Address by Dr Chris Stals, Governor of the South African Reserve Bank at a luncheon of the United States-South Africa Business Council, New York. 1. The political reformsIt is not appropriate for a central banker to discuss political issues but the profound political reforms in South Africa in recent times transformed the economic prospects so decisively that one cannot but introduce a sensible discussion on the economy without also referring to the political changes.After years of isolation and international rejection, which included trade sanctions, disinvestment campaigns and the systematic exclusion of South Africa from the world's financial and capital markets, the political reforms culminating in the election of a Government of National Unity in April 1994, led to the immediate withdrawal of these punitive actions. South Africa is now being reintegrated not only in the global political system, but also in the world economy. The process of political reform met with great success so far, but has not yet been completed. The Government of National Unity has surprised many sceptics with sound macroeconomic management over the past year, and with a commitment to both monetary and fiscal disciplines that surpassed even the more optimistic expectations. At this stage, however, the country still has to face: the first fully democratic election for local authorities scheduled to take place in early November this year;a more clear definition of the political, economic and financial relationships between the central government and regional governments; andthe drafting of a final Constitution to replace the current Interim Constitution before the next general election can take place.Major reforms and a restructuring of the public service are now in progress, and the Government is gradually building the necessary capacity to implement the many new programmes scheduled to change South Africa, for example the Reconstruction and Development Programme intended to provide more effectively in the basic needs of all South Africans, as well as to foster high and sustainable economic growth.Over the past year, South Africa: rejoined the United Nations Organisation and its affiliates;rejoined the Commonwealth and participated in the last two meetings of the Ministers of Finance of this group;became more active in GATT and joined its successor organisation, the World Trade Organisation as from 1995-01-01;was reinstated as a full and participating member of the International Monetary Fund;regained full rights and obligations associated with membership of the World Bank Group;applied for full membership of the Africa Development Bank; andjoined the Southern African Development Community (SADC).The focus of the global interest in South Africa is now shifting more and more to the economic performance of the country, and the ability of South Africans also to meet the expectations of its people for better living conditions. To achieve these goals, sustainable economic growth at a relatively high level will be essential. 2. Foreign capital returns to South AfricaThe most significant economic change over the past year has been the dramatic reversal of the net capital outflows from the country over the preceding ten years. From 1985 up to the middle of 1994, the total net capital outflow from the country amounted to about R50 billion to give an average net capital outflow of about R5 billion per annum. South Africa had to generate the necessary foreign exchange to make these capital transfers possible, or would have had no alternative but to default on its international commitments, including payments for imports. Over this extended period therefore the domestic economy had to remain depressed, and the average economic growth rate had to be restricted to less than one per cent per annum. In the process domestic demand was constrained, imports remained low and a maximum proportion of domestic production was released for exports. Surpluses on the current account of the balance of payments over this period, matched the persistent capital outflows and