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Finance Minister Tito Mboweni had some bad news for South Africans earlier this month. Our financial predicament, he wrote in an opinion piece published in the Sunday Times, was worse than we had first feared; the economy was likely to contract by more than the 7% the treasury had previously estimated.
What Mboweni articulated is a reality that economists and analysts have long been planning for. To borrow President Cyril Ramaphosa’s parlance, South Africa entered the Covid-19 pandemic on a weak wicket and was already staring down a difficult near-future before we were introduced to the concept of a lockdown.
To keep the economy on the front foot, the government has introduced a R500-billion stimulus package and is carving out another recovery plan. The action has necessitated that money be raised from a number of sources, including the private sector and multilateral institutions. But there is one name that invokes a rush of anxiety unlike any other: the International Monetary Fund (IMF) — an organisation from which South Africa borrowed $4.3-billion in July.
Mboweni told us that it is a gross misunderstanding that the IMF is “the biggest devil in town”, and yet it is an institution that he himself has long cautioned against.
“If debt to gross domestic product [GDP] ratio reaches 60%, the IMF will come knocking and take over,” Mboweni said in October 2018. “We want to avoid that.”
That destiny was finally reached, and may have to be repeated in the coming months.
But what is it that makes the IMF such a dreaded bed partner; the lender of absolute last resort in a democratic South Africa? The short answer is that the IMF has long played the part of a malignant supervisor in the parts of the developing world. The long answer is that our own flirtation with its riches is a long and nuanced debate.
Breakfast with Mandela
July’s agreement represents a delayed win for the IMF in finally scooping the one that got away. The fund had courted the new South Africa before it had even come into being, but was rebuffed because of its reputation — although it still claims to have wooed Nelson Mandela.
James Boughton, in his 2012 tome in favour of the IMF, Tearing Down Walls: The International Monetary Fund 1990-1999, describes at length how the institution routinely failed to insert itself in Africa’s newest democracy. Its mission to extend a loan to the country began in earnest in mid-1993 with a $850-million loan.
In September of that year, Mandela was persuaded to stop over in Washington on his way to give an address at the United Nations in New York and met long-time IMF managing director Michel Camdessus for breakfast to thrash out the final details of the loan. An agreement was reportedly reached and a satisfied Camdessus quickly put out a press release, afterwards exclaiming he was “full of admiration for the courageous steps that are being taken by South African statesmen to build a new South Africa”.
Negotiations continued back home and the cover letter of a memorandum of understanding was signed by the relevant parties, including the finance minister, Derek Keys, and Pravin Gordhan, then the co-chairperson of the Transitional Executive Council (TEC) for the Natal Indian Congress. Not content with the near-billion dollar loan the IMF soon put together an argument that the new South Africa would need a far larger, additional injection to flourish.
The post-apartheid government was far from enamoured with the idea.
Undeterred, the IMF followed up its efforts in 1995, sending emissaries to reignite a deal — one of whom was Alassane Ouattara, now the president of Côte D’Ivoire. They were greeted with a cold shoulder when they arrived.
“Bitter memories persisted of the fund’s past support to the minority government,” wrote Boughton. “And many political leaders believed that IMF lending would come with unacceptable restraints on economic policies and would threaten the country’s sovereignty.”
It fell to Camdessus to once again get the business done over the breakfast table. He travelled to Johannesburg to meet Mandela in his home in 1996. Again, according to the IMF’s version of events, everything was in order. Their records even have Mandela heaping reassuring praise on the institution.
“I am personally convinced that the guidelines … are very good — without any country allowing the IMF to undermine its sovereignty,” Mandela is quoted as saying. “What is important is that we want financial assistance from the IMF.”
That is something South Africa would never get. It is believed senior ANC members had held a concurrent meeting of their own and had opted out of the move. Either way, later that day finance minister Trevor Manuel sought out Camdessus to inform him that the loan had been vetoed.
Mboweni, by virtue of being on the finance sub-committee of the TEC, was part of the process at the time the 1993 loan was secured. He later addressed the saga during a 2004 speech when he was the governor of the Reserve Bank.
