Thursday, November 26, 2009

Cosatu Tries to Talk Sense

You have to admire this valiant effort from COSATU.

Their rhetorica doesn't match their proposed solutions but the rhetoric is what gets support for Cosatu so that is surely far more important to them.

Ronald Reagan once said:
"How do you tell a Communist?
Well, it's someone who reads Marx and Lenin.
And how do you tell an anti-Communist?
It's someone who understands Marx and Lenin."

Cutting interest rates would nicely help all those poor people Cosatu cares so deeply about by allowing them to buy more TVs, furniture and cars on credit without actually being able to afford them.

The best part, which reveals the sheer short-sightedness and downright reality-failure of the statement, is
"Malikane said targeting demand to fight inflation did not benefit the poor, as the good they spent money on, such as food and electricity, were influenced by monopolistic behaviour."

Doesn't "monopolistic behaviour" describe exactly what they have in mind for the country?

Indeed, hasn't the increase in cost of those two basic goods come about because of mismanagement, and the attempt to impose the ANC's will on those vital industries?

Cosatu says central bank should target employment
Interest rates have hurt the poor

November 26, 2009

South Africa's central bank should target employment when deciding on interest rates, and worry less about inflation when the economy is struggling, a top Cosatu official said on Thursday.

Chris Malikane, head of policy at the trade union federation that is an ally of the ruling ANC, also said in an interview with the weekly Financial Mail magazine that the country should rather print money than take on debt.

The alliance of the ruling party, Cosatu and Communist Party agreed earlier this month to review the mandate of the central bank, to broaden it from merely targeting inflation.

The powerful trade union group wants the rand currency to weaken, interest rates slashed and inflation targeting -- the bank is tasked with keeping consumer inflation at between 3 and 6 percent -- scrapped.

It says the policy has led to rates staying too high, hurting the poor and costing the economy jobs during its first recession in nearly two decades.

Cosatu has gained more influence this year after helping Jacob Zuma rise to the head of the ANC and government, and has been pushing for the new president to shift away from a previously conservative, market-friendly stance. The comments give a clearer picture of Cosatu thinking.

Malikane -- an economics professor at Johannesburg's Wits University -- said targeting only one variable limited the extent to which the central bank could manage the economy.

"The key variable to include is employment. And to target employment you need the to use the growth rate as an intermediate target."


He said interest rates should be adjusted to line up with growth, even if this meant negative real interest rates.

"If we maintain a positive interest rate while there is a negative growth rate, government spending can only generate huge debt."

South Africa's Reserve Bank has cut its repo rate by 5 percentage points since December last year, but at 7 percent Cosatu says it is still too high given the economy has been in recession. Inflation eased to 5.9 percent in October.

It emerged from the slump in the third quarter but consumers remain under severe pressure. Almost a million jobs have been lost so far this year.

Malikane said targeting demand to fight inflation did not benefit the poor, as the good they spent money on, such as food and electricity, were influenced by monopolistic behaviour.

Printing money to boost the economy would be a better option than taking on debt -- as the Treasury has announced it will do over then next three years to plug a tax hole.

"Why borrow when we can print money?" he asked.

This, though, should be measured so as not to hurt the economy and done in conjunction with lowering interest rates and weakening the currency.

"But in the process of stimulating the economy, we should make sure we don't overprint. It's better to have 10 percent inflation and the protection of one million jobs than inflation of 6 percent and the loss of one million jobs," Malikane said.

Cosatu Secretary-General Zwelinzima Vavi on Wednesday called for the rand to be 10 to the dollar. It was trading at around 7.40 on Thursday. The central bank has said it will not intervene to influence the rand, and government has vowed to stick to a free floating exchange rate policy. - Reuters

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