Address by Dr Chris Stals, Governor of the South African Reserve Bank, at a meeting of The Institute of Directors in Southern Africa, Cape Town.1. Historical background Over many years, the South African balance of payments represented a major constraint on the economic growth potential of the country. In many countries the balance of payments will emit early warning signals of an emerging overheated economy, that is, an economy that wants to expand faster than can be justified by the available resources of the country, and by the ability of the people of the country to use the resources actively for the production of the goods and services they need. In South Africa, these signals are often emitted at a relatively early stage of an economic upswing and need careful interpretation lest we shall kill a recovery phase already in the bud. Over the decade from 1984 to 1993, persistent net capital outflows from South Africa, inspired by non-economic considerations, aggravated the normal constraint of the balance of payments. During this period, South Africa had to accommodate a total net capital outflow of more than R50 billion, which amounted on the average to about R5 billion per annum. To generate the necessary foreign exchange needed for funding this outflow, the country had to run a surplus on the current account of the balance of payments of more or less a similar amount per year over the whole ten-year period. In particular, at no time could South Africa afford any sudden upsurge in the imports of merchandise, for example machinery, from the rest of the world.During this extended period of time, the domestic economy therefore had to be restricted to a running speed well below its real potential in order to ensure a continuous current account surplus -- domestic demand had to remain depressed to keep imports low, and, at the same time, to release as much as possible of domestic production for export.South Africa succeeded in meeting this challenge and the aggregate surplus on the current account of the balance of payments over the ten years from 1984 to 1993 also exceeded R50 billion to match the net capital outflows. Over the ten year period as a whole, the total current surplus was slightly less than the accumulated net capital outflow with the shortfall being covered from available official foreign reserves. The process, however, depleted the net official foreign reserves of the country to a zero position in early 1994 when the Government of National Unity was elected. It also left South Africa, after a decade of low economic growth at an average rate of less than one per cent per annum, with massive unemployment. The only advantage left to the economy by the decade of balance of payments suffering was a relatively low level of foreign debt for the country. In the middle of 1994, the foreign liabilities of South Africa denominated in foreign currencies amounted to only US $16,7 billion, equal to 14 per cent of the country's gross domestic product, and 57,0 per cent of the annual exports. These are low ratios in terms of recognised world standards, particularly if compared to the developing economies of the world. 2. The changing pattern of international economic relations The political and social reforms of the past five years culminated in the democratic elections of April last year, and in the inauguration of the Government of National Unity in May 1994. These developments initiated the withdrawal of the international economic actions against South Africa, and led to a gradual normalisation of South Africa's international economic relations. The United Nations and all its members withdrew the economic punitive measures previously introduced, and most countries repealed the boycotts, sanctions, disinvestment and withdrawal of loans campaigns against South Africa. Over the past year, South Africa has: re-established normal relationships with multi- national organisations such as the United Nations and the International Monetary Fund and the World Bank Group; obtained various international credit ratings which re-open