S. African currency plunges to record low

By M. S. Prabhakara

CAPE TOWN, JAN. 12. ``The fundamentals of South African economy remain sound'': This mantra is once again being repeated as the exchange value of the rand has been reaching day after day, indeed hour after hour, over the past few days what commentators keep on describing every day as ``record low'' in relation to the U.S. dollar, the British pound and the euro.

On Thursday morning, the exchange value of the rand vis-a-vis the dollar reached another ``record low'', with the dollar crossing the 8-rand barrier.

As always, the fall is related as much to the ``lack of confidence of the investment community'', a euphemism for the depredations of currency and forward market speculators, as due to the inherent weaknesses of the economy and flaws in its management.

Of the former, evidence abounds in every report and analysis of the fortunes of the rand. Indeed, a report in Business Day, South Africa's leading financial daily, plainly attributes the current developments to ``a speculative attack on the currency''. The fall was apparently fed by three ``major rumours'', the most damaging of which seems to be that the initial public offering of Telkom, part of the Government's disinvestment programme to which the ``investor community'' is supposed to be looking forward with great anticipation, would be delayed.

The reaction to the seemingly relentless downward plunge is marked as much by ``panic'' at the level of professional market analysts as by a dogged conviction on the part of those in the Government tasked with the management of the economy that ``the fundamentals of South African economy remain sound''.

The first is clearly an over-reaction by analysts who use the development to fault the Government on not being sufficiently single-minded in the implementation of what they have long prescribed - and the Government has accepted - as necessary and desirable market-friendly economic policies.

Since there is little that the Government, which has been following these very prescriptions for the last five years, can do more in this regard, the other prescription that continues to be pressed is that it should ensure greater flexibility in the labour market, a code for disciplining labour.

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Section  : International
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