PRETORIA (Reuters) - South Africa’s new finance minister, Pravin Gordhan, acted swiftly to calm investors on Monday, saying he would strive to keep Pretoria’s investment grade rating after days of market turmoil that triggered calls for President Jacob Zuma to step down.
Zuma appointed the widely respected Gordhan late on Sunday, in a dramatic U-turn that gave Africa’s most industrialized economy its third finance minister in less than a week.
Fallout from the sacking last Wednesday of Nhlanhla Nene in favor of relatively unknown and untested David van Rooyen has clouded the political reputation of Zuma, 73, within his African National Congress party.
His appointment of van Rooyen, a Zuma loyalist in parliament, touched off a critical storm and selling frenzy in the rand currency, stock and bond markets last week.
Some senior ruling party figures and the opposition called for Zuma’s head.
Seeking to reassure markets, Gordhan told a televised news conference on Monday: “We take account of the concerns of the rating agencies and investors, and we shall endeavor to protect the investment grade rating of South Africa.
“We will stay the course of sound fiscal management.”
He made clear that the budget deficit and total public debt would not be allowed to rise beyond agreed limits.
Credit agency Fitch downgraded South Africa on Dec. 4, leaving the continent’s most sophisticated economy just one notch above “junk” status, and said on Thursday the dismissal of Nene had “raised more negative than positive questions.”
The International Monetary Fund said it was important to maintain fiscal prudence and retain effective control of public finances. An IMF spokesman said the Fund was monitoring financial market developments and the floating currency was an important shock absorber.
“A further depreciation might lead to an increase in inflation, but the pass-through of the depreciation to inflation has so far been modest,” he said in response to a query from Reuters.
As of 2100 GMT on Monday, the rand ZAR=D3 had strengthened 5 percent against the dollar to 15.0965, recouping some losses suffered last week. The currency traded at 14.4320 per dollar before Nene was fired.
“Finance Minister Gordhan has averted the rout, but the damage to sentiment cannot be repaired quickly, and South Africa will continue to suffer under it for quite a while,” Investec chief economist Annabel Bishop said.
South Africa is girding for local elections next year in which the ANC will face stiff competition from the opposition Democratic Alliance in urban areas, including the economic hub of Johannesburg. The countryside remains an ANC stronghold.
Even some supporters of the ANC, Nelson Mandela’s erstwhile liberation movement and the country’s ruling party since the end of apartheid in 1994, expressed dismay about Wednesday’s appointment of a Zuma loyalist to the crucial finance post.
They also described the return to the ministry of Gordhan, who also held the job from 2009 to 2014, as a sign Zuma was losing his grip. “It may not be his death knell, but it’s certainly the turning of the tide,” said Ben Turok, a former senior ANC legislator and anti-apartheid activist.
The rand fell nearly 9 percent last week following the removal of Nene, a civil service veteran eager to rein in government spending, leading to vague talk the South African central bank might call an emergency monetary meeting.
But Reserve Bank Governor Lesetja Kganyago said there were no plans for a special session because South African capital markets were deep enough to withstand shocks of this magnitude.
Government bonds were firmer, mirroring the currency’s recovery as yields fell across the curve, with the benchmark paper due in 2026 ZAR186= shedding 43 basis points from its Friday close to 9.95 percent.
The banking index .JBANK shot up 13 percent in afternoon deals, erasing most losses sustained last week, but pared gains to 8.7 percent by closing. The broader market .JALSH seesawed in and out of the red during the session to close flat.
Gordhan said his office would ensure that South Africa stuck to fiscal prudence, including on any deals relating to the building of nuclear power stations.
“Markets should rally back very strongly but I would not expect a total retracement with a permanent loss of trust in leadership even if we are in a better place,” said Peter Attard Montalto of Nomura in London.
Zuma has said his about-face was prompted by the many calls to rethink his decision.
Kokkie Kooyman, a fund manager at Sanlam Investment Management Global, said the president had made it seem as though fiscal prudence was not a concern for him.
“Members of the cabinet may have managed to convince him to change his mind. However a leopard doesn’t change its spots. We still have the same president,” Kooyman said.
“We will still have high unemployment and high debt. Rating agencies will not re-rate us upwards.”
Additional reporting by James Macharia, Zandi Shabalala, Nqobile Dludla and Thekiso Lefifi in Pretoria and Krista Hughes in Washington; Writing by James Macharia and Tiisetso Motsoeneng; Editing by Andrew Roche and Steve Orlofsky