[DEBATE] : (Fwd) Another run on SA?
Riaz K Tayob
riazt at iafrica.com
Wed Jan 30 11:26:44 GMT 2008
According to some officialdom, this was (and is perhaps) not worthy of consideration (as it is not a problem) as the benefits to the economy of liberalisation apparently outweigh the risks you allude to and more liberalisation is better.
To illustrate the point, while every other country in the world is considering how to go beyond current prudential regulations for derivatives (that led to sub prime) South Africa is offering to fully liberalise this trade under the WTO GATS negotiations.
I mean if economic "growth" has outstripped even electricity supply - why worry?
Date: Wed, 30 Jan 2008 07:37:44 +0000
From: ted powers <tpowers2 at hotmail.com>
Subject: RE: [DEBATE] : (Fwd) Another run on SA?
To: "debate: SA discussion list" <debate at debate.kabissa.org>
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While there is compelling evidence that South Africa is, in fact, going to have its currency go through a period of instability leading towards depreciation in its exchange rate towards its major trading partners (US, UK, EU), it also may be the case that the interest rate differential between South Africa and the US, which is continuing to widen as the Fed cuts interest rates to avoid the inevitable credit crunch, will lead to a 'carry trade' between US and South African securities. That is, to borrow in US dollars at a lower interest rate and purchase South African securities at a higher interest rate, essentially ensuring a fixed profit rate for a given period.
If this follows, portfolio capital flows, or 'hot' money, may flow into the country and temporarily offset the pressure on the current account. The question underlying the more abstract issue of exchange rates and interest differentials is how South Africa can decrease its import dependency in order to remove pressure on its finances, particularly in a context where all signs are pointing to depreciation in its exchange rate, and thus more expensive imports. Outside of a full-on "de-linking" from the global economy, how is South Africa to extricate itself from the import dependency-high interest rates trap in which it currently finds itself?
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