‘Sell out to IMF or starve’

South Africa must sell out or starve say experts and opposition parties, who have criticised the ruling party and its alliance partners for their “ideological” objections to asking global banks for help.

This as South Africa was reeling from the financial shock brought on by the Covid-19 pandemic, which closely followed a recent credit ratings downgrade by Moodys which put the country’s economy into junk status last month.

Internal party squabbles over the country’s macro-economic direction reportedly ensued after calls for government to approach the International Monetary Fund, which was making available $1 trillion for the over 80 countries which have approached the bank for assistance, after the coronavirus panic lead to global market crashes plunging most countries into recession.

Meanwhile, the World Bank announced it was prepared to deploy up to $160 billion over the next 15 months to support Covid-19 measures that will help countries respond to the immediate health consequences of the pandemic and bolster economic recovery. The first group of projects, amounting to $1.9 billion, would be rolled out to 25 countries with new operations moving forward in over 40 countries using a fast-tracking process.

This weekend, Deputy Finance Minister David Masondo told eNCA that government had approached the Brics countries’ New Development Bank for a loan of $1 billion towards fighting the coronavirus, and aid in structural reforms. Experts suggested that austerity measures which notoriously came as conditions for such loans were correctly placed in times of financial crisis, and it was time South Africa restructured its public spending.

Chief economist at the Centre for Risk Analysis (CRA), Ian Cruickshanks, said South Africa needed urgent financial injections in order to stand a chance at recovering from the uncertainty and economic shockwaves which were to follow the 21-day lockdown and beyond. He said the political resistance to aproaching multilateral institutions was caused by the threat of being forced to cut on social spending, a politically divisive issue in South African politics.

But the time for pride and prejudice over these institutions, suggested Cruickshanks, had come and gone.

“We are in this position because of a decade of misdirection and of having the wrong priorities and living beyond our means, ringing up huge deficits,” he remarked.

“We have been in this position before and that was in the previous dispensation, and we have proven that in order to get out of it we need capital backing and a determination to live within our means.”

This meant expenditure into fixed capital investments which would make the economy grow, such as making sure Eskom provided reliable and affordable electricity and cutting government’s bloated salary bill, rather than into sinking ships such as South African Airways.

But did the doomsayers have a point about the IMF and the World Bank’s loans being a threat to sovereignty?

Political Analyst Dr Ralph Mathekga said it was more likely that power dynamics within the ruling party were shaping the resistance more than economic desperation.

“I don’t think the resistance is purely ideological, but that is being used as a point of entry because if we start going in the direction of the IMF, there are conditions that might apply to that, which would include restructuring your own public finance, especially in South Africa with the kind of debt trajectory we are facing and the bloated state-owned entities. So what these people are afraid of is that signing off on such reforms would be tantamount to signing off on President Cyril Ramaphosa’s plan for restructuring and austerity.”

In a joint statement on Tuesday morning, the ANC, SACP and trade union federation Cosatu said Treasury’s recent pronouncement on government’s intention to approach the IMF and other institutions was concerning.

Professor Daniel Meyer, director of trade research at the University of the North West said whether the ruling party was willing to admit it, South Africa did not have many options and was running of time.

But where would this money go?

“Fact is we are in a huge crisis. We need funding/loans with immediate effect. We need at least 5 – 10% of GDP in financial injection into the economy. Government is paying billions of Rands monthly just on interest on the loans. This money would have been perfect to support the poor and unemployed as well as businesses,” said Meyer.

“If this lockdown due to the pandemic continues for longer than April and into May or June, government will start to struggle to service its debt bill as well as the massive salary bill, and the Sassa payments,” he warned.

The coronavirus restrictions also put government’s revenue collection at risk. Collection on VAT was much lower with only food and emergency products on sale, the fuel levy would be much lower due to restricted movement, and personal income tax would decline with people going into unemployment and workers not being paid salaries or being paid less than normal; and company tax will be less as profits are plummeting. Also, with two recent ratings agencies downgrades, government was already paying high higher rates on its debt.

“A billion Rand here and there will not be enough. We need huge amounts pumped into the economy now. IMF and WB are ready to assist us and we need to apply.”

According to Meyer, the IMF was likely to enforce structural changes which we need, which include a reduced government wage bill, a new economic policy to allow inclusive growth, upgraded health system, changes to social-welfare grants system, and an improved education system.

Alternatives to this model were few and hard to come by, he warned.

“Alternatives do not really exist on the scale we need. SARB could pump in more money by simply just printing billions of Rand and also buy more government bonds, which will put more money in the system. More rates cuts are also needed urgently, now.”

‘No time for political squabbling’ – opposition

Political parties rubbished concerns raised by the alliance, saying the delay in action caused by internal battles over the issue would cost the country lives and livelihoods.

“The ANC Alliance has a lot of hypocrites; instead of pointing a finger to former president Jacob Zuma and the Guptas, they choose to blame Minister of Finance Tito Mboweni for the financial mess the country is in,” said Cope spokesperson Dennis Bloom.

“The country is in big trouble, economically and politically whether the government turn to the IMF, World Bank or New Development Bank of Brics, the country will never be the same again.”

The DA’s shadow finance minister Geordin Lewis suggested the fears around IMF loans subverting sovereignty were misplaced.

“The IMF has a whole lot of different funds available. There is a $5 billion USB fund that they have set up to help fight the coronavirus and that fund is not like an ordinary ordinary IMF bailout which comes with conditions. This is a low-interest loan to fight the virus so it makes total sense to use that, because the interest rate is very low and they say that for the poorest countries their interest rate will be zero, but even though we are not among the poorest our interest rate will be quite low,” he said.

To stop the government from approaching the IMF would be to put petty ideological objections above the urgent needs of the relief effort, Lewis on Tuesday morning.

He called on Finance Minister Tito Mboweni and Ramaphosa to end the “damaging squabbling” and make it clear that South Africa needed urgent financial help, and that there should be no objection to approaching the IMF.

“We need more money urgently for healthcare workers, for protective gear, for equipment, and for support for small businesses and employees who have lost their jobs.”

Killing two birds with one stone

Another expert has suggested that a bailout could kill two birds with one stone – plug the leaks in the state’s coffers and put a stop to the rot in state institutions.

Covid-19 bailouts being offered by multilaterals such as the World Bank and the IMF were not perceived to be laden with strict conditions compared to the standard loans the institutions offered, according to the DA.

But director of the Center for Risk Analysis, Frans Cronje, suggested that much-needed financial discipline would be part and parcel of any deal offered to South Africa, which had recently been flagged by at least two ratings agencies, including Moody’s, on its public spending habits.

“If the IMF (or any external) funding was conditional it would be strictly audited and the potential for looting would be very limited,” said Cronje, adding that such funding would also increase scrutiny of public funds generally. It was partly for this reason that there was limited enthusiasm for IMF money among the remnants of the state capture factions of the ANC, he suggested.

“In that sense external bailout funds could be useful beyond the financial realm. Such funding might help out the squeeze of looting generally.”

Geopolitics also played a role in how certain institutions structured loans and with Brics’ New Development Bank being one of South Africa’s first SOS calls, Cronje warned that turning to world powers such as China in order to avoid the Western political influence of the IMF and the World Bank may not work out as expected.

“Some think China will be easier to work with. They are wrong. It’s does not throw good money after bad and will demand a far greater return on its investment than the IMF.”

simnikiweh@citizen.co.za

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