Contribution by Dr Chris Stals, Governor of the South African Reserve Bank, at the Sixth Session of the Conference of African Ministers of Finance and Governors of Central Banks arranged by the United Nations Economic Commission for Africa Addis Ababa, Ethiopia. I. INTRODUCTION1. Background to the South African financial sector reform processUnlike many other countries on the African continent, South Africa has a well-established financial structure which includes a relatively independent central bank, sophisticated modern banking institutions and competitive financial markets. There developed, nevertheless, a need for far-reaching financial reforms in recent years. The experience of South Africa in this regard provides an interesting case study from which some lessons can be learned.The South African financial sector and, for that matter, its total economy, was isolated to a high degree from the rest of the world for more than a decade because of unacceptable internal political and social policies, and international punitive actions taken against the country. In the circumstances, developments in the financial sector did not keep abreast with the evolutionary international changes of the past twenty years. With a lack of external competition and economic concentration in a few powerful corporate conglomerates, a stagnating economy, and a comprehensive protective exchange control system, a "hot-house" climate was created that contributed to a retarded adjustment process of the financial sector.Major political and social reforms in South Africa culminated in the democratic election of the Government of National Unity in April 1994. The scene was then set for major changes, also in the economy of the country. Indeed, not only was the scene set, but the expectations of the people of the country demanded major reforms that would, as a minimum, provide a better economic performance and an increase in the standard of living of millions of previously disadvantaged members of the community.Over the past five years, South Africa was therefore not only challenged with the need for reintegrating the South African economy, and more in particular, the financial sector in a rapidly changing global financial environment, but also with the challenge of adapting to a new domestic socio-political structure. These adjustments in the financial sector, which are still in progress, were facilitated by the existence of a sophisticated, albeit marginally retarded, financial system with a long history of more than a century.The Government's policy approach to the needed reforms is based on a gradual but resolved transformation of the financial sector, mainly by exposing domestic institutions more to international competition, by integrating policy measures, the institutional framework, and the financial markets gradually into the global village, and by adapting at the same time to the changing needs of the local community. In the next part of this paper, the attention is focused on the reform process of the financial system to meet these policy objectives.The new South Africa was also confronted with a daunting further challenge, and that is to become, and to be part of, Africa. With the admission of South Africa during the second half of 1994 to the Southern African Development Community (SADC), comprising twelve countries in the Southern African region, new challenges were offered for the expansion of financial co-operation on a regional basis. The third part of this presentation will provide a brief summary of the progress so far made with co-operation amongst the central banks of the members of SADC in the implementation of financial reforms in the region. II. FINANCIAL SECTOR REFORMS IN SOUTH AFRICA2.1 Macroeconomic policy implicationsThe integration of the South African financial system in the global economy obviously holds major implications for macroeconomic policies. A country that exposes itself to the whims and the fickleness of fund managers and financial traders operating in a technologically integrated global market system can no l