S African Rand In Crisis But No Reaction From Ctrl Bk
By Andi Spicer
Of DOW JONES NEWSWIRES
JOHANNESBURG (Dow Jones)--The South African rand is in free fall and what
makes it worse is that there seems no one there to catch it.
There's been no word from the South African Reserve Bank or senior governor
officials over the desperate plight of the currency in recent weeks except to
say that a weaker rand helps exports.
This has produced carnage on foreign exchange markets.
The rand dived more than 120 cents against the dollar on Thursday to a low
of 13.8325. It fell to a low of 19.9472 against sterling and 12.3775 against
the euro.
Since the beginning of December it has slid ZAR3.57, or nearly 35%.
Not since the apartheid period, which ended in 1994 with the first
multi-racial democratic elections has the rand fallen so hard. Then, police
were in the townships and the country on the brink of civil war.
The reasons for this year's fall are many.
The rand has been on a steady downturn since the start of 2001 when it
traded at around ZAR7.58/dlr.
A stumbling privatization program at home and increased tension in
neighboring Zimbabwe over land grabs of white-owned commercial farms and
state-sponsored violence against political opposition started to nibble away
at the rand's value earlier in the year.
In July, Zimbabwe-style land invasions in South Africa at Bredell, just
outside Johannesburg were quickly quashed, but left investors worried that
property rights could be a problem in the region.
The events of Sept. 11 and the Afghan campaign by the U.S.-led coalition and
the war against terrorism along with the U.S. economic slowdown added to
jitters.
But December's skid was exacerbated by signs that Zimbabwe was sliding into
possible civil war ahead of presidential elections scheduled for March 2002.
South Africa was criticized for not openly withdrawing its support for
Zimbabwe's President Robert Mugabe.
Indeed, Southern African Development Community (SADC) ministers, including
South Africa's, endorsed Mugabe's land policies earlier in December, sending
shock waves through markets. Argentina's debt crisis also came to a head,
pushing up risk premiums for emerging markets.
The rand accelerated its fall when South African President Thabo Mbeki in a
rare interview with foreign media said that he thought the rand's decline was
good for the economy in that it stimulated exports.
But such was the rapidity of the rand's decline that markets were concerned
that something else, known only to a select few, was behind the slide.
On Wednesday, it was announced that respected Senior Deputy Reserve Bank
Governor James Cross was to retire at the end of December due to ill health.
"Why has no successor been appointed... why has the announcement been made
when the crisis South Africa is in is worse than the emerging market turmoil
of 1998," said Brait Ltd.'s economist Colen Garrow.
He argued that while the bank told the markets officially on Wednesday that
Cross was departing, some in the market already knew about this.
"Investors feel dissatisfied... (some in the) markets knew three weeks ago
that James Cross would be retiring but (the bank) did nothing to allay the
speculation," said Garrow. He said that markets feel the bank is losing its
transparency.
Cross is a key executive at the bank, well-known by traders and bankers and
seen as a source of major technical expertise and experience.
All eyes are now on the Reserve Bank and government for its reaction. But as
yet neither has sprung to the defense of the rand.
"Markets are looking for direction from monetary and government authorities
for leadership for the crisis South Africa is in," said Garrow.
Mike Schussler, economist at Tradek Ltd. said: "There is only deafening
silence since the rand went through ZAR10 to the dollar. Government should
defend the currency at least by assuring the citizens of the country that
there is no fundamental reason for the fall."
As to where the rand is going, few are prepared to guess. Most economists
believe lower against all major currencies.
-By Andi Spicer, Dow Jones Newswires; +27 11 783 7848,
andi.spicer@dowjones.com |
