South Africa is in discussions with the Zimbabwean government and may end up aiding its struggling southern African neighbour financially, President Thabo Mbeki said on Sunday. Local media reports said Zimbabwe had asked for a $1 billion loan to buy food and fuel and to prevent its expulsion from the International Monetary Fund (IMF) over arrears of $306 million.Mbeki, briefing reporters after a three-day cabinet meeting, said South Africa did not want to see a financial collapse in Zimbabwe.

Zimbabwe is battling its worst economic crisis since independence in 1980, with unemployment estimated at 70 percent and inflation in triple digits after a recession which has lasted for more than five years.?We don?t want a Zimbabwe collapse next door. South Africa would inherit all the consequences of a collapse of Zimbabwe,? Mbeki said.The South African leader said his country was in talks with the goverment of President Robert Mugabe over Zimbabwe?s foreign debt arrears.

?We are discussing the debt issues, how it should be settled ... It may very well be that we then agree that South Africa should take whatever portion of Zimbabwe?s financial debt,? Mbeki said.He said the South African government had been asked by Zimbabwean opposition leader Morgan Tsvangirai to help in a bid to solve Zimbabwe?s political situation and the country?s economic problems.But Mbeki refused to be drawn on the size of any aid. The IMF, whose board is likely to meet next month to review Zimbabwe?s economic policies and its IMF debt repayments, has suspended lending and on February 16 deferred a decision on whether to expel the country for six months.

The IMF said last month it expects the economic output of Zimbabwe to fall sharply this year and its budget deficit to widen as food shortages grip the country.Mbeki said his cabinet had also discussed how to encourage more investment and stimulate South African economic growth beyond the current 3-4 percent annual growth with a government committee due to investigate the matter further. ?Without higher rates of investment in the South African economy, you won?t get higher growth rates and this committee must say which are the key sectors we must make that investment in?.Since South Africa?s first democratic elections and the end of apartheid in 1994, inflation and budget deficits have been reduced to levels normally only seen in developed economies.

Economic growth has quickened and is likely to remain around four percent for the next three years. But big income disparities, high levels of violent crime and unemployment still worry foreign investors. Despite strong economic fundamentals, South Africa still struggles to attract foreign direct investment (FDI), which totalled about 50 billion rand since 1996.

<B>Marius BOSCH</B>