Venezuela a lesson for SA

REALITY: COUNTRY TREADING ON THIN ICE

Policies must be enacted responsibly with SA’s future welfare in mind.

The reality of SA’s economic quagmire has finally sunk in, with the technical recession adding fuel to populist demands for political intervention in the economy. The rand briefly slid past R15.30/$ on reignited fears that government wouldn’t be able to deliver on its fiscal targets or “New Dawn” promises, around the same time the Turkish economy was tanking and Argentina’s financial markets were convulsing.

Despite the critical need to ignite the SA economy, boost employment and redress inequality, market jitters show that opportunistic calls for aggressive wealth redistribution, short-term solutions and populist policy aren’t the answer.

Populists needn’t look too far for evidence of dysfunctional policy risks. Venezuela’s socialist policies, rampant corruption and a hollowing out of state institutions, have brought it to its knees.

Venezuela was one of South America’s richest countries, per capita.

Now, the International Monetary Fund (IMF) has revised its hyperinflation rate prediction to an annualised 1 000 000% by end 2018.

It’s fair to argue that with an inflation rate running into seven figures, the true extent of Venezuela’s financial crisis is anyone’s guess.

Some figures show the extent of the human tragedy of its poor policy decisions:

248 520. The official Venezuelan bolívar/ US dollar exchange rate (6:1 five years ago)

6 670 790. The rate you’ll pay via the under-the-counter market for one US dollar

3 million. Children at risk because of severe malnutrition.

90%. The poverty rate in a population of 28.1 million.

That this is a man-made disaster, with ready solutions, deepens the injustice, especially as Venezuelan President Maduro continues to refuse international aid.

We see a comparable situation in Turkey. President Erdoğan’s cronyism and manipulation of the finance ministry, with a sharp rise in foreign debt, has set it on a steep inflationary course.

Erdoğan also refuses to alleviate the deterioration in economic conditions with appropriate policy measures.

SA, with its open economy and highly traded currency, caught Turkey’s cold, with the rand plunging from R13.10/$ at end July, to R15.50/$ two weeks later.

While the blame for our latest GDP results is partially due to emerging market contagion, the short-termism and populist policies that have destabilised Turkey and Venezuela have made a few appearances in SA politics.

President Cyril Ramaphosa announced in July that the ANC would propose constitutional amendments to enable land expropriation without compensation.

We’ve also seen government agree to above-inflation public sector wage increases, temporarily buffer consumers against rocketing fuel price increases, propose implementing National Health Insurance and promise to deliver an economic stimulus package that could cost about R43 billion, despite the strained fiscus.

The new administration’s investment drive and ambition to reignite SA ’s economic growth is admirable, but policies must be enacted responsibly with SA’s future welfare in mind, rather than for political points.