How to map for a tough year

2012-01-07 15:04

International Monetary Fund managing director Christine Lagarde’s visit to South Africa underscored South Africa’s political and economic importance, pundits said this week.

Lagarde was on a three-day visit to South Africa.

She met President Jacob Zuma in Mangaung on Saturday and on Friday with the economic leadership of the country – including Minister of Finance Pravin Gordhan and Reserve Bank Governor Gill Marcus.

At a press conference during her visit this week, Lagarde said she had dropped into the country to exchange notes on how to prevent an economic crisis.

“2012 will not be a walk in the park. I am visiting SA to compare notes on how we will weather the storm in 2012,” she said.

Lagarde and Gordhan also discussed the European debt crisis and measures that could be employed to stimulate growth and create jobs.

Economists said that there were multiple reasons for her visit.

Owen Skae, director of the Rhodes Business School, said: “I think she is rather more focused on marshalling support for her own priorities.”

He explained that she may be concerned about the emergence of new alternatives to the IMF in the form of new sources of finance, such as China, and a move away from the dollar to SDRs (special drawing rights that are not a currency but a claim to a currency).

“Europe and the US have not got the cash. She needs the developing countries on her side and the Brazil, Russia, India, China and SA bloc of countries, more importantly China, are key.

“I believe it is highly significant that this is her first visit and meeting of 2012. President Jacob Zuma has a huge opportunity to put the case for so-called developing countries to have much more say in global financial affairs,” he said.

According to director and chief economist at Econometrix Dr Azar Jammine: “Lagarde’s visit is as political as it is about economics.”

He said the visit was aptly timed to coincide with the ANC’s centenary celebrations.

Eskom chief economist Mandla Maleka agreed, saying the visit was about placating those in the developing world who wanted the post of managing director of the IMF to go to a leading economic figure from a significant emerging market.

He said that the analysis of that part of her visit should take into consideration that vigorous calls were made not only for the restructuring of the IMF to give a more “commanding voice” to emerging markets, but also for a candidate from the developing world.

Instead European countries rallied strongly behind Lagarde.

“Part of her visit is about “winning hearts and minds” in the developing world, Maleka said.

Maleka also identified a practical aspect of the visit.

 “SA and other developing nations have managed to protect themselves from exogenous shocks and survive the worst effects of the debt crisis.

“She is here to learn what was done to mitigate the economic crisis in each of the countries she has visited so far.”

Jammine pointed out that South Africa is the largest economy in sub-Saharan Africa, accounting for approximately a third of the continent’s GDP.

“It is symbolically and politically important for her to meet with the South African government.”

Lagarde expressed her admiration for the counter-cyclical economic planning of the South African government, a policy which cools down the economy when it is in a growth spurt, and stimulates the economy in a downturn.

The plan involves increasing spending to stimulate growth during a downturn and the opposite in good economic times.

But Jammine said this was not an option for many developed countries during the current global crisis.

He said spending was dependent on the debt situation of the country and, in these terms, the relationship between debt and GDP becomes important.

He explained that South Africa has relatively low debt in relation to GDP.

He said: “Our debt is 35% of GDP currently and there are plans to increase it to 45%.

“Even as Lagarde admires the counter-cyclical approach to financial and economic management of the South African government, it must be born in mind that South Africa is uniquely able to implement such a strategy to insulate itself from economic crisis because its debt to GDP is no more than 35%.

“Whereas it is 120% in Italy and 160% in Greece, making this kind of planning impossible in these economies.”

Jammine said Lagarde’s visit to South Africa was well-timed, and added it related as much to the political and economic challenges of the IMF as it did to South Africa’s economic plans.

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