From the third quarter of 19840the second quarter of 1985, the South African economy passed through a period of balance of payments adjustment and cyclical contraction. This was followed, firstly, by a period of slow and vacillating recovery from the third quarter of 1985 to the second quarter of 1986, and then by a more decisive although still moderate upswing from approximately the middle of 1986.By the third quarter of 1987, the more important features and achievements of the economic upturn during the immediately preceding four-quarter period could be identified as follows:• Real gross domestic product, having grown at a fairly brisk pace in the second half of 1986 but at more modest rates in the first half of 1987, was some 23/4per cent higher in the second quarter of 1987 than in the second quarter of 1986. Aggregate real output in the four-quarter period to mid-1987 exceeded real output during the preceding four quarters by approximately 2 per cent. Moreover, an increased number of sectors of the economy shared in this real output growth. The associated increase in the demand for labour succeeded in reversing fairly significantly the sharp rise in unemployment that had been observed from the middle of 1984 to the end of 1985.• Real gross domestic expenditure, having shown major fluctuations in the three preceding six-month periods from the third quarter of 1985, advanced both more steadily and more strongly in the first half of 1987. Aggregate real domestic expenditure in the second quarter of 1987 was provisionally estimated to have exceeded its one-year-earlier level by an approximate6 ½per cent.• Unusual strength continued to be displayed by the balance of payments on current account. Supported by a marked improvement of the capital account in the second half of 1986 and the first half of 1987, the sustained very large surpluses on current account in 1986 and 1987 allowed a major rebuilding of the foreign reserves from the low point that had been reached at the end of April 1986. The continued current account surpluses also provided support for a marked strengthening of the exchange rate of the rand from its lower turning point in mid-June 1986. Sustained strength of the overall balance of payments position, South Africa's meticulous compliance with its debt -servicing obligations, and its strict adherence to the first set of "interim arrangements" for the repayment of debts that had been agreed upon with foreign creditor banks in March 1986, contributed to more favourable foreign perceptions of South Africa's stability and creditworthiness. This also facilitated the satisfactory conclusion of a second set of interim arrangements with the banks concerned in March 1987.• Judged by all normal economic criteria, South Africa's foreign debt position remained sound. Indeed, net repayments of foreign debt inside and outside the"standstillnet" to an amount of about R8 billion were made by South African banks, other private enterprises and public entities from the beginning of 1985 up to June 1987. The ratio of foreign debt outstanding to total exports of goods and services, was reduced from 171 per cent in 1984 to 108 per cent in 1986 - a relatively low figure by international standards.• The rate of inflation in consumer prices, although still unacceptably high, declined from high points at annualised rates of 26,0 per cent and 20,7 per cent in the first and third quarter of 1986, respectively, to 15,0 per cent in the second quarter of 1987.Rewards for the major adjustment effort that had been made by the South African economy from the second half of 1984 therefore were earned in 1986 and early 1987 in the form of simultaneous achievement of an unusually strong balance of payments position, a higher if still moderate rate of real economic expansion, and some moderation of the inflation rate.By the third quarter of 1987, however, it was becoming apparent that the upswing was not gaining as much momentum as had been projected. The progressive decline in the real rate of growth from the fourth quarter of 1986 to the sec