Pretoria ends its monetary incentive for foreign investors

The South African government has made a bold statement of self-confidence in its own political future. That at least is how analysts here interpret the government's ending of the monetary exchange controls for nonresidents. The controls have had the effect since 1961 of encouraging investment and discouraging disinvestment in this country.

The controls were instituted two decades ago because international investors were nervous about the political stability of South Africa - a country where a white minority government rules over an increasingly restive black majority.

Lifting the controls suggests an official confidence that the chances of new political shocks scaring off investors, as did the shooting of blacks at Sharpeville in 1960 and the Soweto riots of 1976, have diminished. It also suggests government confidence that the South African economy is now attractive enough to bring in foreign funds without government inducements, and in spite of the obvious risks of investing in a country whose political structure remains under enormous pressure to change.

What the government has done is end its two-tiered exchange rate system. Nonresidents of South Africa have had to move money in and out of this country through what is called the ''financial'' rand, which boasted a more favorable exchange rate for outside investors than the normal rand exchange rate.

The net effect was to offer a financial incentive - about 17 percent most recently - to those wanting to invest in South Africa. Conversely, investors wanting to withdraw capital were penalized by the financial rand exchange rate.

Aside from the long-term political considerations implicit in the decision to drop the two-tier system, it also made sense from a short-term economic point of view.

South Africa's economy is in a sharp slump right now, but the government is concerned an improving gold price and continuing foreign investment might expand the money supply too rapidly. A too-rapid buildup of liquidity threatens to worsen the country's already serious inflation problem.

Ending the financial rand may initially shut off some foreign investment in South Africa. But such a development would in the short term help the government contain inflation by reducing liquidity.

The immediate impact of the decision has been to lower the normal exchange rate of the rand and to bring a decline in share prices on the Johannesburg stock exchange. Economic analysts, however, expect the exchange rate and the stock prices to recover over time.

While the South African government's move may slow foreign investment in the short term, it may well increase the inflow of funds over the long term. While the financial rand offered an incentive to investors, its complexities and the penalty for withdrawing funds also discouraged many from investing, say economic analysts. A unitary exchange rate system, where foreign funds can flow freely in and out of the country, will appeal to the international business community, the analysts reckon.

The ending of exchange controls on nonresidents was seen here as part of a changing economic philosophy of the government - away from heavy state intervention to a more free-market-oriented economy.

However, while monetary controls on residents of South Africa were to some extent relaxed as part of the government step, they were not removed. The vacation and business travel allowances allotted South Africans have been raised. Emigrants will now be able to take out slightly more money.

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