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Hours before the resignation was announced, bond market yields surged 60 points as financial markets divined an irreparable breach in the newly-formed Government of National Unity. The absence of a satisfactory explanation by Keys only fuelled the rumours: that he felt unable to rein in the spending appetites of his new cabinet colleagues, many of them died-in-the-wool communists; that government's Reconstruction and Development Program would drive the country deeper into a debt trap; that his record as fmance minister, flattered by a fortuitous turn in the economy, would be hopelessly blotted should he remain in office for the full five year term. Where the truth lies is still generally not known but, for its part, government went out of its way to emphasize that there was no fall-out in the cabinet. What surprised the markets even more, however, was the announcement that retired banker Chris Liebenberg was to take his place. Liebenberg, like Keys, is no career politician. He brings no ideological baggage to the portfolio (Keys fought the April election under the National Party banner) and a record of sound business management at Nedcor Bank, the country's third largest banking group. But managing a bank is quite different to managing a $110 billion economy. Liebenberg must feel rather like the young man whose father hands him the keys to the family business, only to find out that the business is bankrupt, customers are restive and creditors are lining up outside the door. "Liebenberg has inherited quite a mess," says economist Tony Twine of Econometrix. "This is no fault of the new government, but rather ofthe old. His one major challenge will be to stand up to demands for increased spending from his cabinet colleagues." Six weeks after Keys's resignation, bond rates have shot up more than 100 points after warnings by Reserve Bank governor Chris Stals that higher interest rates were inevitable unless the country moved into a more stable financial cli-

mate. "There is simply no confidence in the government to manage its budget," says 60

Finance minister-designate Liebenberg.

Photograph SouthUght one gilt dealer. On the other hand, Liebenberg takes over Africa's largest and most functioning economy. It has been run down, but is by no means falling apart. South Africa's financial institutions are soundly managed and the sophistication ofthe financial markets compare with the best in the world. Liebenberg, 60, takes the reins at the end of October. He spent his entire working career with Nedbank, rising to the position of managing director in 1988 and chief executive in 1990. In the mid-1980s Nedbank suffered a catastrophic rise in bad debts and it was left to Liebenberg to restore the bank to financial health. He is not one to court popularity - and this quality more than any other will determine his ability to withstand pressures to increase government spending. He has an unblemished record as a banker and is known for his toughness. The finance minister-designate is already coming to grips with his new portfolio, shuttling between Johannesburg, Pretoria and Cape Town as Keys prepares to hand over. He has already reaffirmed Keys's commitment to a market economy: "In line with international economic standards it is desirable to further reduce government consumption expenditure, restrain the growth in the public sector wage bill and bring down the Budget deficit," he said SOUTH AFRICA

recently. With these words, the panic in the bond markets subsided momentarily and the country breathed a collective sigh of relief. So what is the magnitude ofthe responsibility that Liebenberg will have to shoulder? The economy groans under the weight of spiralling government spending and pedestrian economic growth - 1.2 per cent last year and 2.5 per cent this year. The budget deficit rocketed from 4 per cent in 1992 to 6.5 per cent in 1994 while reserves are down from $3.5 billion in 1992 to $2 billion this year. The balance of payments is under pressure from capital outflows and a rising import bill fuelled by the sluggish economic recovery while the rand continues to depreciate by more than 10 per cent a year. One of the first decisions Liebenberg will have to make is what to do with the financial rand, the currency with which non-residents are obliged to pay for investments. It was introduced in 1960 to prevent capital flight and has remained in force since then, with a brief interregnum in the early 1980s. The call to remove the financial rand grows louder by the day. It is an anachronism in this age of free capital flows and foreign investors say they want it removed before committing capital to South Africa. The financial rand trades at a 20 per cent discount to the commercial rand - the currency used to settle trade accounts - and while this makes South African financial markets hugely attractive for foreign investors, these investment flows add nothing to the country's balance of payments. Public debt, as distinct from foreign debt, is now more than $55 billion, attracting an annual interest charge of nearly $7 billion, the second biggest item in the Budget. Stals has warned that the country is in a debt trap which may take years of fiscal rectitude to reverse. Fortunately, Stals and Liebenberg are old friends and agree on the medicine required to restore the country to financial health. Liebenberg will have solid support from the Reserve Bank - which is a good start. • Cyran Ryan is a specialist business writer based in Johannesburg.