Wednesday, September 22, 2010

Practitioners in Economic Policy

Profile of Maria Ramos;

Maria Ramos and her Finance Department colleagues were charged with putting in front of South Africa’s ministers and cabinet viable options for reaching economic targets without jeopardizing financial stability. Ramos says nothing was sugar coated.

“In 1996 we had to put a fiscal policy in place that had to say to the nation that if we wanted to achieve a sustainable economic growth path of 6 percent, this was how we would get there. That was our starting point. People often think that the program of growth, employment, and redistribution was about cutting the deficit. That’s not the question we asked. We asked: ‘If we want 6 percent growth, what do we need to have in place to achieve it?’

“Very quickly, we came to the conclusion that you can’t get to 6 percent growth when you have a position of fiscal instability, because you can’t borrow your way out of a crisis. We didn’t want to go to the IMF—we didn’t think that was going to be a sustainable solution—and we were very close to that. South Africa had no reserves—in fact we had a negative reserve position because we had a net open forward position at that point of about $26 billion. We had debt-to-GDP ratios of around 50 percent, we had debt-servicing costs reaching the point where they were unsustainably high. So the fiscal position was pretty precarious: the metrics didn’t add up.

So if you want to get growth there, you have to fix the base. And fiscal sustainability is hard to achieve and it’s easy to lose. That’s what we placed before policymakers, before the cabinet. And I have to say that, as hard as it was, when faced with that, I never came across a politician from the president down who said: ‘No, we can’t do this because it’s going to be unpopular for me.’ What’s been remarkable for me as a civil servant to see was that politicians from the top down were able to say ‘What is in the best interests of our country? It’s going to be painful, it’s going to be hard.’ Those investments continue to pay off today.”

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