Wealth Poses Problem For South Africa

Press, Volume CVIII, Issue 31841, 20 November 1968, Page 13

Wealth Poses Problem For South Africa

CV.Z.P.A.-Renter?

JOHANNESBURG.

South Africa’s soaring gold and foreign exchange reserves, now about 1000 m rand (about $1260m) have presented the country’s economists with a problem many other countries may envy—how to control her over-abundant wealth.

As producer of nearly 80 per cent of the western world’s gold, South Africa has benefited greatly from the recent and continuing world rush for gold, to the extent that her economy has shown signs of overheating. The danger lies in the control of monetary restraints to [keep in pace with the boom, without sparking the potential inflationary danger lurking just below the surface.

Government experts have adopted a “play-it-by-ear” approach to the problem in a world generally plagued by balance-of-payment deficits and outflows of reserves. South Africa must now rank high on the list of those countries that attract free money for heavy investment from all over the world. The problem her Reserve Bank experts must face is how to resist the inflow of capital from investors seeking a safe haven for their money and keep the economy running on the lines the Government has pre-ordained.

The first decision they made was to keep a light finger on the lifting of exchange control, to avoid the boomerang movement inherent in raising controls to the flood of overseas capital. The second—and more important—was to hold back gold from the world markets, apart from a testing exercise in May and June, when a substantial amount was offered to the Zurich market without apparently depressing the price of gold. Although the amount of gold and the price at which it was offered have not been disclosed, the sales were apparently made at a premium over the official SUS3S an ounce level, and have accounted for a very large increase in reserves.

Apart from the political aspects of withholding gold, which must strengthen South Africa’s hand in its foreign affairs dealings, it is in the country’s own internal interests that proceeds of gold sales should not be reflected in the national reserves. There is still too much money in the private sector and the Government has borne down on the lending policy of the banks to the extent that the banks have protested they are the “whipping boy” of the economic boom.

Another danger is that South African Investors and industrialists are now putting their money into domestic enterprises in preference to letting steam out of the economy by taking their capital abroad.

South Africa's dynamic growth, not entirely dependent on her position as chief

gold supplier, has brought a measure of confidence and self-sufficiency to the economy. But the problem now is to curb a horse which constantly threatens to run away.