MONETARY AND FINANCIAL POLICY IN SOUTH-AFRICA - REDISTRIBUTION THROUGH THE FINANCIAL-SYSTEM

Unlike many other countries in sub-Saharan Africa, South Africa's soph isticated financial system provides considerable opportunity for using monetary policy for macroeconomic objectives. Liberalized financial m arkets have enabled the government to finance persistent budget defici ts without accelerating inflation, while managing the balance of payme nts in difficult circumstances. However, as in other newly independent African countries, the new government in South Africa will be under c onsiderable pressure to intervene in financial markets in an effort to redistribute resources towards those previously excluded. Experience shows that such action may undermine sound financial institutions, wit h high costs of correcting mistakes, and that cheap (or directed) cred it is an inappropriate tool for improving the distribution of income a nd wealth.