Food Relief Adjustments Appropiation Bill; Voting: Gold & Foreign Exchange Contingency Reserve Account Defrayal Bill; Bophutatsw

Meeting report

FINANCE PORTFOLIO COMMITTEE
24 March 2003
FOOD RELIEF ADJUSTMENTS APPROPIATION BILL; VOTING: GOLD AND FOREIGN EXCHANGE CONTINGENCY RESERVE ACCOUNT DEFRAYAL BILL; BOPHUTATSWANA NATIONAL PROVIDENT FUND ACT REPEAL BILL; SEFALANA EMPLOYEE BENEFITS ORGANISATION ACT REPEAL BILL: VOTING

Acting Chairperson: Mr Moloto (ANC)

Documents
Food Relief Adjustments Appropriation Bill [B16-2003] Section 77 Bill
Gold and Foreign Exchange Contingency Reserve Account Defrayal Bill [B17-2003] Section 77 Bill
Bophutatswana National Provident Fund Act Repeal Bill [B13-2003] Section 75 Bill
Sefalana Employee Benefits Organisation Act Repeal Bill [B14-2003] Section 75 Bill

MINUTES
Food Relief Adjustments Appropriation Bill
This Bill appropriated out of the National Revenue Fund for the requirements of—
(a) the Department of Social Development, an amount of R230 million (two hundred and thirty million rand) in respect of the 2002/03 financial year to fund the implementation of domestic food relief interventions; and
(b) the Department of Foreign Affairs, an amount of R170 million (one hundred and seventy million rand) in respect of the 2002/03 financial year to give effect to the Republic of South Africa's commitment to assist in the provision of food relief to countries in the SADC region most seriously affected by the food crisis.

Ms Taljaard (DA) asked if any preference was given to which countries went the maize South Africa paid for or if it was a straightforward transfer to the World Food Programme. She enquired after the criteria.

Mr Plaatjies (Director: Social Security and Welfare Services) replied that the World Food Programme has its own criteria. He added that StatsSA is currently developing a poverty map for South Africa.

The Bill was put to vote and was agreed to.

Ms Taljaard noted that she had not had an opportunity to discuss these Bills with her party and therefore would have to abstain from voting.

Gold and Foreign Exchange Contingency Reserve Account Defrayal Bill
Ms Taljaard asked what the audit investigation in Clause 3 of the Bill entails.

Ms Ramos (Director General, Treasury) replied that this audit is standard procedure. They had asked the Auditor General to confirm the balance as of 31 March 2002.

Dr Woods asked what the prospects are going forward in light of the recent strong showing of the Rand and gold.

Ms Ramos repliedd that this is an important question. They are using the strong position to close the Net Open Forward Position (NOFP). There are times when the exchange rate depreciates and then these accounts register losses and vice versa when the exchange rate appreciates.

Ms Taljaard commented that the South African Reserve Bank (SARB) has admitted to intervening in the currency market to buy Dollars to close the NOFP. She wondered whether this is a problematic step seeing that they announced earlier they would not interfere.

Ms Ramos replied that they do not tell the SARB what to do on a daily basis. The Treasury did not ask them to enter the market. She had also only seen the reports.

The Bill was put to vote and was agreed to.

Bophutatswana National Provident Fund Act Repeal Bill / Sefalana Employee Benefits Organisation Act Repeal Bill
The Bills were put to vote and was agreed to.

The meeting was adjourned.

Appendix:
MEMORANDUM ON THE OBJECTS OF THE GOLD AND FOREIGN EXCHANGE CONTINGENCY RESERVE ACCOUNT DEFRAYAL BILL, 2003

Purpose of the Bill

1. The purpose of the Bill is to seek parliamentary authority for the defrayal of a loss
accrued on the Gold and Foreign Exchange Contingency Reserve Account (GFECRA),
in compliance with section 28(3) of the South African Reserve Bank Act, 1989 (Act No.
90 of 1989) (''the SARB Act'').

Background

2. Sections 25 to 27 of the SARB Act provide for the management by the South
African Reserve Bank (''the Bank'') of a Gold Price Adjustment Account, a Foreign
Exchange Adjustment Account and a Forward Exchange Contracts Adjustment
Account. Profits and losses arising from the revaluation of the Bank's gold holdings and
its trade in gold, from the appreciation or depreciation of the currencies in which the
Bank's foreign assets are held and from forward exchange contracts, foreign currency
loans and export credit reinsurance agreements are recorded on these accounts and
accrue to the Government. The SARB Act provides, in section 28, that the balances in
these accounts shall be transferred at the close of each financial year to the GFECRA,
managed by the Bank on behalf of the Treasury. Any credit balance on this Account is
for the benefit of the National Revenue Fund and any debit balance is a loss for the
Government and shall be a charge against the National Revenue Fund. Section 28(3)
provides that such a loss shall be carried forward in the GFECRA until the Treasury and
the Bank deem it desirable to settle the outstanding balance, and that it shall be defrayed
from money appropriated by Parliament for such purpose.
3. The balance on the GFECRA on 31 March 2002 was a debit amount of
R28 024 million. This amount is subject to an audit investigation currently under way.
The debit balance has accrued since 1995/96 — when the account was last settled —
largely as a result of losses incurred in the Bank's forward exchange operations. At times
the Bank's provision of forward exchange cover has exceeded its foreign assets by a
wide margin, resulting in losses during periods of rand depreciation. By agreement, the
Bank has steadily reduced this exposure in recent years. The net open forward position
has declined from a high of US$23,2 billion in 1998 to US$1,5 billion in January 2003.
In the context of this progress, the Bank and the Treasury have agreed to settle the
outstanding balance on the GFECRA, subject to the findings of the current audit
investigation, over a four-year period.
4. Although the total liability has yet to be finalised, the loss reflected in the GFECRA
balance is of such a magnitude that a partial settlement had to be made during the
2002/03 year. This necessity arises from the impact over time of forward losses on
liquidity in the South African money market, and the need to provide the Bank with
resources that in turn are required for the effective conduct of its monetary policy
responsibilities.
5. An amount of R7 billion (seven billion rands) was issued to the Bank in 2002/03 in
partial settlement of the accrued losses on the GFECRA account. As set out in Chapter
5 of the 2003 Budget Review, Treasury proposes to settle the outstanding balance over
the next three years, provisionally projected at R7 billion a year.
6. The losses on the GFECRA are a statutory obligation of Government and
Government is required to settle the losses. Only the timing of the payment is subject to
an agreement between the Bank and Treasury. As the obligation to settle the debit
balance is prescribed in the SARB Act and the settlement is accordingly nondiscretionary,
the Bill proposes that the defrayal should be a direct charge.
7. Parliamentary authority is accordingly sought to regard the defrayal of losses on the
GFECRA as a direct charge against the National Revenue Fund, despite anything to the
contrary contained in any law.

Departments and bodies consulted:
South African Reserve Bank

Financial implications for State
An amount of R7 billion will be charged to the National Revenue Fund in the 2002/03
year. Expenditure of R7 billion a year is anticipated in each of the 2003/04, 2004/05 and
2005/06 years.