The “corporate finance faction” in the governing party finally got its loan: the $4.3-billion rapid financing instrument” (RFI) from the International Monetary Fund (IMF). In doing so, Finance Minister Tito Mboweni achieved another victory over his detractors, but it will lead to more human suffering, social confrontations and rebellions.
The IMF’s motivation for the loan is plainly untruthful and nonsensical. Its July 27 media release says “the RFI will help fill the urgent BOP [balance of payment] needs originating from the fiscal pressures posed by the pandemic, limit regional spillovers, and catalyse additional financing from other international financial institutions”.
If a country has “urgent balance of payments needs” it means that it is running out of foreign currency to pay for its imports, be it oil, machines or obligations to creditors.
This year South Africa has had its first current account surplus since 2003. Statistics since 1950 confirm that South Africa is experiencing the largest current account surplus in 70 years, with “import cover” standing at record levels. The Quarterly Bulletin from the South African Reserve Bank in July reports that the foreign currency reserves cover seven months of imports. The reason is the collapse of imports, the drastically lower oil price and the high gold price.
The nonsense about “the urgent BOP needs that emerged as a result of the pandemic” is repeated twice in the IMF statement. It serves to fulfil the formal requisite for an RFI loan, “which is available to all member countries facing an urgent balance of payments need”, as the IMF explains in another document.
There was not a word about any “urgent balance of payment crisis” in the letter to the IMF from the treasury and the Reserve Bank. The published letter shows that the loan will be used for fiscal purposes, not to fill the dollar reserve. But it was an RFI loan, without much explicitly formulated conditions, that was needed to muddle the IMF project through the alliance between the ANC, labour federation Cosatu and South African Communist Party. With the Reserve Bank governor, Lesetja Kganyago, as the chair of an important advisory committee at IMF, the rules could be floated.
South Africa has a hunger crisis, is facing an unemployment catastrophe and private-public partnership looting of state resources in the midst of the deadly pandemic. The cure is not more loans in foreign currency. Indeed, because the IMF loan is for fiscal purposes, it can be the object of procurement and tender looting, as hecklers point out on social media.
In turbulent times, a nominal interest rate of 1.1% on the IMF dollar loan easily becomes a double digit interest in practice: the rand falling in value against the dollar has almost become the norm. The exchange rate was R18.50 to the dollar in May. It can be R20 to the dollar a year from now or sooner, as the trajectory has historically shown.
Why does the “corporate finance faction” of Mboweni need this outside political leverage, prompting the treasury to abandon its prudent budget policy of lowering its share of foreign borrowing? This policy was still firmly in place in the 2020 budget. As late as in February, the foreign part of the government debt was set to go down to 9% over three years.
To understand why the finance minister wants the political backing of an IMF and the international finance establishment, one must look at the numbers in the austerity programme and the plans for the “structural reform” of the public sector.
Sponsored by the Mail & Guardian and Rosa Luxemburg Foundation, the Alternative Information and Development Centre hosted a debate a month ago between Deputy Finance Minister David Masondo and six nongovernment (and noncorporate) economists. The minister was asked how many jobs will be lost if R160-billion is cut over three years from the “public sector wage bill”, as announced in the 2020 budget.
Masondo replied that this matter is before the court and was therefore not willing to respond. But the only thing before court is this year’s disputed wage increase, agreed with the public sector unions in 2018.
According to the court papers, R37.8-billion will be saved if the third year of wage increases for some 1.3-million national and provincial state employees is not implemented. The R37.8-billion corresponds exactly to the first year of announced cuts in the 2020 budget.
Year two and three of the R160-billion total wage bill reductions amount to R54.9-billion (2021-2022) and R67.5-billion (2022-2023).
It will be impossible to let the wage levels be hollowed out by inflation for two more years. Next year’s reductions will have to be translated into job cuts.
The treasury argued in the 2019 mid-term budget that R393 000 is the average annual cost to the employer for one public sector job. This excludes part-time employees and more than 200 000 very low paid workers in “group 0”.
Using the treasury’s estimate of the public sector average wage cost, more than 300 000 public sector workers will have to be fired by 2023.
This is the deeper meaning of the public sector wage bill debate. It shows why the extreme economic programme of the neoliberal faction in the ANC — a programme that rules out redistribution from rich to poor and any challenge of corporate power as policy alternatives — needs to be politically locked-in almost by means of political pressure from international institutions.
A further measure to prevent democratic processes and elections from changing economic policy is captured by the commitment in the Letter of Intent to the IMF, to seek government consensus for the introduction of a debt ceiling. This would have the effect of tying the government’s hands, preventing it from implementing stimulus packages and meeting the urgent needs of the population in critical times like the present.
Never mind the official 37 000 vacancies in the public health sector acknowledged at the 2018 Presidential Health Summit.
We are looking at one of the “structural reforms” based on the belief that a much smaller public service sector as a share of the whole economy is “good for growth”.
In addition to the R160-billion over three years, where the two latter years must lead to vast numbers of people being retrenched, the supplementary budget announced in June noted that another unspecified R231-billion will be cut from public expenditure over two years, starting from April 2021.
The estimated more than R300-billion fall in tax revenue is caused by the lockdown and will hit the budget in this year. The R231-billion in non-interest spending cut is planned for the two years that follow. It is also a part of the structural adjustment programme of the treasury. It is not a conjectural measure.
A range of alternative policy measures to these structural reforms have been suggested. At the core of all suggestions from nongovernmental organisations outside the corporate nexus are two ideas. The first is that a necessary “green new deal” after the Covid-19 crisis must also be red: the redistribution of wealth from the rich to the poor has to take place. A tax on financial wealth is a self-evident requirement of such a programme.
The second idea is that a turn to domestic production, financing and local markets are necessary. A quarter of a century of fruitless reliance on private international capital has to be abandoned to restart the economy.
The IMF’s very legitimacy as an institution has been questioned during the Covid crisis by the United Nations’ Conference of Trade and Development. UNCTAD wants to cancel US$1-trillion of developing country debt. It objects to the RFI programme and the piecemeal debt holidays of both the IMF and the G20.
The authority of UNCTAD would provide a political opening for a progressive government. Instead of this, the “corporate finance faction” of the ANC is intent on embedding neoliberalism in ways that would require social upheaval to reverse.