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The way I understand it, South Africa owes a huge debt to a group of senior ANC politicians who, on Sunday evening, forced Jacob Zuma to recant on his madness of replacing Finance Minister Nhlanhla Nene with malleable backbencher Des van Rooyen. Earlier that fateful day the country’s top bankers (and an industrialist who went rogue from ever cautious Business Leadership SA) met with ANC heavyweights to explain the consequences of the rapid unravelling of South Africa’s finances. A 150 basis point surge in the bond rate – a gauge of SA’s credit rating – was likely to escalate further when the Asian markets opened just after midnight SA time. The danger, they explained, was not just having to pay more on fresh borrowings (a third of which is raised abroad in suddenly more expensive hard currencies) but that lenders were poised for a re-run of what they did after PW Botha’s Rubicon Speech 30 years ago. Back then they demanded repayment of capital the country didn’t have by simply refusing the normal practice of “rolling over” loans coming due. That led to a “debt standstill” and a five year schedule where SA was forced to export capital – with tragic consequences for the local economy. The ANC group appreciated the danger, found previously lacking courage and forced the still unrepentant Zuma to appoint the only person in cabinet who was able to pull the nation out of this fire – a man who he had publicly shafted on more than once occasion. Reading about Pravin Gordhan’s interview with Bloomberg TV makes one wonder what the alternate reality might have been like. Imagine the impression a Zuma worldview-inspired Des van Rooyen might have made. Unbeknown to many, South Africa dodged a very big bullet on Sunday. – Alec Hogg
By Amogelang Mbatha and Toni Parsons
(Bloomberg) — South Africa’s new Finance Minister Pravin Gordhan said he’ll shore up public finances to regain market trust and show credit-rating companies the government is serious about managing debt.
On Sunday, Gordhan was named the country’s third finance minister in less than a week, replacing little-known lawmaker David van Rooyen, who was sworn in Thursday following the dismissal of Nhlanhla Nene from the post. The surprise decision to fire Nene sent the rand plunging to record lows and fueled speculation the country’s bonds may be cut to junk.
“The process of fiscal consolidation will continue, and if the revenue situation allows us we might even accelerate it,” Gordhan said in an interview with Bloomberg TV on Monday. “We will manage our debt ceiling in the right kind of way.”
He said there will also be focus on social benefits that cater for the poor, such as housing and grants, in Africa’s second-largest economy, which has a jobless rate of 25.5 percent. That’s the highest among almost 40 emerging-markets tracked by Bloomberg.
Gordhan, 66, held the post of finance minister from 2009-2014 and was replaced by Nene following elections last year.
Earlier this month, Fitch Ratings Ltd. cut South Africa’s credit rating one step to the lowest investment-grade level of BBB-, in line with the assessment of Standard & Poor’s, which reduced its outlook to negative. Fitch said on Monday that the reappointment of Gordhan doesn’t cancel out all of the uncertainty over the government’s ability to deliver sound economic policy given the market tumult in the past week.
Changes in leadership in the Treasury would impact credit evaluations “if it led to a loosening of fiscal policy or weakening in the transparency and financial management of state- owned companies,” Fitch said.
South Africa is listening to and taking seriously the concerns expressed by credit rating companies about fiscal prudence, said Gordhan.
“We are not just waiting for the ratings agencies,” he said. “They must give us an opportunity to start shifting the ship in the same direction, but perhaps with greater speed and with greater emphasis in the kind of direction we want to go.”
The rand weakened 0.2 percent to 15.1302 per dollar by 7 a.m. in Johannesburg on Tuesday after rallying 5.2 percent on Monday. The currency dropped to an all-time low of 16.054 two days after President Jacob Zuma announced the appointment of Van Rooyen on Dec. 9.
Cyril Ramaphosa: The Audio Biography
Listen to the story of Cyril Ramaphosa's rise to presidential power, narrated by our very own Alec Hogg.