of this foreign exchange constraint will be a widening current account deficit and strong depreciation pressure on the currency. so long as there are foreign exchange reserves left, or there are people willing to lend you dollars, the boom can go on. but as financing dries up, the government ends up going to the only lender who will still take its calls, the imf. of course, the imf isn ’ t interested in funding an unsustainable spending programme. so this means accepting the kind of spending cuts populists started out rejecting. there is also a third kind of constraint on populism, which moves a bit slower but may be the most dangerous of all. i ’ ll call it the “ know - how ” constraint, and it is fundamentally about the sources of wealth. in the populist narrative, that story is simple. they say, our country is rich. if the people are poor, that must be because someone else has hoarded these riches – like foreigners, or elites. the solution, then, is to redistribute the wealth to the people. in practice, however, although populists reliably point to sources of great wealth that they plan to redistribute – oil, land, gold, or something else – they invariably run into macroeconomic trouble. the wealth doesn ’ t cover the extra spending they want to do. and they don ’ t appreciate that their antimarket rhetoric and policies disrupt production and kill off investment. as a result, they can deliver temporary consumption booms, but not lasting improvements in welfare. redistributing an existing stock of wealth does not mean that that stock of wealth can be built again. perhaps the most profound meditation on why this happens comes from ricardo hausmann, a venezuelan economist and former finance minister currently teaching at harvard. professor hausmann has, of course, had personal experience of a country that seems rich but whose people are nonetheless persistently poor. accordingly, his analysis emphasises the value of know - how, of expertise. 5 lasting wealth, by this account, isn ’ t in a country ’ s soil but in its citizen ’ s heads. countries get rich because people develop specialised skills, and because they find ways to cooperate so they can do things much too complex for any individual to do alone. to handle all this complexity and specialisation, people gather in firms, and firms interact in markets. the state can help with this whole

based on the expectation of what the rate of inflation may turn out to be twelve to eighteen months downstream. reliable forecasting therefore has become as important for the monetary authorities as they are for private sector operators in the markets. for this purpose, the familiar monetary aggregates such as the money supply, bank credit extension, the level of interest rates and the shape of the yield curve and changes in the exchange rate provide the best indicators available in the short term to guide monetary policy decisions. what will be important for the stance of monetary policy over the next year will not be the approaching election in 1999, but rather current developments in these well - known basic financial aggregates. apart from contending with the after - effects of the depreciation of the rand last year, the major concern for the reserve bank recently has been the continuous increase at a high rate in the total amount of bank credit extended to the private sector. over the past few months there has been a significant slowdown in the annualised rate of increase in bank credit extended to the private sector which amounted to 21. 2 per cent in the second quarter of 1997, before declining to 9. 5 per cent in the third quarter. after the recent downward adjustment in the financial markets in south africa, we may find some further slowdown in the rate of increase in bank credit extension, to reflect more truly the slowdown which already occurred in real economic activity. recent events in the international currency markets proved once again that the forecasting of possible future developments in financial aggregates can be very perilous. as south africa liberalises its financial markets further and as the south african financial system gets more integrated into an extremely volatile international environment, the hazards of forecasting will increase. for the central bank, this unfortunately reduces the value of strictly defined monetary policy models, and makes - 4the task of implementing policies more discretionary. market participants prefer a monetary policy based on pre - announced rules and want to be in a position where they can pre - empt important changes in monetary policy for their own advantage, and for the sake of giving good advice to their clients. this, however, is not possible in the present environment where unpredictable events in far - away places such as thailand can have profound influences on monetary developments in south africa. forecasting possible developments in the exchange rate of the rand, for example, must not only take account of developments in south africa, but also of possible changes in the cross exchange rates of major currencies, developments