Special Hearings — Business Hearings — 1997-11-12

DR STALS: ... the definition of its task, pursue a macro-economic approach guided by overall financial developments such as changes in the money supply, in bank credit extension, in the level and structure of interest rates and by changes in the exchange rate and the level of the official foreign reserves.
 Developments outside of the strict financial area such as developments in physical policy, trade an labour markets and political policies pursued by Government, can have important effects on monetary policy, but cannot be controlled by the central bank.
 The Reserve Bank therefore often has to react to such external influences and adjust its monetary policies because of (indistinct) developments.  The bank, however, is not in a position to alter them.
 The political and social environment in which the Reserve Bank had to operate over the period covered by this survey, influence the monetary policies applied by the bank in three major ways.
 Firstly, the bank was tasked with the administration of exchange controls, extended by the South African Government in 1960, 1975 and 1986 in direct reaction to internal political developments which placed serious constraints on South Africa's international trade and financial relations.
 Exchange controls were, however, not unique to South Africa.  Most countries in the world use the exchange controls quite extensively as part of macro economic management in a post world war two period.
 Scarce resources of foreign exchange had to be conserves and allocated for essential international payments.  Today there are about hundred companies in the world where exchange controls are still being used and applied.  
 Exchange controls were introduced in South Africa already in 1939 as part of the Sterling era arrangements of that time and to an extend that in the 1960 - 1990 period, because of the special South African situation of that time, the application of exchange controls over such an extended period of time undoubtedly created many distortions in the South African economy.
 A second are where the Reserve Bank was again involved as an agent for the Government, was with the administration of the debt stand still of the period following upon the foreign exchange crisis of August 1995.  A debt stand still committee appointed by the Minister of Finance negotiated various debt standstill agreements with foreign creditors for the gradual and orderly repayment of a restricted amount of foreign debt of South Africa.
 The Reserve Bank administered this arrangement with the traditional professionalism expected from a central bank.  The foreign banks involved in the debt stand still negotiations made it clear at the time that they had no serious problems with the South African economic and financial situation, but were looking for political reforms in the country. 
 This message was conveyed to the South African political leaders by the chairman of the South African debt stand still committee and by Dr Fritz Loydwieler, acting on behalf of the foreign banks in a series of meetings with political leaders in South Africa during December 1985.
 Subsequently Loydwieler had further private meetings with political leaders to convey similar messages from the international banking community.  The forced repayment of foreign debt from 1986 to 1993 had a serious depressing effect on the growth potential of the South African economy.
 Thirdly, because of these balance of payments constraints the Reserve Bank had to apply relatively restrictive overall monetary policies for many years.
 Indeed a total macro-economic policies had to be geared in economy that was no longer able to run at its full potential.  The Reserve Bank made many warning statements about the consequences for long term economic growth and development of the depressed conditions.
 I can quote about two examples from the numerous publications I've already referred to.  The first one is from a statement made by Gerhard de Kock in Cape Town in 1986 in which he said;
"For any lasting solution of our economic difficulties there are at least four basic requirements.  Firstly, we must continue to apply an appropriate short term monetary and physical strategy.
 Secondly it is important to proceed with the formulation and publication of a long term economic strategy for South Africa.
 Thirdly law and order must be maintained.
Fourthly there must be comprehensive further political and
 constitutional reform."
The challenge is to demonstrate to the outside world that we have both the will and the ability to proceed with further peaceful evolutionary political reform.  
 Referring to the consequences of the continuing capital outflows of the South African, I myself, said in Cape Town in November 1990:
"The large capital outflows over the period therefore forced a fairly depressed domestic economy with real economic growth well below the normal optimum capacity of the economy, absorbed a large share of a relatively declining amount of domestic savings and drained the domestic money and capital markets of liquidity which at times had to be replenished by the unhealthy creation of new money in the country."
The persistent deficit of the overall balance of payments had a depressing effect on economic growth and development.  Inflationary pressures remained strong because of a pensive domestic demand.  Interest rates remained high because of the persistent drain of liquidity from the domestic financial markets.
 The economic growth rate averaged less than one percent per annum from 1985 up to 1993.  All South Africans, and particularly people from the disadvantaged groups suffered because of these depressed economic conditions.  
 Unemployment increased year after year as new entrance to the labour market could not find employment.  It was particularly those people with a lower level of training and undeveloped skills that ended up in a growing ranks of the unemployed.
 The macro-economic consequences of the political system of the time, made the Apartheid policies of the Government ...(indistinct).  The rising pressure of adverse economic developments undoubtedly made an important contribution towards the decision to interview major reforms in the early 1990's.
 The Reserve Bank always regarded its actions and behaviour to be strictly in compliance with its mandate given to it by Parliament and that is to maintain overall financial stability, even in an adverse political environment.
 To the extend that its macro-economic monetary policies were thus overriding impartial objective in mind, delayed the process of political reforms in South Africa, or did not mor actively contribute an earlier enforcement of the inevitable process of change;  the bank joins other institutions that already submitted their humble apologies to this Commission and to all the people of South Africa.
 Mr Chairman, we have a very comprehensive document, a submission of about 40 pages in which we cover broad policies followed by the bank over this period, but I think what is perhaps more relevant for the discussion here and for the meeting with you, is what I tried to summarise in these few introductory remarks.  Thank you.

CHAIRPERSON: Thank you very much, Dr Stals.  Dr Boraine?