Johannesburg — INTERNATIONAL rating agencies say it is too early to gauge whether SA's new Cabinet will usher in significant shifts in economic policy, but for now they assume the new leaders will remain "pragmatic".

The choice of several prominent left-wing politicians to powerful posts in President Jacob Zuma's government, and the creation of key new portfolios, have prompted some unease among investors.

But rating agencies are giving SA the benefit of the doubt. Their focus remains on how the country rides out the global downturn, which has tipped the economy into its first recession in 17 years.

"I think policy will remain pragmatic," said Fitch Ratings sovereign director Veronica Kalema. "The key thing for SA is to manage the fallout from the global recession, which means that options are fairly limited."

SA's economy shrank for the first time in a decade during the final quarter of last year and there is likely to have been an even steeper contraction in the first quarter of this year. The downturn is eroding both tax revenue and exports, which means there is limited scope to increase official spending.

Kalema said it was unclear what role the new National Planning Commission headed by former finance minister Trevor Manuel would have, or how the new Department of Economic Development would interact with the Treasury. So far markets have been reassured by the appointment of Pravin Gordhan -- former head of the South African Revenue Service (SARS) -- to finance minister, and by Manuel's move to what is being widely seen as a more senior post.

Gordhan is credited with having improved the efficiency of tax collection, raising it to 28% of gross domestic product from about 16% when he took the helm of SARS in 1999. This helped SA to record its first budget surplus in history, an achievement that did not go down well with the left-wing allies of the African National Congress, the Congress of South African Trade Unions and the South African Communist Party (SACP).

"We are coming for a rating visit in two weeks. We will meet with all these people and try to get a better idea of who is calling the shots ... but in general, we don't think policy will change much," Kalema said.

Fitch has given SA a BBB+ investment grade rating, which is on par with its two global rivals, Moody's Investors Service and Standard & Poor's.

But last year Fitch and S&P both gave SA a negative outlook, which means the next move in its rating is likely to be downwards. Moody's kept its outlook for SA's BAA1 sovereign rating positive.

Rating agencies have fallen into disrepute for failing to detect any sign of the global financial crisis, which has led to the worst international recession in decades.

But their views on countries still matter for foreign investment, both through projects and purchases of local shares and bonds. Ratings also affect the cost of government borrowing on international markets.

Moody's senior vice-president Kristin Lindow, who leads a team which assesses SA, was more circumspect with her comments.

"Some of the decisions surprised me, but I feel uncomfortable drawing any conclusions at this stage," she told Business Day.

"It's far too early to know what these appointments mean for policy. We understand the priorities, (the issue is) how those priorities are going to be accomplished and how that will be implemented by this set of individuals."

Moody's will visit SA soon to gather more information, she said.

Zuma has pledged that his new administration will be "efficient and caring", responding to the needs of SA's people without tolerating "laziness and incompetence" in government.

Ebrahim Patel, a trade union leader and skilled negotiator, has become the minister of economic development, a department which Zuma says will set economic policy.

Rob Davies, a prominent SACP member, has been given the helm of the Department of Trade and Industry, which is under pressure to support bail-outs of local industries hit by the global downturn.

It is hard to imagine how those two leaders will interact with Manuel, who has bluntly said he does not favour bailing out industries that are no longer viable.

It is also how hard to see how the government can stave off further job losses or boost growth in such a hostile economic climate, both at home and abroad.

Local markets were driven mainly by global trends yesterday, as traders digested the weekend announcements. The rand weakened 1,4% to R8,47/$ while the JSE closed nearly 1% firmer.

IDEAGlobal emerging market analyst Alvise Marino said by not reacting, markets had given a "tacit nod of approval" to the new Cabinet. Zuma's choices supported his reputation as a "master of consensus", throwing a bone to markets and to his political allies, he said. "I wouldn't have expected it (the currency) to have upside potential at this time as the risks are skewed towards the downside."

Depending on international developments, Marino saw scope for the rand to extend its recent rally, moving back to the next key level at R8,17/$.

Government bonds built on gains at the short end of the yield curve, confirming the market was "generally pleased" with the Cabinet selection.

But Marino said he was worried by the increase in the number of people in charge of economic issues, echoing the views of many other analysts. "This crowded set-up is likely to boost fears that having too many cooks in the kitchen will lead to indecisiveness," he said.

Official figures this week will highlight the magnitude of the challenge faced by the new government.

Factory output in March is likely to have fallen steeply again after a record 15% contraction in February, compared with the same month last year. Retail sales data for March are also expected to be dismal, after plunging a record 4,5% in February. The two sectors together account for about 30% of SA's overall output. Mining figures out on Thursday are set to show this key sector is also mired in an employment-threatening recession.

With Edward West