In this regard, because South Africa's banking system is sound and well-regulated, it was able to withstand the shocks from the large increase in interest rates and the substantial depreciation in the currency during the time of the crisis. For countries not willing or able to peg their currencies extremely hard, flexible exchange rates work best. The crises in Thailand, Indonesia, Korea, Russia, and Brazil, were all associated with exchange rates that had been more or less fixed. Other hard-hit countries, among them South Africa, Mexico, and Turkey, used their exchange rates to absorb part of the adjustment burden, and suffered less. Increasingly the lesson is being drawn that countries integrated into the international capital markets should go to the extremes, either a tightly pegged rate as in Argentina and Hong Kong, or a floating rate.
Globalization is here to stay.
That is to say, the approach to economic management based on openness to and increasing integration with the rest of the world, and on vigorous structural reforms aimed at strengthening the economy and the role of market forces in it, has not been abandoned, but if anything strengthened. At the height of the crisis, critics argued for the imposition of capital controls and closing off to the outside world. However, in confronting the crisis, virtually all policy makers in emerging markets, including those in South Africa, rejected the call to close their economies, thereby signaling their conclusion that integration with the world economy is the best way to grow. Their commitment places a heavy obligation on the industrialized countries and the international institutions to improve the operation of the international financial system - but I do not intend to discuss tonight the ongoing important work on the reform of the international financial architecture. Rather, let me turn to South Africa, and ask where your country stands, relative to the crisis, and in the context of globalization.