investments and a Community Reinvestment Act to ensure that pension funds, banks, insurance companies, etc., are used for community based and productive investment.
There is no doubt that as a country and a people, we face major challenges on the economic front. Our ongoing debates and discussions on the issues like industrial policy, restructuring of the financial sector, state-owned enterprises and the building of co-operative banks have all been given added urgency by the recent developments in currency markets.
CONTACT
Mazibuko K. Jara (surname Jara)
Department of Media, Information and Publicity
South African Communist Party (SACP)
Tel - 011 339 3621
Fax - 011 3394244
Cell - 083 6510271
Email - sacp1@wn.apc.org