capital, money and foreign exchange markets supported the absorption of the south african markets in the process of globalisation. last week, mr andrew crockett, general manager and chief executive officer of the bank for international settlements in basle, delivered the annual gerhard de kock memorial lecture in pretoria. he gave the following definition of globalisation : “ globalisation is a term that is widely used, but defies precise definition. i take it to mean a process in which geographic and market barriers are being rapidly eroded. economic agents are now able to make financial transactions with little hindrance in all major markets of the world. not only this, they can switch with increasing ease between different types of intermediation, each of which is in increasingly close competition with the others ”. globalisation holds many advantages for a country such as south africa. it gives developing countries or emerging markets easier access to the surplus saving of the more mature industrial countries of the world. the advantages in globalisation for south africa are clearly illustrated by the figures on gross cross - border capital flows over the past five years quoted above. the volatility in these capital flows, however, can also cause many macroeconomic problems for participating countries, particularly in the short - term, when international investment sentiments may change very quickly and often unpredictably. last year, south africa felt the full impact of adverse developments in the global financial markets when large amounts of portfolio funds previously invested in the country were suddenly withdrawn. to illustrate the severeness of this problem, the flows of non - resident portfolio investments into and out of the south african bond exchange last year can be quoted. in the first four months of 1998, non - residents increased their holdings of south african bonds by r16 billion. in the subsequent eight months, that is from may to december 1998, they reduced their investments in these bonds by r26 billion, to become net disinvestors of r10 billion for the year as a whole. these volatile capital flows had serious implications for the south african financial markets. the exchange rate of the rand depreciated by about 20 per cent ; liquidity was drained from the domestic banking sector ; interest rates rose to extremely high levels, and the rate of inflation increased from 5 per cent in april 1998 to 9. 4 per cent in december 1998. these adverse developments in the financial markets had a serious depressing effect on growth in the south african economy. south africa was, of course, not the only country that was

so hard hit by the adverse developments in the global financial markets that began as a more localised east asian crisis in the second half of 1997. in the end, emerging markets in latin america, central and eastern europe and in africa all suffered from the contagion effect of the east asian crisis. even financial markets in the industrial countries were affected, as evidenced by the near - collapse in september 1998 of the long - term capital management fund in new york. there are at this stage numerous initiatives in progress at the international level to improve the international financial architecture in an effort to create greater stability in the global financial markets. it is widely accepted, however, that the developments of the past decade cannot be rolled back. in the words of professor klaus schwab of the world economic forum : “ the financial globalisation is no longer a process – it is now a situation. we should therefore no longer talk of globalisation, but rather of globality ”. the outlook for south africa as an emerging market the question can now be asked what the outlook for south africa is as an emerging market in this unfolding brave new world? firstly, what are the prospects for the further expansion of the south african financial markets? it is unlikely that the rate of expansion in the volumes in the various markets experienced over the past few years will be maintained. there are, however, a number of further important structural reforms now in progress that will provide further stimulus, further expansion and more growth in the markets. a few can be mentioned : • • • • the implementation of the strate ( share transactions totally electronic ) system of the johannesburg stock exchange to provide a secure electronic settlement environment for share transactions ; the immobilisation, dematerialisation and concentration in a fully electronic central securities depository of paper scrip and certificates to facilitate immediate payment against delivery of financial asset transactions ; the further extension of the national payment, clearing and settlement system ( samos ) to provide for real - time on - line settlement on a gross basis for all large transactions, and sameday settlement for all transactions with and within the banking sector ; the further extension of international participation at all levels in the south african financial markets. secondly, will the remaining exchange controls be removed to provide a further stimulus to the development of the south african financial markets? here again, the answer must be in the positive. the removal of exchange controls is a one - way process that should not be reversed, not even when international capital flows go against the