Tito Mboweni's expression of interest in the Covid-19 relief funding being offered by the World Bank and the IMF has predictably touched off a furious flurry of responses from the Left whose attitude to the Bretton Woods institutions is rather similar to that of Aids denialists to HIV. Mention of these institutions triggers fevered denunciations and a whole slew of more or less mad economic policy proposals and wild accusations.
Solly Mapaila, the SACP's No.2, says, for example, that South Africa should not deal with either the World Bank or IMF because the conditions of their loans “are always secret”. This is completely untrue, as a visit to their websites will confirm. An IMF bailout works via a letter of intent which sets forth the reform programme on which the loan is conditional and this is usually further amplified by a memorandum of economic and financial policies.
Mapaila insists that South Africa has no need of IMF help and can depend on its own domestic resources. For example, private company pension funds. Would he raid them? No, “it's not raiding. It's utilising them to fight the economic crisis”. This is a frankly illegal proposal: neither Mapaila nor anyone else has any right to lay their hands on these private pensions. He argues, though, that the workers who thus lose their pensions would be in for a rough time anyway, due to the crisis. So, apparently, it's OK to rob them.
Pali Lehohla, the former Statistician-General, argues the same way. Resort to the IMF and World Bank must be resisted because “we still have a lot of resources in the country such as the PIC, we have corporates sitting on trillions also about R7 trillion (sic)”. Again, the Public Investment Corporation can apparently be raided at will as can any money that private companies have in their balance sheets. It is pure law of the jungle stuff. It is also worth remembering that for years now the government has been borrowing abroad in order to pay public service salaries. If it suddenly had to rely only on domestic resources there would have to be swingeing pay and job cuts.
Another fevered voice is that of Patrick Bond who wants the SA Reserve bank to declare “force majeur” (he means “force majeure”) and immediately stop all international payments of interest, dividends or profits. He also urges the immediate cessation of all public debt repayments. Again, there is no room here for any legal considerations or contracts, nor for the immediate legal remedies aggrieved parties could enforce via investment protection pacts. There is no thought, either, of the simple fact that the minute South Africa did such a thing it would be completely locked out of all the world's credit markets, would be unable to sell another company or government bond, might well be unable to finance either imports or exports and would become an investment pariah.
Again, the recommendation is for the law of the jungle. We should just tear up all agreements, disregard all rules and do whatever we feel like. There is no consideration of the inevitable reprisals such policies would provoke. For example, if we froze all payments due to American investors there is no doubt at all that we would lose the AGOA agreement and that our car industry would collapse. South Africa is a small player and it would be the height of folly to thus pick fights with the heavy hitters.
The leading candidate for debt default is the $3.75 billion loan made in 2010 by the World Bank to support the Medupi project. Bond refers to this loan as “patently corrupt” though his reasoning (?) is unclear. SACP and other Left writers refer to the fact that the World Bank could not have been unaware of the corruption surrounding the Medupi project, and yet it went ahead and paid out the loan.
This is a strange allegation. The government asked the World Bank for a loan and got it at a favourable rate of interest. The Bank was reluctant to support any more coal-fired power stations but made an exception to please South Africa. Doubtless the Bank knew there was much corruption surrounding the project but that is unfortunately all too often the case in the Third World and law and order is the responsibility of the host government, not the Bank.
If the Bank withheld loans in such circumstances it would probably never make loans to developing countries. This loan is singled out for immediate default simply because the Left hates the World Bank. As childish as that. Bond, by the way, even has it in for the Brics Bank - “a pro-corruption sub-imperial club of neoliberal banksters”.
All these proposals are simply a road to ruin. Not only would they quickly produce mass depression and economic collapse but they would ruin South Africa's reputation for decades to come and cut it off from all sources of economic assistance.
Another remarkable suggestion comes from Duma Gqubule of the Centre for Economic Development and Transformation. He would like to increase the number of grant beneficiaries from 17 million to 50 million by giving another 33 million people income grants of R1277 a month. That would cost R506 billion a year. And he'd like to increase maternity grants by another R400 billion a year. All of this extra money would go to consumption, none of it for investment. But intellectual honesty requires that those who back such a Keynesian splurge, financed by extra borrowing, should also admit that the inevitable consequence will be an IMF bailout. Are they, including Mr Gqubule, happy to vote for that too?
Meanwhile President Ramaphosa has decided to send Trevor Manuel and several other African worthies to ask the G20 to live up to its recent pledge in principle to help Africa through the Covid-19 crisis. In practice this comes down to begging the EU, the US, the UK and China for help. Thus far the EU has pledged R64.35 billion for the whole of Africa. The UK will point out that it already gives proportionately more aid than anyone else. The feeling that “charity begins at home” will be general. China will offer debt relief only on its own loans.
So the developed countries are mainly likely to point the way to the IMF and the World Bank. The magic words in everyone's ears are, of course, “debt relief”. The G20 has already said it favours this. The IMF has indeed just announced that, thanks to new pledges from Britain ($185 million), Japan ($100 million) and undisclosed amounts from others, it will provide immediate debt relief for 25 member countries (19 of them African) for six months, with extensions possible up to two years.
Some believe that South Africa's debt should be relieved or even wiped out. But the IMF said its debt relief programme would be offered to poor countries “which could translate the resources into better prospects for (their) poor”. It protested openly when South Africa chose to give huge increases to its well paid public sector workers rather than help the unemployed.
Secondly, the World Bank divides up the world's countries into 54 upper income countries, 57 upper-middle income countries, 46 lower-middle income countries and 28 low income countries. Debt relief has thus far only been considered for this last group. South Africa is almost half way up the list of upper-middle income countries. That is, there are 98 countries with lower per capita incomes than South Africa. All of them would be regarded as better candidates than us for debt relief.
After all, why should a G20 member with the world's largest endowment of mineral resources be asking for help at all? Why indeed? But that’s a much longer story.
This article first appeared in Rapport newspaper.