FINANCE: The South African Rand Bolsters Regional Economies

By James Hall Reprint | | Print |

James Hall

JOHANNESBURG, Apr 15 2002 (IPS) - Parliaments in Namibia and Swaziland have raised objections to their nations’ currencies remaining linked to the South African rand, in light of the rand’s precipitous drop in value this past year against the U.S. dollar.

The rand deprecated 37 percent against the dollar in late 2001, reaching an all-time low of 13.80 to the U.S. dollar in December.

This year, the unit has improved, recovering nearly 20 percent to about R11.30 to the dollar this week.

But the effects on national inflation and external debt are mounting in a delayed reaction to the rand’s plunge, and lawmakers in the satellite economies of countries linked to the rand – Lesotho, Namibia and Swaziland – are growing alarmed at the declining purchasing power of their national monies.

Swazi legislator Nthuthuko Dlamini challenged acting finance minister Prince Guduza Dlamini, who is King Mswati’s brother, “Why should we have to suffer because of the economic problems of South Africa?”

At the weekend, the acting finance minister replied succinctly: “It is true that the rand has depreciated nearly 40 percent this past year, but our own economy is not large enough to sustain a national currency.”

Minister Dlamini also said the rand’s slide was precipitated by a regional economic slowdown and global factors like the Sep 11 terrorist attacks on the United States, that shocked world markets.

“These are events that are beyond the control of any country, like currency speculation that hit hard the rand. If the Swazi currency were independent of the rand, it would also suffer from negative macroeconomic factors.”

Economists cite the Zimbabwe crisis, centred on President Robert Mugabe’s controversial re-election, as one cause for the rand’s fall.

In the run-up to the Mar 9-10 polls, which were marred by violence and intimidation, investors fretted that South African president Thabo of local political upheavals.

Lesotho’s gross domestic product plunged following civil unrest that led to the partial burning of the capital Maseru in 2000, but the country’s currency remained unaffected because of its link to the rand.

Last year, King Mswati, who rules Swaziland as absolute monarch and is thus instrumental to the economic and social well being of the country, vanished from public view for six weeks this time last year, while rumours were rampant that he was poisoned by one of his wives.

Economists note that such a trauma would have shaken the foundations of other nations’ currencies. But the Swazi unit was not disturbed at all, again due to the rand link.

Parliamentarians do not see such advantages, but instead focus on the diminishing purchasing power of their money as the rand exchange rate falls. Of particular concern is the ever-escalating cost of petrol, whose price internationally is pegged to the U.S. dollar.

The rand’s drop is a mixed blessing in other areas of national economy, like tourism. Visitors from overseas to Lesotho, Namibia and Swaziland will find their home currency can purchase substantially more this year, and that Southern Africa is a real bargain.

But the three countries all note that their external debts have risen appreciably, because development loans to international lending institutions are pegged to hard currencies like the U.S. dollar or British pound, rather than the deflating soft currencies of the smaller borrowing nations.

However, the foreign assets of Lesotho, Namibia and Swaziland, from embassy buildings owned by these countries in Western capitals to investments, have appreciated in value up to 25 percent relative to home currencies.

“The reality is that if the Swazi lilangeni were to be delinked from the South African rand, instead of one lilangeni valued at eleven to the dollar, we might see 50 to a dollar, or worse,” says an Mbabane banker.

Other economists agree. Lawmakers frustrated by the declining purchasing power of their national currencies need periodic reminding that the fault lies not with the rand link, and that the rand, despite its problems, is the regional economic buoy that is keeping lesser monetary units afloat.