South Africa’s Unreserved Rescue Criticism

South Africa’s Reserve Bank refused to step in as the rand tumbled to 14/dollar and the MSCI stock market gauge shed 15 percent, as governor Kganyago would only consider intervening to provide emergency liquidity in light of the aborted defense 15 years ago that wiped out holdings. Unlike other big developing economies he pointed out that only one-tenth of government debt was in hard currency and few corporates tapped external markets.  The benchmark 25 basis point rate rise in July had not reversed downward pressure even before China’s devaluation and equity crash reverberated, and the terms of trade are set to turn more negative with commodity export punishment and keep the current account deficit at 4.5 percent of GDP. Electricity price hikes hoisted inflation above target but should settle in the second half although daily shortages linger to slash mining output as industry wage talks again foundered. With gold in a slump most producers are not profitable and workers continue to press for better salaries and living conditions in light of past often violent confrontations with management. Multilateral lenders have been pulled into the conflict with families’ lawsuit against the World Bank’s IFC arm, with a small stake in miner Lonrho, for alleged negligence in allowing the Marikana shootings by police. Growth may be only 1-2 percent this year as officials try to meet the 3 percent of GDP budget deficit pledge to avoid sovereign rating downgrade. They have also suffered sharp public relations blows as former president Deklerk, the last under apartheid who shared the Nobel peace prize with Nelson Mandela, has lambasted political and economic stagnation in global media outlets and counterparts in next-door Zimbabwe without its own currency expressed doubts about future rand reliance.

Nigeria’s MSCI frontier measure was off 25 percent as the central bank chief there refused devaluation as the parallel rate crumbled toward 250/dollar despite stable international reserves at $30 billion for five months’ imports. Bank and foreign goods restrictions have been imposed to conserve dollars and phone giant MTN had to suspend bond repayment without access. Growth has fallen to 2.5 percent with oil under $50/barrel, and federal government revenue decline persists in the absence of an Economy Minister and as states request bailouts to cover salaries and debt rollovers. A new national petroleum company boss was appointed with previous experience at Exxon but promised reorganization will take months as billions of dollars may be missing from the coffers and fuel subsidy adjustments have been ruled out for now by President Buhari. The behemoth may be split into separate operating and regulatory units and a comprehensive independent audit may again be undertaken after one was commissioned to look into “leakages” cited by former central bank honcho Sanusi.

African currencies and securities were not spared the Chinese conflagration: Ghana and Zambia external bond yields spiked to 10 percent, Kenya’s shilling dropped to 100/dollar, and stock markets were down 30 percent through August. Mauritius’ MSCI reading dipped 10 percent as it was buffeted as well by India’s reversal with its offshore hub relationship amid continued bilateral tax complaints.

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