Treasury firm on rand, inflation

Cape Town - Treasury bosses dismissed criticism of inflation targeting on Wednesday, as well as suggestions that the state should intervene to check the strength of the rand.

Finance department director general Lesetja Kganyago told MPs in a briefing on the Medium-Term Budget Policy statement that given a deficit forecast of 7.6%, it was beyond the government's means to buy up foreign reserves to control the exchange rate.

The other, more doable alternative was to seek to keep inflation down in the hope of keeping the rand at a reasonable rate.

Calling South Africans "obsessed with the exchange rate", Kganyago said it was interesting "that the same voices" warning against an appreciating currency were clamouring for an end to inflation targeting.

The comment appeared to be aimed at trade federation Cosatu, which has pressed the state to abandon inflation targeting because it believes this has led to overly strict fiscal policy which ignores the plight of the poor.

Deputy Finance Minister Nhlanhla Nene said it would be unwise for the government to abandon its inflation targets simply because at this point it was failing to meet them.

Consumer price inflation has been outside the target band of 3% to 6% for two years, and it is feared that further electricity price hikes will push inflation up further.

Finance Minister Pravin Gordhan, who indicated on Tuesday that the policy will be discussed with incoming Reserve Bank governor Gill Marcus, reiterated that he had no intention at this stage of raising taxes to balance the state's books.

"If we don't see the economy progressing as we think, we may change our minds. You will know that on February 17," he said, referring to the date of his first budget speech.

Gordhan also reiterated that struggling state-owned enterprises should not expect greater handouts from the state, and said those which failed to manage themselves properly - like the SABC - should expect to be taken firmly in hand.

"The message remains that the state is not a bail-out agency," Gordhan told parliament's finance committee.

He said within the next three days, further steps would be announced to reorganise the state broadcaster, on which the government was forced to spend an additional R200m this year to alleviate its "immediate liquidity problems".

He conceded that the government remained unsure how it would meet the challenge of creating more jobs, which would keep in check the state's growing welfare bill.

"We are not building a welfare state... We must continue to grow the balance between welfare and work. But how do we create work?"

The minister told MPs that there was no cost framework on the table yet for the planned National Health Insurance.

- Sapa