Finance Minister Trevor Manuel spoke out strongly against calls for new exchange controls on Tuesday, saying their introduction would slow South Africa's economic growth.

Speaking in the National Assembly, he said the purchases of South African bonds and equities by foreigners had accounted for almost half the country's financing needs between 2002 and 2007.

"Almost $20-billion per year - that's roughly R200-million at today's exchange rate - is needed to finance our current account deficit.

"So as people make these calls for new exchange controls and for isolating South Africa, we need to remember that that gap in financing our investment is in the order of R200-billion a year.

Harsh measures on foreigners

"If we impose harsh measures on foreigners, we won't get that money, and then we will have to slow down growth."

Manuel said continuing to attract foreign investment implied a need to maintain confidence in South Africa's macro-economic policies, and to raise its economic growth rate.

"There's no shortage of good and bad ideas. Our task is to find the good ones and move forward with the policy articulation and implementation. Raising the cost of economic activity and restricting our ability to trade is obviously not the right path for our country," he told MPs.

According to the Treasury, the rand has lost 33.8 percent of its value against the dollar, 23.2 percent against the euro, and 15 percent against the British pound since 1 January this year.

Manuel warned that in the current international financial crisis, many countries were set to suffer "terribly and tragically".

Repatriating resources

As firms in developed countries strove to repair their balance sheets, they would tend to sell and repatriate resources back to their home base.

"This has implications for us, as it has for many emerging economies. The depreciation of... the rand, in line with many other emerging market currencies, is testimony to these developments."

Earlier on Tuesday, Treasury director-general Lesetja Kganyago told members of Parliament's finance portfolio committee the rand was "among the worst performers" in the world in the way the currency had reacted to the crisis.

Manuel said the world financial crisis was giving way to a real economy slowdown.

"In South Africa, we have experienced at least part of the financial shock. Our exchange rate has depreciated sharply and the prices of our equities and bonds have fallen far.

"Yet our sound and well-regulated banking system is not dependent on foreign lines of credit and our exposure to toxic assets has been nearly non-existent.

"Some firms with extensive international operations have seen losses, but even these have been small. Our public debt levels are low and our level of foreign currency debt is even lower. This helps to lower our vulnerability to financial shocks," he said.

He warned that global weaknesses in trade and investment would have more far-reaching effects.

"Declining commodity prices and lower growth in major trading partners will lower demand for South African exports and reduce the income we derive from them," he said.

Sapa

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