Madame Speaker,

At the beginning of this year, South Africa's economic outlook was fairly bleak. The Rand had tumbled against the currencies of our major trading partners, the inflation rate shot up and an increase in the interest rate was announced. Consumers bore the brunt of the downturn as food and petrol prices skyrocketed and the cost of borrowing became virtually unaffordable.

Most analysts adjusted their economic growth predictions downward and industry had little hope for job creation and increased output.

But, just to illustrate the vagaries of modern economic life, the outlook has suddenly become much more positive over the last few weeks. The Rand has almost made up all of its lost value and continues to strengthen. This has of course had a positive impact on the petrol price and the cost of other imported commodities. The Government and private sector as well as consumers must be congratulated for the continuing improvement in the value of the Rand.

In the last week or so, the gold price has also surged to new highs while the international price of platinum is at an all-time high. Gold and platinum exports play a vital role in the economy of our country. The higher prices will no doubt add to our foreign exchange reserves and will enable industry to preserve jobs and to make new capital investments.

The upshot of the recent positive economic indicators is that we can hopefully expect increased prosperity and even a growth rate of 4 per cent in the next annual financial cycle. The IFP wants to remind the Minister and government that improved economic growth is the best catalyst for job creation and for fighting poverty.

The IFP also want to express our hope that the improved economic outlook will have a positive effect on the rate of inflation and that an interest rate increase can be avoided. At this point, we want to remind Reserve Bank Governor Tito Mboweni that an interest rate increase could undo all the recent economic improvements.

The IFP understands the reasoning behind raising the Reserve Bank's repo rate and thereby increasing interest rates on the volatile short-term money markets. There are often sound economic reasons for doing so, but what we cannot understand is why the long-term lenders and particularly borrowers with mortgage bonds have to be punished at the same time? The unruly speculators and our hard-pressed home owners are being painted with the same brush. Surely, that is unfair?

I believe that it is possible to differentiate between long term interest rates and the short to medium term factors. I stress again: Why must the innocent home owners or long term lenders be punished because of the misbehaviour and speculative nature of the short term lenders and money market speculators?

In a previous debate I have said that if government is unable to find an administrative method for separating long term interest factors from the short term money market factors, I believe there are other ways to accomplish this. One possible way would be for the government to subsidise long term housing by the equivalent of the relevant rate increase. Should the cost factor be too high for government, then the increased portion of interest rate on the short term factors could be treated as a penalty or form of taxation in order to supply the necessary funding for the required subsidisation of the long term bonds.

My worry is that we are sending the wrong message to business developers and entrepreneurs when we increase interest rates. They still very clearly remember a few years ago that interest rates escalated to over 20 % with devastating effect on their capital repayments. They had no chance of competing with American, European and Japanese companies with a comparative interest rate of below 6 % and almost zero devaluation in currency value.

The tendency during 2001 of lowering interest rates gave them a respite, only to be devastated again by the repo rate increase in January 2002.

Business and long-term borrowers' greatest worry is that their long term capital commitments would be negatively effected by another spate of interest rate increases. This would have a devastating effect on their confidence, new business development and job creation and preservation.

South Africa simply cannot afford such economic negativity and the IFP therefore calls on the Governor of the Reserve Bank to very carefully weigh up all the factors before increasing the repo rate.

For further comment:

Mr Hennie Bekker: 083 255 4520