Linda Ensor
11 November 2009
Cape Town — The government will seek out the views of organised business, companies and labour on the damaging effect of rand strength on the economy over the next two weeks in talks that could result in measures to weaken the currency.
The opening up of a debate on the rand is the first indication yet of a willingness by the government to change official policy.
Until now, the government has insisted it will not intervene in the currency market. Economic Development Minister Ebrahim Patel, who is overseeing the discussions, emphasised yesterday that there were no moves afoot in the government to act.
The rand has strengthened more than 28% against the dollar this year and more than 17% against a trade-weighted basket of currencies. It scaled a 14- month peak of R7,29/ last month, and is now trading well off this at about R7,46/. SA's exports have become less competitive and imports less expensive.
Patel was tight-lipped about the position of the Cabinet on the currency, except to say that there was unity among economics-
cluster ministers on the need for a "competitive exchange rate".
The challenge, Patel said during a parliamentary media briefing on the economics cluster, was to determine the tools, opportunities and costs involved in intervention.
A public discussion was needed to assess the options.
The exchange rate was a key determinant of a country's competitiveness, Patel said. A "huge price" was to be paid for an exchange rate that priced SA out of international markets. He said capital and labour had raised concern about the damage caused by the volatility of the rand and its value against the dollar.
Different measures were used internationally to manage currencies. China exercised direct control, setting the renminbi at a predetermined rate against a basket of currencies.
Several Asian countries had built up substantial foreign reserves to bolster the value of their currencies when necessary, while Brazil recently introduced a tax on capital flows. Chile used "speed bumps" to slow down the entry and exit of capital and reduce volatility.
Patel noted that many governments preferred to leave the level of the currency to the market because the costs of trying to manage it and getting it wrong were potentially too high.
Referring to industrial policy, Patel said the Department of Trade and Industry would present a focused industrial action plan to the Cabinet's lekgotla in January with concrete targets and implementable policies.
These would require changes to human resources strategy as well as to research and development incentives. Industrial policy interventions would be scaled up to alter the structure of the economy to create more jobs.
Patel said that the government had mobilised R9bn so far to mitigate the effects of the recession on distressed companies and unemployment.
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