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Mandela's Honeymoon Is Over as Rand Takes Dive

Currency shaken by political setbacks, violence

The tribal dancers and jets flying overhead were festive touches to celebrate South Africa's second anniversary of democracy. President Nelson Mandela reminded cheering black and white crowds of their remarkable achievements in overturning violent racial separation and international pariah status to build a more humane, harmonious society.

But the mood was more muted for Finance Minister Trevor Manuel, who spent the weekend confronting the currency crisis that is eroding local and global confidence in what has been one of the world's most popular new governments.

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Aiming to present an optimistic front, Mr. Manuel appeared at a press conference Saturday night next to International Monetary Fund managing director Michel Camdessus. The minister tried to convince both his foreign and domestic publics that the honeymoon should continue.

"There is no need for panic yet," he insisted.

But anxiety is increasing. The rand currency has lost 17 percent of its value since mid-February. The undeclared civil war in the Zulu tribal heartland has escalated to an attack on the Zulu royal family. Labor is restive. Deadlocks in writing a final constitution threaten the May 9 completion deadline.

South Africa has had bad moments since the April 1994 elections that buried apartheid white minority rule. But Mandela's moral authority and the country's relative wealth were sufficient to ride through the rough moments.

Politically stable and promoting prudent fiscal and monetary policies, South Africa was the darling of the international community, which hailed it as a model for an impoverished and conflict-ridden continent.

The rand's decline has eroded their faith, however. Foreign investors have sold more than 2.5 billion in rand-denominated bonds since the free-fall began. Dissatisfaction here is growing over the ensuing rises in interest rates, fuel prices, and the cost of living. The central bank has alarmingly low foreign-exchange reserves left with which to intervene.

The currency dive began on Feb. 15 with speculation about Mandela's health. This prompted questions about the competency of his hand-picked successor, Thabo Mbeki.

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The rand plunged further when Mandela reshuffled his Cabinet in March. He appointed the country's first nonwhite finance minister, Manuel, whose credentials have been questioned by some investors. Then Mandela scrapped his $2.5 billion Reconstruction and Development Program, the government's key plan to improve social conditions for its black constituency.

The rand dropped further with market concern over a one-day national strike called by trade unions for April 30. Confidence shrank amid worries the constitution may not be complete by the deadline. In addition, some investors worry about South African warmth toward pariah countries such as Libya, Cuba, and Iran, despite US pressure.

The crunch came Friday after the Zulu royal family was attacked in KwaMashu, outside Durban. One of the wives of King Goodwill Zwelithini, a daughter, and half-a-dozen other relatives were seriously wounded. A cousin was killed.

The rand promptly fell to a record low 4.58 to the dollar, recovering slightly to 4.43 at close.

It was the highest profile attack yet in the Zulu province where 14,000 people have died in fighting over the past decade between Mandela's African National Congress and the rival Inkatha Freedom Party of Chief Mangosuthu Buthelezi.

Mandela and police suspect the 30 armed perpetrators were Inkatha supporters. Tension has been high since King Zwelithini broke with Mr. Buthelezi in September 1994 and aligned himself with Mandela.

Buthelezi, who is also home affairs minister, has denied responsibility. But his continual threats of violence if greater autonomy is not awarded to Zulus have certainly fanned anger among his supporters.

THE incident is bound to fuel further violence in the KwaZulu-Natal province, where an average of 50 people die monthly in political fighting. Continued bloodshed is expected in the run-up to local elections set for May 29. Pressure is growing on Mandela to postpone yet again the polls, which will weaken the power of Buthelezi's tribal supporters.

Economists say continued conflict will weaken the rand further - and social discontent could ensue if inflation rises by 2.5 percent. The higher costs of imported goods would offset cheaper exported products, impacting industry, real estate, and consumer earning power.

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