> SOUTHSCAN
>A Bulletin of Southern African Affairs
>___________________________________________
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> e-mail: southscan at gn.apc.org
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>===========================================
> Vol. 13/18 4 Sept 1998
>===========================================
>SA economy (SouthScan v13/18 4 Sept 98):
>EU deal may limit SA's capacity for defence in world finance crisis
>© In the face of the international financial crisis SA is preparing to
>hamstring itself by cutting off its capacity to control short term
>international capital movements. The final round of negotiations
>between the European Union and SA on a Free Trade Agreement is due to
>take place later this month and should involve not only trade issues, but
>tie in place the basic elements of a neo-liberal economic system. These
>include agreed rules on competition and on the free movement of capital.
>But this week Trade and Industry Minister Alec Erwin, as well as Deputy
>President Thabo Mbeki, were hinting strongly at the need for regulation
>of capital movements.
<snip>
>SA has made its final offer to the EU and is now waiting for a response. Its
>negotiating ground is being weakened by the falling Rand but it hopes
>that a deal will bolster investor confidence at a time when most investors
>are abandoning emerging markets en masse as a result of the Russian
>crisis.
>
>But the anticipated deal will also crucially limit SA's ability to take the
>kind of protective measures which other emerging economies are now
>using to counter shock waves from the Russian financial meltdown.
>
>The alternative is not there for Pretoria to ditch the deal at this late
>stage; to do so would have a disastrous effect on investor confidence and
>bring a further run on the Rand, say analysts.
>
>So SA will be deregulating just as its long time role model, Malaysia,
>announces that it is reintroducing wide ranging capital controls, while
>its neighbour Indonesia calls for "a specific regulatory framework for the
>financial and exchange markets".
>
>In SA controls on capital flows have been progressively lifted, beginning
>with the ending of the Financial Rand system in March 1995 and further
>relaxation last July (SouthScan v12/25), which Finance Minister Trevor
>Manuel called "a signal of confidence in investors".
>
<snip - much more detail on EU trade and investment in SA>
>
>© SA played its hand confidently at the Non-Aligned Movement summit
>in Durban this week in a speech by Deputy President Thabo Mbeki in
>which he repeatedly challenged the NAM's traditionally hostile stance
>towards the industrialised countries. In the main, however, he was
>rebuffed.
>But amid the jostling and intrigues that marked the summit, diplomats
>have detected what they believe could be a significant shift by SA on the
>issue of controlling capital flows in and out of developing markets.
>
>Chairing a session on economic issues, SA Trade and Industry Minister
>Alec Erwin laid stress on the need to guard emerging markets against
>financial instability triggered by speculative forays and liberalised
>markets.
>
>Antidotes, said Erwin, had to be applied at the global level, preferably
>under the aegis of supra-national institutions. Measures proposed by SA
>at the NAM summit included significantly raising the transaction costs
>of currency trading (analogous to the so-called Tobin tax which calls for a
>levy on financial capital transactions) to deter speculation. He also
>suggested greater transparency and the adoption of internationally
>accepted rules to prevent disruptive capital flows - a stance in line with
>thinking emerging in World Bank circles.
>But, unlike Mbeki, he seemed to hold open the possibility of interim
>measures being adopted by national states. In a radio interview,
>however, Erwin refused to elaborate, saying the matter rested with SA
>Finance Minister Trevor Manuel.