Moody Downgrade
Pretoria – The decision by bank rating agency Moody’s Investor service to downgrade the stability rating of South African banks from “stable” to “negative” demonstrated the “superficial” way in which world rating agencies tend to conduct their assessments, Deputy President Kgalema Motlanthe said.
“….the decision at most reveals a broader lack of consensus on what needs to be done to resolve the current world crises. This downgrade took place in spite of overwhelming evidence that South Africa’s banks avoided the global credit crisis because of regulatory mechanisms that prevented irresponsible lending and reckless investment in assets bundled to the US subprime housing market that precipitated the current crisis,” Motlanthe said on Friday.
He was delivering an address titled “Reflections on Key Global & Local Economic Events” at the Gordon Institute of Business Science in Johannesburg.
He said South Africa’s banks were less affected by the economic crisis because of measures implemented against the threat posed by over indebted consumers and unregulated financial markets.
“We implemented the National Credit Act along with other consumer and financial sector regulations. We were therefore cushioned from being caught in the storm of failing financial markets”.
Motlanthe said the decision by Walmart to invest in South Africa had further demonstrated the interest international investors had on the country’s growth and stable environment.
“Walmart is willing to invest billions of dollars in new and permanent capacity in South Africa. What this means is that other companies can use this technical assessment to inform their investment decision in South Africa.”
The downward revision was unexpected because it came shortly after the tabling of the Medium Term Budget Policy Statement in which the government reaffirmed its commitment to sound macroeconomic policies.
“We therefore respectfully disagree with Moody’s statement and the interpretation drawn from the dynamic nature of our political environment,” said Motlanthe.
But he said this does not imply that South Africa was not adversely affected by the economic downturn which followed the financial crisis.
South Africa was severely affected by the decline in international demand and a temporary withdrawal of investment funds. As a result of this and high levels of domestic indebtedness we lost nearly a million jobs during 2009.
It was in this context that the government took the bold decision to embark on government driven investment in infrastructure and to use fiscal interventions to cushion the poor.
“We viewed the crisis as an opportunity to restructure the economy and to improve co-ordination and cooperation with business, civil society and organised labour.
“In this way we managed to work together with business and organised labour to ensure that companies did not retrench workers without clear plans for re-employment, re-skilling,” he said.
Government continued to improve social equity through the provision of adequate government services, ensuring universal access to basic services, health care and affordable transport and providing access to affordable and quality education. – BuaNews
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