At 10 minutes to one on Tuesday afternoon, South Africa’s new order discovered just how vulnerable its economy is.

Already jittery over the upheaval of the recent days, investors were aghast to read the name of Trevor Manuel, the respected finance minister, on a list of 11 ministers and three deputy ministers resigning following the political coup that brought Thabo Mbeki’s nine-year rule as president to an end at the weekend.

By five past two, a frantic sell-off had sent the rand plunging by more than 3 per cent against the dollar, its biggest fall for more than four years and a perilous decline for a country with a yawning current account deficit of 9 per cent of gross domestic product.

If proof were needed of how central Mr Manuel and his prudent fiscal management were to confidence in South Africa’s economy, it emerged during the ensuing afternoon of confusion.

Investors had been reassured that the newly ascendant faction of the ruling party and Jacob Zuma, its leader, would persuade Mr Manuel to remain in his post, providing policy stability during a period of political uncertainty.

Currency traders performed an abrupt volte-face as news filtered out that Mr Manuel would in all probability stay put.

His temporary resignation, said his spokesman, was a matter of decorum. Mr Manuel, who was on a visit to Washington, later told reporters that the ruling African National Congress had asked him to remain in a post he had occupied for 12 years and that he was ”happy to serve a new head of state”. By then the battered rand had recovered to a 1.5 per cent fall against the dollar.

Another dramatic day in the biggest political shake-down since the end of white rule in 1994 underscored the contradictions emerging even before the expected installation of Kgalema Motlanthe, Mr Zuma’s number two in the ANC, as caretaker president on Thursday.

Mr Zuma, who can be almost certain of attaining the highest office himself at next year’s elections, is treading a fine line. Mindful of unease in the business community, he has repeatedly said he will not depart from an economic policy that has delivered years of steady growth but has failed to alleviate unemployment estimated at 40 per cent.

At the same time – often in the same speeches – he has whipped up the expectations of poor South Africans with vows to divert the energies of Africa’s biggest economy to create jobs and improve public services.

© Financial Times

His senior allies say that means more spending, more state intervention and a relaxation of the austere policies Mr Mbeki pursued, chief among them the central bank’s strict inflation-targeting mandate.

The monetary regime has reassured investors but has led to painful interest rate rises to combat inflation, which on Tuesday jumped still higher to 13.6 per cent.

As evinced by the flurry of premature statements from political groups and business organisations hailing or bewailing Mr Manuel’s departure, the competing pressures on Mr Zuma will intensify now he holds sway.

Some observers expect him to be beholden to the unions, communists and ANC leftists who were instrumental in delivering the party leadership to him and in toppling Mr Mbeki.

Others suggest a slowing economy and the perils of changing course in the midst of the global financial crisis will force him to risk their wrath by sticking closely to his predecessor’s approach.

Mr Manuel, the architect of that approach, carries both the hopes of investors for a smooth transition and the fears of those who seek a radical departure. Tuesday’s events had “shown [the new powers] how much they need him”, said a South African economist. Jabu Moleketi, his much admired deputy and potential successor, is expected to remain in government, as are several other ministers on the list.

But six Mbeki loyalists ignored Mr Zuma’s pleas to stay in their posts. Hopes the internecine turmoil may be ending were dashed when Mr Mbeki said he would challenge the court ruling that dismissed graft charges against Mr Zuma and found the outgoing president had leant on prosecutors to try to arrest his rival’s rise.

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