By Phumza Macanda
JOHANNESBURG, Sept 17 (Reuters) - South Africa's ruling ANCis unlikely to push for a tax on short-term capital inflows andrisk deterring investors but may stick to supporting the centralbank in it efforts to curb the rand's strength.
The party holds its mid-term policy review conference onSept 20-24 amid considerable scrutiny of its economic policies.The loudest criticism is coming from its alliance partnerCOSATU, the largest union federation in the country.
Economist say that To propel economic growth and createjobs, Africa's largest economy needs a more skilled labourforce, lower wages that attract investors, relaxed labour laws,and an industrial policy supportive of exports.
The ANC will next week spend time discussing the rand, whichhit a 2-1/2 year high of 7.0540 to the dollar this week,increasing calls to weaken it to support exports.
But economists say the African National Congress is unlikelyto plump for major currency intervention.
"The odds are 100-to-1 that we will see any interventionpolicy after next week, very slim. They'll talk the talk but interms of walking they won't do that," said Lumkile Mondi, chiefeconomist at the state-owned Industrial Development Corporation.
"(Currency intervention) is way too complicated and this ANCleadership does not have a long-term plan and has not been ableto make serious decisions," he added.
COSATU points to persistently high unemployment, yawningincome gaps and widespread poverty as proof the ruling party'sinvestor-friendly policies have failed the poor.
Some 40 percent of the workforce in the country of 50million are jobless and live in chronic depravation 16 yearsafter the end of appartheid.
The union blames a strong rand for some of the economic illsand has said it wants the rand at 10.0 to the dollar.
Authorities have acknowledged the economic imbalances due torand's strength but are grappling with what to do about it.
The ANC will debate a proposal to tax short-term capitalinflows, which are partly responsible for the rand's gains ofmore than 35 percent since the beginning of 2009.
But senior party officials have been largely indifferent tothe idea, saying such a tax was not imminent, and that capitalcontrols would be just one of many options on the table.
National Treasury Director General Lesetja Kganyago has saidcapital controls would be a bad idea.
On Thursday Finance Minister Pravin Gordhan said SouthAfrica was studying other countries' experiences with capitalcontrols.
However, South Africa's heavy reliance on foreign capitalinflows to fund its current account deficit make directcomparisons difficult, analysts say.
"We don't have a particularly strong trade balance and thatleaves us a little bit vulnerable because we are reliant onportfolio flows to finance some of that gap," said GeorgeGlynos, managing director at ETM market analysts.
He said countries such as Brazil, Indonesia, Taiwan andSouth Korea, which have strong trade balances and are lessreliant on inflows, have had limited success with capitalcontrols.
In October, Brazil began charging a 2 percent tax on capitalinflows into stock and fixed-income markets. This helped to slowgains in the real but not substantially and the country has notruled out further intervention..
TENSIONS IN ALLIANCE
Under former President Thabo Mbeki, a British-educatedintellectual, the ANC introduced market-friendly policies thatsaw the country experience its strongest decade of economicgrowth.
Leftist allies of the ANC, COSATU helped to unseat Mbeki,hoping the party would adopt its policies. But the ANC has stuckto Mbeki-era policies and even on the rand, will likely bepragmatic in its approach.
Rather than taxing inflows, the ANC may opt for helping theSouth African Reserve Bank quicken its build-up of foreignexchange reserves -- measures that can also weaken the rand.
The central bank has repeatedly said it will leave thecurrency's level "up to the market".
In August the central bank started using currency swaps, atool Gordhan said was aimed at curbing the rand's volatility.
"The economic problem does not come from the rand but fromthe bad economic structure that needs to be fixed," said GaborAmbrus, emerging market analyst at 4CAST. "Focusing on the randis short sighted. The problem is the high unemployment rate."
Failure to come up with a solution is likely to increasetensions between the ANC and COSATU.
While the ANC may want to appease the unions, it is unlikelyto do so on the currency front. (Additional Reporting by Ed Stoddard; Editing by Ron Askew)