CRISIS IMPACT: SAfrica's ANC-union alliance may suffer

* Fiscal, monetary policy loosens to deal with global crisis

* Union allies testing increased influence on new government

* Govt likely to shift back to more conservative policy

By Gordon Bell

JOHANNESBURG, June 10 (Reuters) - The global credit crisis has shifted South Africa's economic policy to the left, encouraging the trade union and communist allies of the ruling African National Congress to demand more concessions. But any victory may be short-lived.

The government will likely revert to more prudent budgets, and refocus on taming inflation, once the recovery is in place -- which could strain the ANC-union alliance, and relationships within new President Jacob Zuma's administration.

Labour federation COSATU danced for joy when its pick, Zuma, swept to power within the ANC in 2007 and took the oath as national president in May this year. His new cabinet is laden with communist and union leaders, and emboldened by their increased influence, the unions are now testing their power.

Leftist ministers will fight to keep policy choices made necessary by the global crisis; after several years of budget surpluses, the Treasury has ramped up debt to finance a budget deficit of 3.8 percent of gross domestic product, and interest rates have been cut despite still-high inflation.

But the leftists may make little headway. Although the ANC, COSATU and the communist party have been allies for decades, their relationship reached breaking point under then President Thabo Mbeki in 2007. And cracks in the marriage with Zuma are already showing.

After initially sending members dancing and singing onto the streets to press for more pay and better working conditions, the labour federation is now threatening nationwide strikes.

A metalworkers union tried to storm the central bank while the policy committee was deliberating on interest rates, to press for action to save jobs and scrap inflation targeting.

COSATU also tried unsuccessfully to stop the listing of the country's biggest mobile operator Vodacom (VODJ.J), arguing that the company's initial public offer handed a key asset to foreign ownership and threatened jobs.

"It doesn't help if those doors are open and you keep kicking the door," the ANC's Secretary-General Gwede Mantashe, a former trade union and communist party leader, said at a union conference, warning workers against public protests.

"CAN'T PUSH FAR"

Anger will grow if the government swings back to the policies that served it well for a decade, and won praise from foreign investors and credit rating agencies. (for a factbox on major issues for investors in South Africa, click [ID:nLA1044763])

Zuma has assured investors that long-term policy will not change, and new finance minister Pravin Gordhan has stressed that while the government will engage with all groups, the country has not abandoned a prudent stance.

"They (the left) can go and let trial balloon after trial balloon go and see how far they can push it," said Moritz Kraemer, Standard & Poor's head of sovereign ratings for Europe, Middle East and Africa.

"We thought they probably can't push it that far, and what we've seen since then reaffirms that whole power balance."

However, it will be hard to reverse all the economic measures taken during the crisis, and it may be especially difficult to return to the budget surpluses achieved before the global slump began.

"We do need to anticipate an element of policy inertia," said Leon Myburgh, sub-Saharan Africa specialist at Citigroup. He cautioned that political friction might grow as the alliance partners sorted out their new roles.

"We need to see the new dynamic settle down, there is still lots of water that needs to flow under the bridge," he said.

With revenues under strain, the next fiscal year's budget deficit could conceivably be even larger as a fraction of GDP.

STIMULUS

But South Africa's economic stimulus remains small compared with the radical steps taken by many developed nations, including the United States and Britain.

Lesetja Kganyago, the head of the National Treasury, said at an economics conference that the key was to know when to halt stimulus, implying that no more big steps were likely.

And Reserve Bank Governor Tito Mboweni said after the latest interest rate cut in late May that the monetary easing cycle might be at an end -- infuriating COSATU, which had demanded double the 1 percentage point reduction in rates that was made.

The repo rate stands at 7.5 percent, still very high by global standards.

Since apartheid ended in 1994, one big question hanging over South Africa has been whether incorporating the black majority into politics would eventually mean a major "lurch to the left", because of the long time needed to bring up the living standards of millions of poor people.

But so far, the behaviour of Zuma's administration suggests conservative economic policy has become firmly entrenched in the ANC, because it worked well for over a decade. The global crisis does not seem to have shaken this faith. (Editing by Janet McBride and Andrew Torchia)