The International Financial Crisis and South Africa:
Last Modified Date:
2020-10-01, 09:35 PM
Speeches > Speeches by Governors
Address by Dr Chris Stals, Governor of the South African Reserve Bank, at a Finance Week Business Breakfast Johannesburg. 1. The causes of the problemThe present financial crisis is, of course, not a South African crisis but a global one which affects many financial markets in many different countries. It is therefore wrong of so many South African analysts to seek for reasons within the South African economy for the affliction. Should the roots of the problem have been within the South African economy, it would have been easier to prescribe remedial action, and to apply appropriate policies that could guide the financial situation back to stability.Reasons for the current crisis are debated very widely and very intensely in international financial fora. Since April this year, meetings within the International Monetary Fund, the World Bank, all the G-Groups, such as the G-7, G-10, G-22 and G-24, and the Bank for International Settlements were dominated by this issue. Many organisers of international conferences capitalise on the urgent need of participants in the financial markets for more discussion and analysis and for finding solutions to the problem. In the analyses, and with the advantage of hindsight, there is fairly general consensus that the origin of the present turmoil in global markets can be traced to the continuing weakness of the Japanese economy, and the exposure this brought of certain inherent structural weaknesses in the economies of a number of East Asian countries.It is ironical now to realise that the spectacular economic successes achieved by a number of East Asian countries in the past few decades actually carried within the process of high and sustained economic development also the seeds of eventual collapse. Taking a longer-term perspective, the adjustments that are now taking place in those countries in the area of social, political and economic activity, are perhaps necessary to provide a new basis for a next wave of high economic development, provided the proven weaknesses will now be eliminated effectively from past policies, and from existing structures.In his Chairman's Address delivered at the Annual General Meeting of the shareholders of the Bank for International Settlements, held in Basle on 1998-06-08, Governor Alfons Verplaetse summarised the East Asian situation as follows:"The economic and financial drama unfolding in Asia over the last year or so has understandably puzzled and preoccupied both policy-makers and market participants. The deterioration in the economic fortunes of many of the affected economies has been extraordinary, particularly given the widespread belief that their earlier successes were based on sound fundamentals. Unfortunately, these earlier successes seem to have contributed as well to a climate of excessive optimism among both borrowers and lenders. As a result, inadequate attention was paid to the rapid build-up of domestic and foreign debt by domestic corporations. Also ignored was the significant threat this would pose to the stability of local banking systems should heavily managed exchange rate regimes come under pressure. Once difficulties emerged, a sharp and simultaneous reassessment of exposures to liquidity risk, market risk and credit risk then turned what might otherwise have been an orderly adjustment into a prolonged crisis. A more sober sense of realism is now influencing economic policy-making in the region. While the road ahead remains long and difficult, the courageous reorientation of policies in several countries deserve to be applauded. Indeed, confidence in the region is slowly being rebuilt".The international prescription for the East Asian economies, spearheaded by the International Monetary Fund, covers a wide area of macroeconomic policies, financial structure reforms, improved governance in both private and public sector institutions and enhanced disclosure of information. Of particular importance is the very substantial foreign exchange support packages provided by the IMF, the World Bank, and the international banking community.