South Africa backs ‘global collective action’ against market turmoil

South Africa would like to see better global coordination to tackle volatility in emerging markets caused by an expected scaling back of US monetary stimulus, President Jacob Zuma’s office has said.

The rand, like the currencies of other developing economies, has taken a beating as investors pull money out of high-yielding but risky emerging markets, seeking to pre-empt the US Federal Reserve’s planned winding down of its bond-buying programme.

“Decisions taken by countries based solely on their own national interest can have serious implication for other nations. There must be a greater recognition that we live in an interconnected world,” the presidency said today, announcing Zuma’s participation in a G20 summit being held in Russia this week.

The rand has lost 21% to the dollar since the start of the year and fell to a four-year low of 10.5100/dollar last week, battered also by fears over domestic labour unrest, including a planned gold industry strike from tomorrow.

Huge deficits in South Africa’s current account and national budget have also made the continent’s largest economy more vulnerable than others in the emerging market rout.

“The solution to all these challenges – turbulence in financial markets, the fragile and uneven economic recovery – lies in better global coordination of efforts,” the South African presidency said.

South Africa, the smallest member of the Brics group (Brazil, Russia, India and China) of emerging economies , said it supported a call by developing countries for “more carefully considered global collective action.”

India said on Friday it was seeking support from other emerging economies for coordinated intervention in offshore foreign exchange.

India’s currency has shed about a fifth of its value against the dollar in three months.

Brazil rejected outright involvement in any intervention. In June, at the G20 finance ministers meeting in Moscow, the group failed to take joint action to withstand spillover effects from US policies.

South Africa said Zuma would also participate in a meeting of Brics leaders on the sidelines of the G20 summit in St. Petersburg.

This will examine progress made towards the creation of a Brics Development Bank and a currency reserve arrangement, moves agreed at a Brics summit in Durban in March.

Russian Deputy Finance Minister Sergei Storchak said at the weekend the Brics members had agreed on the structure of the proposed development bank, with $50 billion in capital, but ironing out “difficult” details could take months.

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