The Rand’s fall – what Myburgh found out!

In 2001 the value of the Rand fell by nearly 40%. This has had many important effects on workers. Most importantly, we have begun to feel the pinch of rising prices. Food, transport, and other items have become increasingly expensive, largely due to the decline in the value of our currency. Early this year, the government set up the Myburgh Commission to investigate the reasons behind the fall of the Rand . In this article, John Pape of Ilrig, takes a look at the Commission and why its investigations are important for workers.

In January this year, Kevin Wakeford, the head of the South African Chamber of Business, wrote a letter to President Mbeki. In the letter, Wakeford said that according to a "reliable source" South African companies had been involved in currency trading which led to the fall of the Rand . In response to Wakeford's letter and other pressures, the President set up a Commission chaired by Justice Myburgh, to look into the reasons behind the fall of the Rand . In particular, the Myburgh Commission wanted to find out if any businesses or individuals had done anything illegal which led to the fall in the Rand 's value.

On April 30 the Myburgh Commission issued its first report. At that point the Commission was unable to find any evidence of any illegal activity. However, despite not uncovering any "crimes", the Commission has brought the activities of currency dealers into the public eye.

For years, these dealers have moved their money around the globe without being accountable in any way. In taking testimony from bankers, consultants, economists and government officials, the Commission has uncovered some of the secrets of this somewhat shady world where people make profits by simply buying and selling money. Let us look at some of the most interesting facts that have come out from the Commission.

Daily trade in Rands

In April, 2001, the average trade in Rands was $11 billion per day. At the time, this was equal to about R70 billion per day. To put this into perspective, in a week currency traders exchange more Rands than the South Africa government spends in its entire national budget for a year!

But perhaps an even bigger surprise was that most of the trade in the currency markets is not done by foreigners. South African companies and financial institutions were involved in about $8 billion of that $11 billion. This money comes from workers – either from their Pension and Provident Funds or the profits made from their labour. And many of the companies involved are major employers: Standard Bank, BHP Billiton, Anglo Gold, DeBeers, and Cell C.

Getting Rands out of the country

At the outset of the Commission, there was an allegation that SASOL had used connections with the Deutsche Bank in Germany to make a profit by driving down the value of the Rand .

As it turned out, SASOL's deal with Deutsche Bank occurred in February, 2001, several months before the Rand began to decline. But nonetheless, there was a deal which ended up in R2,5 billion being taken out of the country by SASOL.

At a time when workers are losing jobs at an alarming rate, we can wonder how taking R2,5 billion to Germany is going to help the economy of South Africa .

Role of the Reserve Bank

Many business people and economists blamed the Reserve Bank for causing the fall of the Rand . According to these "experts", on October 14, 2001 , Reserve Bank Head, Tito Mboweni, made a statement which said that the Bank was going to enforce the existing rules on moving money in and out of the country more strictly. He did not mention any new restrictions on foreign exchange dealers.

Yet, according to testimony, just the threat of enforcing regulations led to many dealers selling Rands and trying to avoid South Africa for a while. The selling of the Rands , in their view, led to a further decline in the value of our currency. It would seem that the Reserve Bank actually has little power over these speculators if the mere threat of enforcing existing rules means that they flee South Africa .

Business unites when under attack

Kevin Wakeford's original letter accused South African businesses of contributing to the fall of the Rand . Because Wakeford, as the leader of perhaps the most important business structure in South Africa , dared to make a public suggestion about the secret dealings of big business, he was attacked on almost a daily basis by other business leaders and the business press.

Wakeford's patriotic concerns that some South African businesses may try to gain by undermining the Rand, were viewed almost as disloyal to the rights of companies to make profits in the global markets regardless of the consequences for South Africa.

Commission stops short of asking bigger questions

Myburgh was looking for criminal activity – not for the ways in which the present "legal" operations of business are doing great harm to the South African economy and our workers. Currently companies and financial institutions have almost a free hand to choose whether they would like to put their money in the New York Stock Exchange or build a factory in South Africa . They are not accountable to any national process of reconstruction and development.

Rather, with the implementation of GEAR, the government has made it even easier for big business to move money in and out of South Africa . The explanation for this freedom of the movement of capital is usually that we need a free market in order to attract foreign investment.

In fact, most business people have said that the fall of the Rand merely proves that we need to eliminate all controls on investors ability to move money in and out of the country – what they call the "scrapping of exchange controls."

But for workers scrapping exchange controls will likely mean that even more jobs will disappear as investors, including our own employers, look for greener pastures.

The Myburgh Commission has shown us that South African companies find it very easy to move money out of the country with the existing regulations. And these movements, even if they are not illegal, often have a huge effect on production and job creation in South Africa .

The Myburgh Commission has done us a service in uncovering some of the secret activities of business, but they have not really pointed in the direction of any solution to the problem. To find a solution, the Commission would have to question the logic of a global economy where the freedom to move money to make a "quick buck" is more important than providing jobs and a decent standard of living for workers and the rural poor.

Coping with the rand's fall

We can recall that GEAR was introduced as government policy championed by the World Bank, the IMF, business. Mass organisations were left behind when the policy was drafted.

Our own comrades within different government departments are fighting a losing battle. You cannot talk about economic growth, basic needs while you are sitting with (the current) fiscal policy – "you become a lion in sheep's clothing".

As a result of this, Numsa through Cosatu and other mass organisations rejected this government policy. The reason they rejected it, is that it tries to satisfy investors and business at the expense of the poor people.

The Reserve Bank governnor, Tito Mboweni, admitted that the liberation of exchange controls contributed to the fall of the currency. He also allowed billions to be shipped abroad.

Numsa's position through Cosatu is to reject any relaxation of exchange controls.

Frustrated Reserve Bank Governor directly supports our position in so far as liberating exchange controls. But due to the fact that he wants to accommodate investors and business he remains quiet and allows offshore investments to continue.

I feel strongly that the Reserve Bank must introduce strict measures to stop any individuals from taking billions of rands abroad. Only 2% for non-residents and residents to be taken offshore.

P.K. Thobejane Germiston