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Joblessness is S Africa's

biggest challenge: IMF

WASHINGTON: The South African economy has improved markedly since July thanks to sound government policies, the IMF said here, noting that authorities must now increase the country's economic growth to combat soaring unemployment.

The International Monetary Fund directors, according to a summary released here of their recent examination of the South African economy, also urged the government to take further steps to curb inflation and to use caution in liberalising exchange controls.

South Africa's gross domestic product expanded 0.6 percent in 1998 and 1.2 percent last year, with inflation falling from nine percent in 1998 to 2.2 percent in 1999.

Unemployment came to 22 percent in 1997. While no figures were given for the next two years, "the trend decline in formal private sector employment continued ... and the official unemployment rate, which was 22 percent in 1997, most likely increased further," the IMF said.

"The key to generating high and sustainable output and employment growth lies in the pursuit of policies aimed at further lowering inflation and accelerating structural reform that would help tap the large pool of unemployed and increase the skills of the labour force, increase domestic investment, attract foreign investment and enhance efficiency," according to the IMF directors.

In further measures to boost employment, they urged authorities to scale back wages for young trainees and to allow the Minister of Labour greater power to limit the extension of centrally negotiated wage agreements.

While a decline in interest rates helped spur a sharp recovery in output, any easing in monetary policy should be carried out only as long as inflation continues to fall toward a level found in South Africa's trading partners, the IMF said.

IMF directors also agreed that exchange controls should be liberalised cautiously and replaced, when necessary, with prudential regulations. The IMF assessment praised authorities for their response to financial turmoil that shook emerging markets in 1998.

By keeping monetary policy tight, refraining from intervention in foreign exchange markets and pursuing stable fiscal policies, both investor confidence and capital flows picked up, according to the Fund.

The directors also commended the government for progress made toward trade liberalisation, noting "the strong international evidence linking trade liberalisation to higher productivity growth."ÑAFP