Johannesburg — FORCING the rand to weaken would be a "very shortsighted" move for SA to make, Dominique Strauss-Kahn, MD of the International Monetary Fund (IMF), said yesterday.
His comments come amid a heated debate on the rand's strength. There have been mounting calls from trade unions and some business leaders to weaken the unit, after gains last year were seen as a threat to the competitiveness of local exports, jobs and growth.
Strauss-Kahn said any policy measures aimed at weakening the rand would scare off foreign investors and the capital needed to fund the deficit on SA's current account, its broadest measure of trade in goods and services.
The currency appreciated by 28% against the dollar last year, making it the best performer after the Brazilian real. It was trading at about R7,40/ late yesterday, unchanged from the start of the year, but has firmed 2% against a trade- weighted basket of currencies.
Finance Minister Pravin Gordhan said in the budget last month SA needed a "stable and competitive" exchange rate, but its volatility was the main problem for business and growth. He also made clear there were no plans to try to peg the exchange rate at any level, a step that could backfire given the strength of global markets.
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Strauss-Kahn also said policy makers in SA should introduce more competition into the economy -- especially into the banking sector, which is dominated by four major players.
"Creating more competition would certainly have a good impact on inflation," he said during a lecture at Wits University.
Strauss-Kahn was due to meet President Jacob Zuma yesterday and was expected to press home this message.
"Efforts have to be made to create a more effective economy," he said.
Strauss-Kahn also said that the world needed to prepare for the next economic crisis, even as it began to recover from the worst recession since the Great Depression.
He was concerned recovery could mean leaders would feel less pressure to work together and pursue reforms such as tightening the regulation and supervision of financial markets.
"The consensus is stronger when you're afraid. Certainly this consensus is not as strong as it was six months ago."
He said he could not predict the timing or the nature, but "don't fool ourselves, there will be future crises".
The IMF predicted output would grow 3,1% this year. But it also cautioned that unemployment would continue to grow.
"I won't say that the crisis is over. I would say we are probably in the second part of the crisis."
Economic stimulus packages adopted around the world, including in SA , had helped avert a greater crisis, Strauss-Kahn said.
While the initial intervention focused on growth, this "must be the year where economic policy focuses on job creation", particularly in the small business sector.
SA lost 900000 jobs last year on top of already high unemployment. "But the situation could have been much worse," Strauss- Kahn said. " In SA, the right policies have been implemented timely and strongly enough."
Strauss-Kahn is on an African tour that started in Kenya and will take him to Zambia from SA.
The continent was hard hit by the downturn, which dried up foreign investment, aid and markets for its raw materials such as oil and gold.
But Strauss-Kahn said the continent seemed to be keeping pace with the global rebound. With Mariam Isa, Reuters, Sapa-AP
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