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This paper states that the problem of inflation in South Africa has occurred in different forms and has occupied the attention of monetary authorities over many years. The paper deems that inappropriate economic policy and monetary policy in particular, contributed to conditions conducive for the development of inflationary conditions.

The authors point to the fact that in containing inflation there is no single solution that could be applied universally, except to state the obvious: countries should prevent unsound policies that will foster inflation. However, the South African successful experience in the 1970s and 1980s indicates that emerging economies suffering high inflation have no painless or costless options to contain inflation.

Moreover, the document draws the following conclusions for emerging economies from the South African experience:

• policies should be revised when they no longer achieve the goal of low inflation, particularly in emerging economies, where options could be ultimately more constrained than developed countries
• a comprehensive system of exchange controls is a precondition for inappropriate monetary policy causing sustained high domestic inflation
• emerging economies exercising exchange control should assess whether such a policy approach is a shield for inappropriate monetary policy or not
• clarification of the lender-of-last-resort assistance function is necessary; it should be cleared that this assistance is available to banks suffering liquidity problems, and not to banks suffering solvency problems
• emerging economies considering the adoption of rules-based monetary policy have to ensure that any policy amendment should be announced by the government
• emerging economies considering the adoption of an inflation-targeting monetary policy regime should re-consider the targets when specifying their inflation rates for targeting purposes.

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