As a student in the UK in the 1980s it wasn’t uncommon to come across peers who had sworn off oranges. Outspan from SA was out, and so too were the oranges from Gen Pinochet’s Chile, or any number of other autocracies.
Trade, sport and cultural boycotts had some impact on apartheid SA. But it was the financial sanctions of the late 1980s that were most effective in helping propel the National Party to the negotiating table in the end. After SA lost its access to international loans after the notorious Rubicon speech in August 1985, it was just a few short years to the release from Robben Island of Walter Sisulu and four other ANC leaders in October 1989, and then of Nelson Mandela in 1990.
As South Africans watch the unfolding horror of Russia’s invasion of the Ukraine, those who recall SA’s own sanctions years might be struck by the unprecedented economic weaponry the world has unleashed against Russia. It is an arsenal that would not have been possible back in the 1980s. Its deployment reflects great changes in global finance since then — as well as the unity of the West’s resolve to punish Vladimir Putin.
As the political struggle against apartheid intensified in the 1980s, and with it the apartheid government’s attempts to repress it, UK banks such as Barclays and Standard Chartered, and multinational corporations such as the Ford Motor Company, divested from SA.
But the tipping point came when international banks, led by the US’s Chase Manhattan, refused to roll over short-term loans to a heavily indebted SA, prompting a unilateral moratorium — the so-called 1985 debt standstill — in which SA halted payment on all its foreign loans and so could not raise any further borrowing.
With no foreign capital coming in, SA had to run a balance of payments surplus. That meant putting the brakes on economic growth. The rest is history, though it’s worth noting that SA ultimately did repay all those loans.
The sanctions weapon has been wielded extensively since then, to push for political change, punish countries for aggression or criminality, or try to prevent those involved in terror or corruption from benefiting from the proceeds. The US alone has imposed official sanctions of one sort or another on more than 11,000 individuals and companies, and on countries including Iran and Venezuela — as well as Russia itself, which has been subject to sanctions since its invasion of the Crimea in 2014.
The implementation of global anti-money laundering and terror financing legislation has provided the basis for much of this, especially since the 2008/2009 financial crisis, making it possible to track and police financial assets across borders in ways that were never previously possible.
The financial system itself has become far more globalised and integrated over the past couple of decades as rules have changed, innovation has gained pace and technology has advanced.
Importantly too, the protests against financing bad regimes and bad people don’t come just from civil society now — environmental, social & governance issues are important for investors and customers too. Hence the rapid retreat from Russia of Apple, Starbucks, McDonald’s, Maersk and the like, as well as — even before the US decided to sanction Russian oil imports last week — Shell and BP.
But it’s the financial sanctions that have been the swiftest and the most unprecedented, in particular the decision taken by the US, Japan and Europe to lock Russia out of accessing its foreign exchange reserves. Russia had built up its gold and foreign exchange reserves to a huge $630bn in recent years precisely to defend itself in the event of more sanctions.
The reserves should have helped support the currency and provide liquidity for importers and exporters. Now Russia can’t touch any of it, other than the 14% of the reserves held in Chinese renminbi or the 22% in gold, and it’s not clear it can access even those.
The Russian rouble has lost 35% since the invasion began. Its markets have frozen. Its credit ratings have been downgraded by multiple notches, from investment grade deep into junk status. It may default on a couple of foreign loan payments coming up in mid-March.
Unprecedented too is the extent to which Russia has been locked out of global payment platforms, in particular the crucial Swift system, which has booted off seven Russian banks (and three from Belarus) after instructions from US and EU authorities.
Back in the 1980s Swift had only recently gone live. The first SA banks joined only in 1982. The payments sanctions, with Mastercard and Visa also pulling out of Russia, are a powerful reflection of globalisation. So too are the range of financial assets held around the world by Russia’s banks, sovereign wealth funds and oligarchs. All have been frozen, though so far there are exemptions for banks supporting Russia’s oil and gas exports, on which Europe is particularly dependent.
The use of this new arsenal of economic weaponry is, tragically, not expected to halt Russia’s attempt to destroy Ukraine. But the result is what ratings agency Moody’s has described as a “massive act of self-harm” by Russia. Its economy had been doing quite well until a month ago: now Moody’s expects it to contract by 13.5% this year, or by as much as 24% this year and a further 18% in 2023 in a worst-case scenario of prolonged war.
Apartheid SA was never subject to anything like these sanctions, but fortunately it pulled back from self-harm in the end. In Russia’s case, it’s arguably too early to tell what the outcome of sanctions will be, or how they will end.
But the world is now in an era of economic warfare that could have significant implications for the global financial system — and will have to be carefully considered and managed by political leaders.
• Joffe is editor-at-large.
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