Johannesburg: Finance Minister Pravin Gordhan yesterday admitted the rand would remain vulnerable and that SA had no tools to control its wild swings amid global economic uncertainty and the debt crisis. The rand has lost more than 20% of its value against the dollar so far this month as investors fearful of Europe’s sovereign debt crisis rid themselves of emerging market assets. It has since bounced back to about R7,80/$ after hitting a 28- month low of R8,49/$ last Thursday. The rand remains a highly liquid currency, vulnerable to swings in portfolio flows.
Speaking to journalists at a briefing in Pretoria yesterday, Mr Gordhan said he could not stop the runaway currency. "Rand volatility is unhelpful. There are many factors that are acting against us. One is an unstable US and political and economic uncertainty in the developed part of the world.
"Emerging markets always have to carry the burden. The rand is also a proxy for trading in other currencies. When our exports to Europe face uncertainty, the rand reacts. We are watching carefully and scratching our heads about what to do next," he said.
Investec economist Annabel Bishop said she thought high levels of rand volatility were "likely to persist for the rest of this year, and well into next".
"Indeed, until the sovereign debt crisis is safely resolved and global growth returned to trend, the rand will remain vulnerable," she said in a note this week.
But Mr Gordhan was optimistic that the rand would stabilise. He said he had confidence in the world’s ability to manage the economic crisis. He said he and other developing country finance ministers had decided the International Monetary Fund (IMF) had to lead efforts to stabilise the world’s economy. "There is no other reasonably credible institution than the IMF to take on this role," he said.
Mr Gordhan represented SA at the IMF and World Bank annual meetings in Washington last week . SA also chaired a meeting of the Group of 24 (G-24) and a meeting of Commonwealth finance ministers. The G-24 represents developing countries.
Mr Gordhan said the past few days had taught him that countries believed they could work together to solve problems. If the IMF raised funds to help European countries, SA and other G-24 states would contribute. "SA would need to contribute a couple of hundred-million dollars," Mr Gordhan said.
He was concerned that the public, especially in Europe, may not allow their leaders to act for the good of their countries. " You must do what is right for your country, even if it means you will not be re-elected," he said.
Mr Gordhan said SA needed to do enough to save current jobs and prevent further job losses. "We’re working on this as government."
Manufacturing jobs in SA could be affected by what was happening in the euro zone, he said.
This week the Financial Mail quoted Reserve Bank governor Gill Marcus saying the global economy was close to another "Lehman-type" event, and that SA needed to cushion itself by reducing its dependence on European export markets. In September 2008, Lehman Brothers bank filed the largest bankruptcy in US history. "With growth in the US and Europe likely to remain anaemic for some time, SA would do well to diversify its trade ties ... and reduce its dependence on European export markets," Ms Marcus told the Financial Mail.
* ALISTAIR ANDERSON, with Reuters