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