Cosatu said it would develop a framework on alternative policies on exchange-rate management, interest-rate policy and inflation control. Cosatu’s stance comes two weeks after a meeting with its allies, after which the African National Congress (ANC) made it clear it led in making policy.
Although it made concessions at the alliance meeting, yesterday’s announcement is likely to set the tone for strident debate on economic policy among the allies and in the Cabinet.
Cosatu said it would form “tactical” partnerships with business to lobby on specific issues.
Manufacturers would be its partner in lobbying on a weaker rand rate and it prefers a rate of R10/USD to support the sector. It would partner mining companies to oppose Eskom’s proposed tariff hikes of 45% a year for three years. Vavi said there was a need to move away from capital-intensive sectors and focus on more-labour intensive sectors.
He blamed past economic policies for what he termed the current crisis.
“The underlying cause of the crisis now ravaging the working-class communities is the mistaken policies between 1996 and 2004, of cutting tariffs and privatising basic services, conservative fiscal and monetary policies pursued in those years.”
Cosatu’s alternative framework was also likely to set out its position on the need for a clearer growth and development strategy.
There is not a linear relationship between interest rates and the exchange rate in South Africa - thus monetary policy is not a useful tool for influencing the exchange rate.
ReplyDeleteTo fix the exchange rate at, say, R10/USD, the Reserve Bank will need to directly intervene by selling massive amounts of rand to buy US dollars in order to deflate the rand, which will be inflationary by increasing the supply of money. Internationally, such intervention will encourage speculation against the rand - as was Sterling in the eighties when the Bank of England tried to control the Sterling exchange rate.
Unfortunately, the rand is like a yacht bobbing around on a sea dominated by large ships!
It may be noted that China maintains the exchange rate of the Yuan, which, unlike the rand, is not a freely traded currency. Other countries call for China to strengthen the Yuan, not weaken it. China is able to support its currency because of China's large US Dollar reserves.