[DEBATE] : Rob Davies, The Current Global Financial Crisis and its Implications for South Africa

[Riaz K Tayob]

Rob Davies as always is fantastic and he translates his views into political action as he did at the WTO mini Ministerial on Industrial tariffs. However on finance, unfortunately the action by DTI and National Treasury point to further liberalisation. 

Unfortunately only info I have is uncomfirmed reports (but which give a flavour of what DTI/Treasury thinks from NEDLAC) indicate that DTI said that GATS has nothing to do with 1) deregulation and 2) allows prudential regulation. On 1, GATS is about deregulation because the barriers to trade in services are regulations - in other words regulations are the equivalent of tariff is goods (elementary stuff this!). 2. Derivatives are not governed by prudential regulations, if they were we may not have been in this mess (again elementary).  

That is why I simply cannot understand the  liberalisation commitment (below quotes) contrasted with the point Davies makes:


"In immediate policy terms, this would suggest that that the drive to
incrementally lift exchange controls needs to be revisited, that we
must ensure that "leveraging" and "derivative trading" by South
African financial institutions is properly and effectively regulated,
and that we urgently take steps to reduce our dependence on short term
foreign capital."

How is SA going to do this when not even sophisticated markets know what to do about the current situation? Perhaps Treasury knows - but you have may have more luck at finding out than me because it is IMPOSSIBLE for citizens to get any access to any of the information from Treasury that informs this decision.

Riaz (Personal)

Liberalisation commitment South Africa to the WTO General Agreement on Trade in Services (TN/S/O/ZAF ** April 2006):



B.    Banking and Other Financial Services

(c)      All payments and money transmission services, including credit, charge and debit cards, travellers cheques and bank drafts (CPC 81339 +)

(d)     Guarantees and commitments

        (CPC 81199 +)

(f)    Trading for own account or for account of customers the following:

        (i)    Money markets         instruments

                (CPC 81339+)

        (ii)   Foreign exchange

                (CPC 81333)

        (iii)  Derivative products

                (CPC 81339 +)

        (iv)  Exchange rate and         interest rate         instruments

                (CPC 81339 +)

        (v)   Transferable securities(CPC 81321 +)





Other negotiable instruments

                (CPC 81339 +)





