South Africa Needs to Manage Exchange Rate, Stiglitz Says
South Africa and other developing nations should make their currencies more competitive to spur growth and create jobs, said Joseph Stiglitz, the Columbia University professor who won the 2001 Nobel Prize for economics.
The rand has gained 3.4 percent against the dollar so far this year, after slumping 18 percent in 2011. While the National Treasury wants a stable and competitive exchange rate, it has said it won’t seek to influence the level at which the currency trades.
“One of South Africa’s key problems is unemployment,” Stiglitz told reporters today in Cape Town. “A more competitive exchange rate is critical” to create jobs for the one in four people that is unemployed. He advocated using a “portfolio” of instruments, including stepping up the accumulation of foreign reserves, to counteract appreciating currencies.
“It’s not costless, but it’s a lot less costly than letting your exchange rate appreciate,” he said. “Firms can’t deal with a significant appreciation in the exchange rate. You are dooming your export sectors and your import-competing sectors.”
South Africa had $50.7 billion in gross gold and foreign currency reserves at the end of March. That’s less than several other emerging economies such as Thailand, which has an economy of a similar size and $179 billion in reserves.
Emerging markets, including Africa, should continue growing “robustly” this year, though at a slower pace than last year, Stiglitz said, while economic prospects for the United States and Europe remain bleak.
Europe is “already falling into double-dip recession,” he said. “The problems are predictable and predicted. They are the consequences of the flawed economic-policy framework and institutions. The European weaknesses are likely to continue and probably get worse.”
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