Nothing to worry about folks

The ANC has been on a global charm offensive, insisting that South Africa's conservative financial policies will remain in effect.

There's an old chestnut about the power of global financial markets that is attributed to James Carville, a one-time adviser to President Bill Clinton.

Back in 1992, Carville famously said "I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody."

It's funny, because it's true. The bond market can be terrifying, especially to governments, because the bond market is a 24/7/365 poll on a government's (or, in the case of corporate bonds, a company's) policies and strategies.

When the bond market frowns on a government's policies, that government is in trouble. When it tries to borrow money it finds the rates too high. When it tries to attract foreign investors, it finds the door shut in its face. When it tries to negotiate trade agreement, it's ignored.

In short, a snub by the bond market can make a country a pariah, and financial markets are exceptionally sensitive to whiffs of political instability. Back in September last year, when news of Trevor Manuel's resignation broke, the rand plunged, bonds reeled and the stock market fell 4% (see story).

No government wants this kind of problem, and the ANC-led South African government is no exception.

Last year president-in-waiting Jacob Zuma went to great lengths to reassure investors in Europe and the USA of his pure intentions towards the South African economy. He wooed investors in private meetings, and made a charismatic showing at the World Economic Forum's annual meeting in Davos.

Now that Zuma's appointment as president is days away, the torch of investor reassurance has been taken up by ANC, with ANC Treasurer-General Nakedi Mathews Phosa laying on the charm in London this week.

In a speech given at the Global Emerging Markets Summit in London, Phosa went out of his way to assure listeners that it's going to be business as usual in SA Inc.

"The incoming president will verbalise his own economic policies in consultation with his economic, trade, industry and financial advisers and ministers, but we have repeatedly stated that our conservative fiscal and monetary policies will remain in place. I want to emphasise that point," said Phosa.

Phosa's message was, yes, there will be "a number of structural, policy and management changes to be announced in the next month or two", but the core of SA financial policy - conservative government spending, inflation-targeting and careful monetary policy - will not be up for debate.

He also tried to assuage broader political worries, saying "I want to make it very clear that we will not, in an effort to address poverty and create jobs, or to improve governance change the Constitution as if it is our own private property.

"The Constitution of South Africa belongs to all South Africans and the ANC respects the fact that all of us as South Africans toiled and slaved to make it a beacon of hope and principle that it is. We have no intention of making it a political plaything."

In a nutshell, said Phosa, "our macro economic policies will not shift, but our focus on delivery in specific sectors will be sharpened".

Both global and local investors will doubtless take some courage from this speech, although as ever, the proof of the pudding will be in the eating.

Article by: Felicity Duncan - www.moneyweb.co.za