February 10, 2004

By Quentin Wray

Johannesburg - President Thabo Mbeki's announcement yesterday of the election date - April 14 - has focused attention on promises being made by the various political parties.

And while there is some debate about how well the minority parties will do, there is very little doubt the ANC will again win by a substantial margin.

Such a victory will give the party carte blanche over the fiscus for at least the next five years.

Most analysts do not expect any significant shift in policy thrust between now and 2009.

What is expected is the continued trend of slightly expansionary budgets focused on human and physical capital development.

This is borne out by the fact that although the numbers contained in the party's manifesto, released last month, are slightly larger than what was previously announced, there is nothing new in the steps the ANC has said it will take to create work, fight poverty and promote equality.

The ANC has said that over the next five years it will invest more than R100 billion in improving roads, rail and air transport, as well as telecommunications and energy; and in encouraging manufacturing, information and communications technology, mining and business services.

Previously, the government put the figure at about R80 billion.

It would also, it claimed, spend over R15 billion promoting black empowerment and would put thousands of young people through learnerships to gain the skills to make them employable.

This was put forward at approximately R10 billion before.

The ANC said it would encourage the labour-intensive production methods and would research the impact of the casualisation of labour and outsourcing.

Again, this is nothing new.
 

The one aspect of the manifesto that has raised questions is the party's promise that it will keep both interest rates and inflation low.

A prominent left-wing economist asked to see the details that showed how the ANC planned to achieve this feat. She said the statement showed that the government was "conflicted" about inflation targeting and that the policy should be scrapped so that interest rates could be brought down, which would boost growth and job creation.

She argued that with the government seemingly unwilling to take firm steps to root out food price and currency volatility and to lower administered prices, it had not given itself the room to force inflation sustainably lower.

Inflation targeting, which underpins South Africa's monetary policy, effectively means that the Reserve Bank raises interest rates when inflation climbs.

Because the bank was independent and could not be ordered about by the national treasury, she said there was "no sense of how" we would get to both low inflation and interest rates.

Iraj Abedian, the chief economist at Standard Bank, said that to achieve both lower inflation and interest rates the government had to do three things:

The cabinet had to ensure that state-controlled, or administered prices remained permanently below 6 percent, the upper end of the inflation target.

The cabinet had to ensure the budget deficit was kept in check as a growing deficit would feed inflation.

The state had to keep the upper end of the inflation target fixed at 6 percent and not lower it.

Only this degree of policy certainty would create an environment in which both inflation and interest rates could fall sustainably, Abedian said.