South Africa’s ruling African National Congress (ANC) yesterday called for a more “competitive” rand exchange rate to address unemployment, but said it was not targeting any particular level for the currency. Presenting discussion documents ahead of the party’s general council in June, ANC spokesman Smuts Ngonyama told reporters the country was facing major challenges of poverty and joblessness which made a debate on the currency necessary. “There is no kind of level that we define as highly competitive. We believe that we need to come up with a currency level that is able to create a very strong balance in terms of being friendly to exporters and importers,” Ngonyama said.

The documents, which are not draft resolutions, call for a policy that allows for a more “competitive” exchange rate without abandoning the inflation targeting-model for making policy.

“Aggressive buying of dollar assets when the rand is strong is one option. Faster liberalisation of exchange controls is another avenue to pursue to weaken the currency,” the ANC said. The calls come in the wake of massive jobs losses in the manufacturing and mining sectors of the export-based economy, a major issue in a country with a 26 percent unemployment rate. Labour federation Cosatu, one of the ANC’s alliance partners, has threatened strikes against the strong rand. The Reserve Bank has also raised concerns on the toll that the rand’s strength is inflicting on some parts of the economy, which prompted the bank to cut its key repo rate by 50 basis points to 7 percent in April.

The rand has more than doubled in value since plunging to a historic low of $ 13.85 in 2001. It hit a new seven-month low of $ 6.44 after Ngonyama’s comments before recovering slightly to $ 6.43 by 1145 GMT. The rand has depreciated about 12 percent versus the dollar so far this year. But analysts are doubtful whether the goal of a weaker rand would be achieved, given that the currency is being driven by external factors, such as deficits in the United States. “These announcements from the ANC could be ignoring other structural fundamentals in the US that indirectly support a stronger rand ... the huge current account deficit and a big fiscal deficit,” said Mandla Maleka, economist at Eskom.

“As long as those two twin deficits exist, they’re going to put pressure onto the US dollar to weaken.” The ANC has also proposed that the country pursue policies to lower real domestic interest rates through, among others measures, prudent fiscal policy and by encouraging savings. “These policies should help to provide cheaper capital for investment and provide a more competitive currency. Achieving both will not be easy, but is also not impossible,” it said.

The party also raised concerns about black economic empowerment (BEE) – the government’s affirmative action drive aimed at shifting more of the economy into the hands of the black majority – saying its funding was a drain on the economy.

<B>Lucia MUTIKANI</B>