Riaz 




Dominic Tweedie wrote:
> Umsebenzi Online Volume 7, No. 17, 1 October 2008
>
> In this Issue:
> The Current Global Financial Crisis and its Implications for South Africa
>
>
> Red Alert
>
> The Current Global Financial Crisis and its Implications for South Africa
>
>
> Guest Contributor: Rob Davies, Member of the SACP Central Committee
> and Deputy Minister of Trade and Industry
>
>
> The proposed $ 700 billion bail out for US banks is a striking
> indication of the extent of the current crisis of financialised global
> capitalism. $ 700 billion is nearly three times the Gross Domestic
> Product (total value of goods and services) of South Africa. The most
> recent bail out proposal follows earlier hand outs to mortgage lending
> companies, Fannie Mae and Freddie Mac, as well as the buy out of major
> insurance companies. The failure by the US Congress to approve it led
> to the biggest ever single day's fall in US stock prices. And yet, it
> is far from clear that the bail out package, even if approved, would
> actually succeed in "stabilizing" the crisis-ridden financialised
> global capitalist system.
>
> What lies behind this crisis of global capitalism? And what
> implications does it have for workers and the poor in South Africa?
>
> In Volume III of Capital, Marx demonstrated why capitalism is unable
> to develop along a path of uninterrupted expansion, and instead always
> evolves in cycles of booms and busts. Because the system is
> essentially anarchic, during periods of boom it is driven by a feeding
> frenzy of individualized expansion into new areas of activity.
> Inevitably after time this includes areas where the underlying
> productive activity is unable to sustain profitability. The cycle
> turns and a huge competitive struggle ensues to determine which
> capitals must be destroyed to allow the system to re-create itself in
> another cycle of expansion.
>
> Capitalist globalization since the 1990s has seen what has been called
> "financialisation" of investment. Facilitated by the introduction of
> Information and Communications Technology (ICT), capital has built the
> capacity to move from one investment to another in any part of the
> globe virtually at the press of a button. In this environment new
> financial institutions and new practices have emerged, located
> principally in the United States as the corporate headquarters of
> global finance capital. "Leveraging" (meaning extending credit to a
> value several times that of underlying assets) and "derivative
> trading" (meaning repackaging real assets into financial assets in
> various forms) have been the basis on which enormous profits have been
> accumulated in recent years. Yet this has become further and further
> removed from the productive base of all wealth and accumulation in the
> "real" economy of manufacturing, agriculture and productive services,
> meaning that the engine room of capitalist accumulation has
> increasingly become in the words of Cde Fidel Castro "the casino
> economy" of trading in financial instruments.
>
> Both these elements are essential to understand the current crisis. At
> its onset, orthodox financial commentators told us that the origin of
> the crisis was problems in the "sub prime" housing mortgage market in
> the US. It is now evident, even to vulgar commentators, that this
> explanation is wholly inadequate and that the "sub prime" mortgage
> issue was a mere symptom of a much more profound phenomenon.
> Essentially during the upswing, financialised capital penetrated into
> a whole range of activities that would otherwise have been considered
> "risky". Marshalling arguments located in the ideology of
> neo-liberalism and market fundamentalism, finance capital resisted
> calls for regulation and instead asserted its unfettered "right" to
> "leverage" all kinds of financial instruments off "risky" underlying
> assets, as well as create "derivatives" of various kinds. This kind of
> activity, it is now apparent, has affected (and infected) large parts
> of the system – not just in the US but also in Europe and Asia.
> Whether we are yet at the bottom of the cycle, or whether any of the
> proposed bail outs will have any impact remains to be seen. The crisis
> has already taken its toll on supposed icons of US banking (like
> Lehman Brothers) and the institution of investment banks (banks that
> do not take deposits).
>
> What then does this mean for us in South Africa? A phase of capitalist
> downswing always implies contraction in production and employment.
> This, moreover, is always an uneven process across the imperialist
> chain. Thus far, South Africa and Africa have been partly shielded by
> the rise of the so-called "Global South" (China, India, Brazil) as
> significant economic powers. Industrial development in these countries
> continues to be minerals intensive and this has fueled high prices for
> mineral products. Thus far, these countries have experienced the
> impact of the global crisis as relatively small declines in very high
> growth rates. In policy terms, this must surely be a major reason why
> we need to prioritise deepening our relations with these countries and
> insisting on continuing to diversify our trade relations.
>
> Thus far, too, South African financial institutions have been spared
> the worst of "contagion" from the crisis in the US. Interestingly, The
> Business Times of 21 September attributed this partly to "exchange
> control" which meant "there is a healthy degree of trapped liquidity
> within the financial system".
>
> But, there still remain serious risks. Continued downturn could
> further depress production across the world, including in the
> countries of the "Global South". Moreover, Morgan Stanley has warned
> that capital flows to "emerging markets" could be cut by a quarter in
> 2009 – as capital seeks to exit perceived "risky investments". South
> Africa could find itself significantly impacted on by the latter, as
> we have relied on inflows of short term foreign capital ("hot money")
> to fund the deficit on the current account of the balance of payments
> (meaning we continue to import more goods and services than we
> export).
>
> In immediate policy terms, this would suggest that that the drive to
> incrementally lift exchange controls needs to be revisited, that we
> must ensure that "leveraging" and "derivative trading" by South
> African financial institutions is properly and effectively regulated,
> and that we urgently take steps to reduce our dependence on short term
> foreign capital.
>
> In the longer run, the current crisis of financialised global
> capitalism must surely become a rallying cry to redouble our efforts
> to end a system in which the lives and destinies of working people and
> the poor across the world are held hostage to a handful of speculators
> in Wall Street.
>   
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