IMF and WBank reviews SA financial stability

[Robert Weissman <rob@essential.org>]

>From Business Day (South Africa)

10 September 1999
                  Financial stability assessed

                  SA has volunteered to be part of a project conducted by
                  World Bank, IMF

                  Jonathan Katzenellenbogen


                  THE International Monetary Fund (IMF) and World Bank are
                  conducting a financial system stability assessment of SA
and four other
                  countries in a pilot project in the wake of last year's
emerging markets
                  crisis.

                  Gill Marcus, SA Reserve Bank deputy governor in charge of bank
                  supervision, said SA had volunteered to be part of the
project.

                  Jose Fajgenbaum, who headed an IMF mission that visited
the country,
                  said the assessment was a means to ensure foreign
investors regarded
                  the supervision, regulation and overall stability of the
financial sector as
                  being up to international best practice.

                  Canada, Colombia and Lebanon are also part of the
project, launched
                  partly in response to last year's crisis. Weaknesses in
the financial
                  system of Asian countries is widely regarded as one of
the proximate
                  causes of the crisis. At the time the IMF was heavily
criticised for its
                  failure to anticipate and prevent the crisis. Over the
past few months,
                  both the IMF and World Bank have tried to find ways to be more
                  heavily involved in crisis prevention.

                  Marcus said the project was a chance for SA to establish
better ways of
                  predicting and managing risk. It was not a matter of comparing
                  countries, but a way to make sure that the financial
system was up to
                  international best practice.

                  The IMF-World Bank team would be looking at new methods of
                  regulation and supervision in light of the changes
brought about by
                  mergers between banks and insurance companies. Various
aspects of
                  regulation would be looked at, including the model of a
single financial
                  regulator as adopted by the UK. Key findings of the
report would be
                  released, but not parts bank supervisors commonly regard as
                  confidential. The IMF was looking at banks, while the
World Bank
                  would concentrate on insurance companies, Marcus said.

                  Fajgenbaum, who is senior adviser in the IMF's Africa
department, said
                  the assessment also involved models to determine the
reaction of the
                  financial system to various shocks. He expected the
financial assessment
                  to go before the IMF board in late December.

                  The IMF team, which has been reviewing SA economic
issues, left the
                  country last night.

                  Fajgenbaum said that the country's key problems were
growth that was
                  well below the potential of 6% and high unemployment. He
praised the
                  Reserve Bank for "doing a good job on balancing the
objectives of
                  stimulating economic activity and reducing inflation".

                  He said he was concerned about the Bank's forward book,
but believed
                  progress had been made. He also stressed the need for
tariff reduction
                  and simplification and said the IMF had concluded this
could stimulate
                  productivity and growth in the economy.

                  While he did not see parastatals draining the budget as
was the case in
                  other countries, Fajgenbaum said they tended to constrain
economic
                  growth as productivity and efficiency were far lower in
these institutions
                  than in the private sector.

                  There was a need for greater labour flexibility, better
training and
                  education, as well as accelerated market-based land
reform to help deal
                  with rural unemployment, he said.