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Stiglitz: SA must drop targets

Jul 08 2009 19:34 Leani Wessels

Johannesburg - Nobel Prize winning economist Joseph Stiglitz has warned South Africa that economic policies like rigid inflation targeting should be a secondary concern amid the worst economic crisis since the Second World War.

Speaking on the global financial meltdown at the University of Witwatersrand on Wednesday, the well-known economist said South Africa's inflation targeting mechanism was "a very indirect way of getting to the economy's underlying problems".

"I'm very strongly opposed to rigid inflation targeting," said Stiglitz, a professor at Columbia University in New York, who was awarded the Nobel Prize for economics in 2001. "The financial crisis is in part as a result of central banks focusing on inflation. You have to balance it with other concerns."

"It's not that I don't care about inflation, but you need policies that will do something about the current economic situation," he said.

The South African Reserve Bank (SARB) shocked the market last month when it announced that it would not cut interest rates, in an attempt to achieve its inflation target of between 3% and 6%. The key repo rate - the rate at which the central banks lends to its commercial counterparts - is currently 7.5%.

Stiglitz said he favoured a world economic order in which developed nations effectively subsidised developing nations by dropping surcharges and tariffs on their exports.

- Fin24.com

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SAGE
Jul 09 2009 23:23 Report this comment

Transcript...anyone? The gist of the matter is that Stiglitz is hinting at the issue that is deviling the 1st world economy...its inflexible and often idiotic structure. The US wouldnt move with the trend until it was too late,then realised it couldnt move with the trend fast enough even if it wanted to and got hammered!What Obama and every liberal economist is afraid to say is that 1st world economies are fat,lazy and entitled! Stimulus money can't change that in fact it just masks the problem

Lecturer
Jul 09 2009 14:55 Report this comment

I was present at the speech. Stiglitz' comments are quoted out of context. Some may have emerged in another interview? He amongst others blamed 'loose' monetary policy - which the RSA opponents of inflation targeting also want - and weak financial sector regulation for the crisis. He then added that some governments wrongly believed that if they kept inflation low, e.g. by targeting it, strong financial regulation was unnecessary. I add: the RSA government/SARB cannot be accused of this.

Ozz
Jul 09 2009 11:30 Report this comment

The Prof ignores that SA is experiencin 2nd round effects of the financial market turmoil. Our monetary policy is not strict inflation targeting but flexible! If it was so strict, Tito wudnt have cut rates while inflation was double the upper limit of the target band. The MPC does take into account other economic variables when making decisions, otherwise making the decision wud be very easy if inflation was the sole goal. NB: if the economy crashes, there wont be any inflation to target!

Mandla
Jul 09 2009 10:48 Report this comment

The problem with economic expects is that they like a rear view mirror. Suddenly we are in a financial mess and the blame is aportioned to central bankers? In all SA's monetary policies have been transparent for the least but they supremely brought the monetary authorities close to the public to uderstand the goings-on in monetary policy. The emphasis in 2000 on inflation targeting anchored the country to understand the implications of rising prices. Importantly we mirrored our trading partners!

Useless US Dollar
Jul 09 2009 10:39 Report this comment

Stiglitz could be doing his bit for the USA. Bernanke has pumped so much US Dollars into the market to get the markets going again, that huge inflation is heading towards the USA. If Stiglitz get other countries to do the same mistake, their currencies will also suffer from huge inflation and the US Dollar will be able to compete instead of loosing value like the Zim Dollar. You get the drift?

Yobo
Jul 09 2009 10:39 Report this comment

We all have good opinions, sometimes viewed too strongly, but we need a leader to capture and voice them. A leader has vision, his team provides the input, the leader makes the decision. Some voice their opinion too strongly through their egotistic nature. Thats called the MALEMA effect. He must learn that "if thought a fool, better to keep quiet and speculate, rather than to speak and confirm it".

No No Stiglitz
Jul 09 2009 10:28 Report this comment

The biggest damage to the economy comes from too much regulation, Communist thinking or nationalisation, striking. If you want the economy to grow, keep inflation down, keep the dumb ANC regime as small as possible (as they are very expensive), and let the part of the population that knows how to make money, do their thing freely.

Strong Rand
Jul 09 2009 10:18 Report this comment

Ari, you say it as though you alone are the only one who knows forsure. The American model currently and Stiglitz who is propagating this model, is a failure. How much money have they pumped into the market and it stays uncertain and weak. Rigit inflation targeting is the way to go as it ensures that money keeps value... Anything else and you are fooling yourself. Tito is doing the right thing that is why the Rand holds value against other currencies...much better than Zim dollars.


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