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`We Will Put This Economy Right No Matter How Unpopular....'


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`WE WILL PUT THIS ECONOMY RIGHT NO MATTER HOW UNPOPULAR....'

Just one year ago, Jay Naidoo was general secretary and Alec Erwin a top strategist of the Congress of South African Trade Unions (COSATU). They were two of the leading lights at a union-sponsored conference where such conventional notions as "macroeconomic stability" aroused great suspicion.

In mid-September this year, the two men stood again before COSATU. But this time they came as members of South Africa's new black-led government, with economic stability much on their minds. Naidoo is in charge of the reconstruction and development program, while Erwin is Deputy Finance Minister. In their new roles, the pair made the case to their former comrades for the remarkably conservative and austere policies adopted by President Nelson Mandela and his Government of National Unity. They and the new crowd in Pretoria are taking an unexpectedly hard line as they remake South Africa's apartheid-damaged economy (table).

SOMBER MOOD. Accompanied by Trevor Manuel, a leading antiapartheid activist in the 1980s and now Trade & Industry Minister, the onetime radicals expected a hostile reception. Naidoo and Erwin had spent the past few months hoping to reassure the nervous business community and financial markets that economic discipline and cutbacks in the deficit were the order of the day. Now, they had to sell to their own constituents the idea that improvements in education, health care, and housing would be achieved not by throwing money at problems but through gradual development based on a sound economic foundation. "We will put this economy right no matter how unpopular it makes us," Erwin told the assembled delegates.

The reaction was one of somber acceptance of the inevitability of modest spending and a tougher bargaining climate. In fact, the conference marks

a milestone in the unions' approach to economic restructuring and the relationship between COSATU and the ruling African National Congress, whose alliance has sometimes been strained. The bottom line for COSATU is retaining its key role in the National Economic Forum, an influential group made up of government, business, and labor representatives. Established during the dying days of the old regime, it is now set to become a permanent advisory body. "Workers must be part of the decisions...not just part of the machinery," says General Secretary Sam Shilowa.

The new Pretoria isn't meting out hard times just for workers. Trade Minister Manuel is also going after South Africa's closed economy, aiming to liberalize trade as quickly as possible. "Protection on demand is dead," he declared, referring to a practice that became common during the sanctions era.

In the auto and textile industries, among South Africa's most protected, Manuel argues that tariffs should be reduced further--and faster--than the country proposed last year in its submissions to the General Agreement on Tariffs & Trade. Mervyn King, chief executive of Frame Group, the country's largest textile producer, calls Manuel's plan suicidal, and the textile union has threatened large-scale protests. But clothing makers forced to pay high prices for local and imported fabrics welcome the plan.

Manuel's call for lower tariffs in autos stepped on toes across the political spectrum. Executives warned darkly that the sector would shrink. And COSATU's auto workers' affiliate was furious when the Trade Minister introduced a cut in import levies on cars--from 115% to 80%--in the middle of an industrywide strike. Although the move had been in the pipeline for some time, its timing seriously weakened the union's bargaining position.

SHARP PAIN. Manuel also intends to cut the benefits provided by the General Export Incentive Scheme, which was originally designed to encourage export of manufactured goods but has become a source of handouts instead. "This will cause major disruptions for some of our major foreign exchange earners," including steel, pulp, and fruit producers,

insists Michael MacDonald, the chief economist at a leading steel-industry federation.

But the new economic team insists that trade liberalization is the only way of encouraging industry to restructure. They acknowledge the pain this will cause, not least in terms of short-term job losses. Still, they are setting aside only limited amounts for retraining and for buying advanced machinery and other technology. Pretoria is playing hardball. And so far, the major players seem willing to take the long view about righting the effects of apartheid.

HOW THE NEW PRETORIA

IS DRAWING THE LINE

-- Reducing tariffs rapidly, especially in highly protected autos and textiles

-- Ending state subsidies for large exporters

-- Accepting job losses as a cost of restructuring

-- Holding the line on deficit spending

DATA: BUSINESS WEEKAlan Fine in Johannesburg


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