Far-reaching strategic debate is underway about how to respond to the global financial crisis, and indeed how the North's problems can be tied into a broader critique of capitalism.

At minimum, the ongoing chaos offers new ideological space and material justifications for African finance ministries to re-impose exchange controls and re-regulate finance, and to find sources of hard currency not connected to the Bretton Woods Institutions or Western donors.

The 2008 world financial meltdown has its roots in the neoliberal export-model (dominant in Africa since the Berg Report and onset of structural adjustment during the early 1980s) and even more deeply, in thirty-five years of world capitalist stagnation/volatility. As South Centre director (and Ugandan political economist) Yash Tandon put it: 'The first lesson, surely, is that contrary to mainstream thinking, the market does not have a self-corrective mechanism.' Such disequilibration means that Africa receives sometimes too much and often too little in the way of financial flows, and the inexorable result during periods of turbulence is intensely amplified uneven development. Africa has always suffered a disproportionate share of pressure from the world economy, especially in the sphere of debt and financial outflows. But for those African countries that made themselves excessively vulnerable to global financial flows during the neoliberal era, the meltdown had a severe, adverse impact.

In Africa's largest national economy, for example, South African finance minister Trevor Manuel had presided over steady erosion of exchange controls (with 26 consecutive relaxations from 1995-2008, according to the Reserve Bank) and the emergence of a massive current account deficit: nine percent in 2008, the second worst in the world. The latter was in large part due to a steady outflow of profits and dividends to corporations formerly based at the Johannesburg Stock Exchange but which re-listed in Britain, the USA or Australia during the 1990s (Anglo American, DeBeers, Old Mutual, Didata, Mondi, Liberty Life, BHP Billiton). In the second week of October 2008, South Africa's stock market crashed 10 percent (on the worst day, shares worth $35 billion went up in smoke) and the currency declined by nine percent, while the second week witnessed a further 10 percent crash. The speculative real estate market had already begun a decline that might yet reach those of other hard-hit property sectors like the US, Denmark and Ireland, because South Africa's early 2000s housing price rise far outstripped even these casino markets (200 percent from 1997-2004, compared to 60 percent in the US).

On the other hand, the cost of market failure could at least be offset, somewhat, by ideological advance. The main gains so far were in delegitimating the economic liberalisation philosophy adopted during the 1994-2008 governments of Nelson Mandela and Thabo Mbeki (presided over by Manuel). Indeed Mbeki's dramatic September 2008 departure occurred partly because of substantially worsened inequality and unemployment since 1994, which in turn was responsible for thousands of social protests each year. When a solidarity letter Manuel wrote, resigning from Mbeki's government on its second-last day, was released to the press (by Mbeki)) on 23 September, the stock and currency markets imposed a $6 billion punishment within an hour. The crash required incoming caretaker president Kgalema Motlanthe to immediately reappoint Manuel with great fanfare.

In the same spirit, Mbeki's replacement as ruling party president, Jacob Zuma, had visited Davos and paid tribute to Merrill Lynch and Citibank in 2007-08 (ironically the latter two institutions insisted on having their jitters calmed). Zuma assured international financiers that Manuel's economic policy would not change. Hence the opening of ideological space to contest neoliberalism in practice became a crucial struggle for the trade unions and SA Communist Party, which in mid-October held an Alliance Economic Summit that suggested Manuel make only marginal shifts at the edges of neoliberalism.

However, as the financial meltdown unfolded in the US and Europe, the merits of South Africa's residual capital controls became clearer. As SA deputy trade minister Rob Davies wrote approvingly in the main Communist journal: 'Interestingly, The Business Times of 21 September attributed this [safety from contagion] partly to "exchange control"' which meant 'there is a healthy degree of trapped liquidity within the financial system.' Another factor was that many exotic financial products had been banned. As a leading official of the central bank, Brian Kahn, explained:

'The interbank market is functioning normally and the Reserve Bank has not had to make any special liquidity provision. We have a relatively sophisticated and well-developed banking sector, and the question then is, what has saved us? (This may be tempting fate, so perhaps I should say what has saved us so far?) This all raises the old question whether or not exchange controls work. The conventional wisdom is that they do not, particularly when you need them to work. We seem to have been exception to this rule. It turns out that we were protected to some extent by prudent regulation by the Bank regulators, but more importantly, and perhaps ironically, from controls on capital movements of banks. Despite strong pressure to liberalise exchange controls completely, the Treasury has adopted a policy of gradual relaxation over the years. Controls on non-residents were lifted completely in 1996, but controls on residents, including banks and other institutions, were lifted gradually, mainly through raising limits over time. With respect to banks, there are restrictions in terms of the exchange control act, on the types of assets or asset classes they may get involved in (cross-border). These include leveraged products and certain hedging and derivative instruments. For example banks cannot hedge transactions that are not SA linked. Effectively it meant that our banks could not get involved in the toxic assets floating that others were scrambling into. They would have needed exchange control approval which would not have been granted, as they did not satisfy certain criteria. The regulators were often criticised for being behind the times, while others have argued that they don't understand the products, but it seems there may be advantages to that! Our banks are finding it more difficult to access foreign funds and we have seen some spikes in overnight foreign exchange rates at times. But generally everything seems 'normal' on the banking front... Our insurance companies and institutional investors were also protected to some extent, in that there is a prudential limit on how much they can invest abroad (15 per cent of assets), and the regulator in this instance (the Financial Services Board) places constraints on the types of finds or products they can invest in. (Generally it appears that exotics are excluded). One large South Africa institution, Old Mutual, moved its primary listing to the UK a few years back (when controls were relaxed), and the plc has had fairly significant exposure in the US.'

Article From: http://allafrica.com