He explained how the sub-committee grappled with the concern that the move might just be an attempt by the apartheid government “to lock us into an IMF structural adjustment programme via the back door, thereby tying the hands of the future democratic government”.
These fears were assuaged when it became clear there would be no conditionalities attached to the “soft loan”. All the IMF asked was to deliver a statement on economic policy — a promise that the incoming government would “pursue prudent macroeconomic policies”. These policies and their governing ideology, Mboweni insists, were already part of the ANC’s Ready to Govern resolution document adopted in 1992. In other words, as he makes abundantly clear: “We did not sell out.”
What provoked Mboweni to spell out his defence was a school of thought that scrutinised the ANC for abandoning its core wealth redistribution policies in favour of practices that appeased the IMF and other investors and corporates. The chief agitator was economist and academic Sampie Terreblanche, who alleged that a secret meeting had taken place between business and the country’s soon-to-be ruling party.
“In 1993 the corporate sector and some ANC leaders reached a hugely important elite compromise,” he writes in A History of Inequality in South Africa 1652-2002. “This happened before the [TEC] accepted a secret $850-million loan from the IMF to help tide the country over balance of payments difficulties in November 1993.
“Before the TEC signed the loan agreement, the corporate sector and the NP [National Party] government on the one hand and ANC leaders on the other signed a secret protocol on economic policy … [they] agreed with the IMF, the TEC committed itself to a neoliberal, export-oriented economic policy and a ‘redistribution through growth’ strategy.”
Although Mboweni and others have dismissed any suggestions of this supposed clandestine meeting, the concerns have lingered among leftists.
Right up until taking the plunge in July, the ANC’s partners — labour federation Cosatu and the South African Communist Party — continued to express concerns about accepting funds from the Western money lenders. It is believed that the only way to get the two partners to agree was to accept the loan in a rapid financing instrument (RFI).
Under an RFI — a quick application, emergency loan — South Africa will pay a nominal interest rate of 1.1% and have very few conditions to adhere to. This would seem to sidestep some of the bigger concerns, but is by no means risk-free, as critics continue to point out. For one, a falling rand will cause the debt to increase and the interest could well exceed the quoted amount, possibly into the double figures.
The main fear remains the idea that we may become beholden to the whims of the IMF.
Obligation and debt
Despite promises of reform, the IMF has found it difficult to shake its reputation of being an amoral task-master. In the 1980s and 1990s, the IMF operated through structural adjustment programmes in Africa — initiatives designed to promote free-market economic policies. Because this approach demanded macroeconomic growth (in other words a high GDP), it is blamed for states pushing human rights to the margins.
Even if we ignore these programmes during the Cold War period — a big ask considering the long line of politicians and academics ready to argue that the negative effects are still being felt today — there is a wealth of recent criticism to wade through.
The severity of West Africa’s 2014 Ebola crisis for instance, has often been laid squarely at the feet of the IMF. The fund has been lambasted for its rigid loan demands, which allowed little investment in Liberia’s health system and consequently the country’s hospitals were in disrepair at a time when they were needed most.
Further afield in Ecuador, violent protests raged last year after its government was forced to cut fuel subsidies to procure an IMF loan — hitting the poorest the hardest.
Even Europe is not immune: a 2018 University of Washington study found that Greece’s death rate rose by 17.7% during the period in which the country was under austerity measures necessitated by assistance from the “Troika” (the IMF, the European Commission and the European Central Bank).
According to the IMF’s 2018 Review of Program Design and Conditionality, despite its proclamations to reform, the fund’s structural conditions for the loans have been on the rise since the beginning of the past decade — a date it had hoped would be a turning point for its poor global reputation.
There may not be any clear IMF obligations that South Africa must fulfil, but then the angst has always stemmed from the perception that the fund’s modus operandi slithers into national policy over time.
And what is apparent now is that the camp that resisted its lure for so long has well and truly lost the war to keep the IMF at bay.