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Politics : Dutch Central Bank Sale Announcement Imminent? -- Ignore unavailable to you. Want to Upgrade?

To: ild who wrote (18088)	4/24/2003 9:35:08 PM
From: sea_urchin	Read Replies (2) \| Respond to of 81205

ild > The fact that the government doesn't interfere with currency is actually good IMO But, it is the SA government which has created the problem, although indirectly. The foreign money which is causing the rand appreciation is attracted to the high interest rates, particularly of SA government bonds. Not only does this currency inflow cause the rand appreciation, which messes up the export profits, it also has to be paid for by the SA taxpayer at 10-12% pa, which is far higher than anywhere else. Further, this currency inflow contributes to the national "money supply" and thus aggravates the inflation. Clearly, we are dealing with a vicious cycle where the higher the interest rates, the greater the currency inflow and therefore the greater the inflation. Presumably, this will cause the reserve bank Governor to raise interest rates some more and the cycle can then repeat itself. > Are exporting industries very important for SoAf economy? Of course, that's how the country lives. Unlike the US which can live on loans and paper, SA has to pay for imports with its exports. Although, I have to say, our government has shown itself to be very adept at begging. > Does the government care about profits in exporting companies? I should hope it does. The largest private companies which are also the largest exporters of local production, and therefore the largest employers of labor, and the largest taxpayers, are the mines and the farms. Further, SA is also a very large motor vehicle assembler for export and has contracts with all the large German manufacturers (Mercedes, BMW, VW) > Does SoAf need FDI (Foreign Direct Investments)? Definitely, but gets very little. Most foreign money coming in is short-term and concerned with paper assets, particularly Treasuries, as discussed above. > I see that for instance Russia has already started complaining that the ruble has stopped falling against USD because it may squeeze non oil related export. Makes sense. All primary producers are in the same boat. Further, Russia competes with SA in the mining of many different minerals so if SAn minerals are not priced cheaper than the Russian then SA loses out, and vice versa. > What I see is that it's pretty hard to reverse the existing expectation on future price inflation even though the basis for ongoing inflation has been removed. Yes, when the rand devalued severely in 2001 that caused the prices of imported goods to rise considerably and inflation went from around 5-6% to over 12%. But with the rise in the rand, the prices have not come down. So, the SA consumer is getting the worst of both worlds --- no exports (diminished profits plus unemployment) and high inflation. But as I discussed above, the situation is extraordinary in that high interest rates actually contribute to inflation, not the converse. So, as I see it, the principal instrument which government can use to diminish inflation, namely raising interest rates, has been screwed up by the SA government --- in its wisdom. > All governments like at lest moderate inflation, Yes, they think it "stimulates" the economy. No-one, especially those living on fixed incomes, should be allowed to relax. Everyone must be on the treadmill. Even those who can barely walk! > but 12% domestic inflation coupled with rising currency does squeeze profits if you rely on exports. I'm glad you see that because I know you are interested in SA golds.