Address by Dr Chris Stals, Governor of the South African Reserve Bank, at a Luncheon of the Institute of Directors in Southern Africa , Pretoria.  1. The relaxation of exchange controlsThe extension of the relaxation of exchange controls to private individuals as from 1997-07-01, marked a further step in the Government's committed programme of gradually phasing out all restrictions on the movement of funds between South Africa and the rest of the world.The present system of exchange controls was introduced in South Africa over many years, starting from 1961, and was mainly intended to provide some protection to the domestic economy against the adverse effects of non-economic developments in South Africa, and inter-national reactions that followed internal developments. Since these non-economic factors were removed during 1993 and 1994, following upon the major social and political reforms in our country, justification for the retention of the exchange controls also disappeared. In the new situation, the retention of exchange controls became counter-productive and, in a more open and freer economic environment, created undesirable distortions in the allocation of resources.There was, therefore, general consensus that South Africa should remove exchange controls as quickly as possible, and some advisers even thought that it should be done in a once-off "big bang" approach. How desirable such an approach might have been, particularly for financial operators in the market, realism forced the Reserve Bank and the Government to opt for a gradual but determined phasing-out programme. The major constraint on the authorities had been the limited amount of foreign exchange reserves available to the country required for the conversion of South African rand assets into foreign currencies.Developments over the past few years enabled us to move rather fast with the removal of the exchange controls. Large inflows of foreign funds, mostly in the form of portfolio investments made by non-residents in South African equities and bonds, and inflows of short-, medium- and long-term loan capital made it possible not only to replenish the country's net foreign reserves from a zero-level in April 1994 to more than R20 billion now, but also to remove more than 50 per cent of the exchange controls that existed three years ago. These relaxations required large amounts of funds, for example to enable South African resident companies to invest about R20 billion in foreign direct investment projects, and to enable institutional investors to diversify about R30 billion of their investments in foreign currency denominated assets. Over the three year period from the beginning of 1994 up to the end of 1996, the total net inflow of capital, that is taking account of non-resident capital inflows and resident capital outflows, showed a net gain for South Africa of almost R30 billion. The substantial capital inflows into South Africa therefore enabled us to achieve our objectives with the replenishment of the official foreign reserves, and the gradual relaxation of the exchange controls.The future programme with the removal of the remaining exchange controls will, as over the past three-and-a-half years, be very dependent on a continuation of net capital inflows from the rest of the world. The capital inflows will, as a matter of fact, not only determine the pace of the removal of the remaining exchange controls, but also the rate of economic growth and development in the country. For South Africa it is of vital importance therefore that we shall continue to make our markets and our economy attractive to foreign investors.We may ask ourselves what foreign investors are looking for before they decide to invest in a country. What prompted them, over the past few years, to make such huge investments in South Africa? They are obviously looking for stable political and social conditions in a country. The ANC Government has certainly established itself as a stable government and has founded a credible track record with the management of the economy. Crime and viol