The people at the IMF in Washington DC are excruciatingly diplomatic. More than any other international institution, the IMF has the quiet power to dislocate even the most powerful ambitions.
When the last IMF MD, Christine Lagarde, visited SA in December 2018 she was effusive about her welcome and even waved away concerns about President Cyril Ramaphosa’s commitment to introduce constitutional changes to enable the expropriation of land without compensation. Their talks on the subject had been “excellent”, she said.
“At the same time,” she said as she left, “SA is at crossroads. The country faces challenges to raise growth and create more jobs, particularly for the youth. It also needs to address the too-high levels of unemployment, poverty and inequality. It is thus urgent to advance broad-based, albeit at times difficult, reforms to reignite growth and ensure that all South Africans share the benefits, irrespective of their race, age or gender. And this needs to be done in the context of a very challenging external environment for emerging markets that calls for increased vigilance and rebuilding of policy buffers.”
Just 18 months later and the diplomatic messaging in her parting statement has landed, and hard. Earlier this week SA, after a long negotiation, secured a $4.3bn (about R70.4bn) loan from the IMF. The excuse was the Covid-19 onslaught on the economy, and the loan comes with no conditions other than that the money be used transparently. It has to be paid back in five years.
But in truth this was a trial run for a potentially much harder discussion in three or four years’ time, when we may require an actual IMF bailout for much more money, which would come with much tougher discussions and conditions. Those “reforms” being at the top.
Still, it was a big step to take. The National Treasury and the SA Reserve Bank regard themselves as the equals, if not at times the betters, of many bigger counterparts, and going cap in hand to ask for emergency help because our health system and our economy have been brought to the edge of ruin by the ANC must have been humiliating.
The letter of intent handed to the IMF and signed by finance minister Tito Mboweni and Reserve Bank governor Lesetja Kganyago, while not exactly a grovel, is hardly a confident loan request. The two promise even to consider introducing a debt ceiling in SA, something the Treasury has previously scoffed at when first suggested by the DA.
But they did that because they want Mboweni’s promise to halt the slide in our debt to 87% of GDP by the 2023/2024 fiscal year to be taken seriously. I wonder what the IMF committee that considered the loan would have made of the reaction of local social media to news of the loan. It exploded with rage and mirth at the very thought that this money would not simply be stolen by every official or middleman or “business” type who gets anywhere near it.
Respected analyst Peter Attard Montalto, who knows our economy better than anyone I know, reckons it is a pity Ramaphosa did not sign the letter of intent as well. I strongly agree. It would have signalled his commitment to the proposals in the letter and that would have been important because the promises made on debt, on policy reform and on budget cuts will have deep and wide political implications.
They will enrage the Left and, probably, the ANC national executive committee as well. But if Ramaphosa cannot stand up for what his central banker and his finance minister have promised on his behalf now, he will never be able to. And we will have broken a promise to a bunch of very powerful people. He at least needs to find a platform to fully endorse what Mboweni and Kganyago have pulled off. The loan is the biggest granted to any country as Covid relief.
It is easy to forget that China recently fought for and won a seat on the IMF executive board and that the yuan has recently joined the basket of hard currencies (the dollar, the yen, the pound sterling and the euro) that make up the IMF’s currency, the special drawing right or SDR. There’ll be no crying off to the Chinese if we can’t now do what we’ve promised.
So to the extent that we have promised the IMF to hold our debt to GDP ratio at 87%, implement zero-based budgeting, “rationalise (whatever that means) payments to state companies, cut the public sector wage bill and pull the Reserve Bank back from providing liquidity into the markets, a line has been drawn in the sand.
The Left and the thieves in the government (they are not the same thing) will call it “austerity” and attack it. What Ramaphosa has to do is get his infrastructure plans implemented and get the country back to work. More than 50 supposedly “investable” projects have just been gazetted. Again the ANC just can’t choose one. And some are ancient. One, a series of dams on and near the Umzimvubu River in the Eastern Cape, has been mooted for 50 years. Whatever. When does the first hole get dug, Mr President? Your clock ticketh.
• Bruce is a former editor of Business Day and the Financial Mail.
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