Address by Mr T T Mboweni, Governor of the South African Reserve Bank, at the dinner for Heads of Foreign Missions Mr El-Herfi, Acting Dean of the Diplomatic Corps,Ambassadors,High Commissioners,Heads of International organisations,Senior management of the Department of Foreign Affairs,Senior management of the Reserve Bankand honoured guests, all protocol observed  1. INTRODUCTION Integrating dinner with discussions of finance is not unfamiliar to central bankers. The key ingredients are good food and brevity and relevance of the discussion. I will do my best to adhere to the latter two ingredients. The former is out of my hands. 2. THE GLOBAL ECONOMY IN 2002 The developed countries were already experiencing a slowdown in economic activity in 2001 when the events of 11 September shocked the world. Transport and tourism in particular were hit very hard, with some fallout continuing to this day. World growth in 2002 has been subdued and for the full year is expected to amount to around 2,8 per cent, slightly better than the 2,2 per cent recorded in 2001 but still way below the 4,7 per cent recorded in 2000. Alongside the uninspiring growth performance, however, inflation has been very low. In Japan prices are in fact falling, while in the Euro area the latest average inflation rate is 2,2 per cent. In the United States, inflation is running at 2,0 per cent. Beyond the lacklustre world growth and low inflation, there were a number of key events in 2002. Argentina’s one-to-one peg of the peso to the American dollar, that had led to a significantly overvalued peso, collapsed. Against the one-to-one rate at the end of last year, the current exchange rate is 3,54 peso per dollar. The Argentinian economy has been contracting, while their inflation rate has accelerated to more than 40 per cent. Brazil experienced some problems, partly related to the country’s high government debt and its linkages with troubled Argentina. IMF funding is helping to soften the adjustment process. In the Northern reaches of the American continent, the demise of Enron led to disillusionment with corporate governance and accounting practices. This has led to a greater awareness of the need for sound structures and practices, revised codes of conduct and a sharpening of regulation. And, closer to home, there were unfavourable climatic conditions in large parts of Southern Africa together with policies in some of our neighbouring countries which disrupted food production. As a result, the region is becoming dependent on large-scale imports of food. 3. THE SOUTH AFRICAN ECONOMY IN 2002 The exchange rate of the rand has been at the centre of most discussions of economic developments this year. Against a basket of currencies the rand lost 34 per cent of its value during 2001 – mostly in the final two months of the year. Its gyrations were the topic of an official enquiry led by Judge Myburgh. Not surprisingly, it was found that quite a number of factors could have contributed to its sharp depreciation. Some of these factors reinforced each other, causing an exceptional overshooting of the exchange rate. At one stage importers speeded up payment for imports, afraid that they would otherwise have to pay even more rand for their import consignments, while at the same time exporters delayed repatriating their export proceeds, expecting that by doing so they would be able to exchange their foreign earnings for even more rand later on. Of course, this could not last indefinitely. With imports becoming horrendously expensive and with South African exports extremely price-competitive, supply and demand fundamentals came to the fore and the exchange rate had to turn around. From the beginning of 2002 to date the rand has appreciated by 24 per cent against a basket of currencies. To illustrate what happened to the rand’s international purchasing power, in terms which may be diplomatically familiar: a 25 pound dinner in a London restaurant would have set a South African diplomat back R280 at the beginning of 2001. Just before Christmas 2001, it would have cost the dip