The reason for the International Monetary Fund’s Christine Lagarde’s to South Africa is unknown. South Africa desperately needs a solution for the poor and marginalised, and an IMF bailout would worsen their situation.
This week’s hush-hush visit by International Monetary Fund (IMF) managing director Christine Lagarde to Pretoria (between stops in Accra and Luanda) will raise eyebrows.
In contrast to last week’s IMF press briefing claim – “Madame Lagarde will hold meetings with the authorities, as well as fairly extensive meetings with the private sector, civil society, academia, women leaders, and of course the media” – there’s an information void, with no public events scheduled.
An open, frank public discussion about the IMF’s regrettable history and current agenda is sorely needed, in a context where a few honest politicians and officials are struggling to reverse state capture and return stolen funds to the taxpayer.
Undoing a decade of looting by former president Jacob Zuma and the Gupta empire is no small task.
Hence, perhaps with a certain discomfort, Lagarde will meet one of the main post-Zuma/Gupta leaders, Finance Minister Tito Mboweni, who twice (in 2013 and 2016) tweeted about Lagarde’s own corruption trial in France. She was found guilty of “negligence” for giving R6,5-billion to a tycoon — Adidas founder and French state capturer Bernard Tapie — who donated to her Conservative Party when she was finance minister, and who in 2017 was forced to pay back the money, as the saying goes.
Retribution for corruption is indeed in the Pretoria air; two months ago, Mboweni replaced Nhlanhla Nene, who resigned after he told the Zondo inquiry into state capture that he had met the Guptas at their residence and not in his office as he should have when he was deputy minister and finance minister.
But is Mboweni arranging a secret bailout deal, as happened in December 1993 when the IMF granted the infamous $850-million loan — a “Faustian pact”, according to former intelligence minister Ronnie Kasrils, replete with Washington Consensus promises — to outgoing president FW de Klerk, so as to “instil global financial confidence” in the incoming Mandela government?
After five “junk” denunciations by the three most powerful (albeit suspect) credit ratings agencies over the past 18 months, President Cyril Ramaphosa has tried hard to restore their trust. But with Eskom now trying to dump another R100-billion in debt onto the treasury, does Ramaphosa need a financial back-stop from the IMF?
The South African “fiscal cliff”, identified in 2014 by Wits University economics department chair Jannie Rossouw, has a potential built-in parachute: “quantitative easing” (printing rands) and even a return to prescribed assets so as to mop up state securities with locally-denominated finance (otherwise bubbling uselessly in a still-overvalued stock market). But that parachute doesn’t open to halt a repayment crisis for dollar-denominated loans, so a “foreign-debt cliff” looms in 2019.
More to the point: Is Eskom’s foreign debt again creating havoc, as happened in January with a “pending letter of default from the World Bank” that “could trigger a recall on Eskom’s R350bn debt mountain”, as Carol Paton reported in Business Day? (Ramaphosa’s urgent meeting with World Bank officials in Davos the next day was apparently temporarily soothing.)
Lagarde’s opaque visit contrasts with World Bank president Jim Yong Kim’s high-profile trip earlier this month, amid a blaze of Global Citizen anti-poverty populism to 90 000 youth at Soweto’s FNB Stadium: “I’m telling you, you can’t trust anyone over 30 to determine your future!”
Kim also met Ramaphosa to discuss, he tweeted, urban planning and sanitation (neither of which would need dollar-denominated bank loans). He also lectured at the Wits School of Governance on human capital investment, jovially criticising another former lefty, his host, vice-chancellor Adam Habib, for being a “student of Trotsky”.
Ramaphosa said: “We’re not looking at the IMF. The New Development Bank has a facility.”
Are new loans from the IMF and World Bank really needed? On the one hand, their leaders are here in the wake of the Brazil-Russia-India-China-South Africa summit in Sandton in July, which again raised hopes for the Brics bloc’s international financial governance reform agenda.
For example, notwithstanding angry protests by environmental justice activists at its Sandton Africa regional centre office, the Brics New Development Bank announced quickly loans to three parastatal agencies. One of these, Eskom’s $180-million, was “in abeyance” since 2016 because of then-chief executive Brian Molefe’s second thoughts: he opposed the loan’s linkage of privatised renewable energy to Eskom’s grid. (Instead, Molefe wanted to take on more nuclear debt, which Mboweni — then a New Development Bank director — had publicly endorsed in 2015, while in Russia).
The other credits went to Transnet’s Siyabonga Gama (fired for Gupta-related corruption a few weeks later) for $200-million to expand the Durban port petrochemical complex — a project now frozen because of procurement fraud involving an Italian firm (unrelated to the Guptas) — and the Development Bank of Southern Africa for on-lending $300-million to municipalities (assuming there are any creditworthy ones left, able to pay sufficiently high interest rates to justify a hard-currency loan for local infrastructure).
Explained Earthlife Africa protester Makoma Lekalakala, co-winner of the 2018 Goldman Environmental Prize as Africa’s leading activist: “Both Eskom and Transnet are under scrutiny for corruption and mismanagement. No due diligence was done on the Transnet loan. If this is how the [Brics] bank operates, we have to brace ourselves for accelerated environmental degradation for the pursuit of profit.”
But the Bretton Woods Institutions are no better, and just more than a year ago, Ramaphosa offered a scathing critique of Washington’s bias: “We should not go to the IMF because, once we do, we are on a downward path, we will be sacrificing our independence in terms of governing our country and sacrificing our sovereignty.” He cited the risk of imposed “cuts in social spending”, what with anticipated IMF orders to Eskom “to do away with free electricity quotas for the poor and indigent”.
Ramaphosa repeatedly denies that the Bretton Woods Institutions will bail out South Africa: “IMF, no, we’re not looking at the IMF. The New Development Bank has a facility that could be made available to us. And we are exploring that as well. And we want to do it in a way that does not require a sovereign guarantee.”
Ramaphosa probably didn’t mean the Brics New Development Bank, which makes project-specific loans, but instead its $100-billion contingent reserve arrangement, which offers a $3-billion credit line for South Africa to immediately draw upon, in the event of a balance-of-payments emergency deficit.
On the other hand, Brics looks much less coherent today than in July, because Brazil’s new leader, Jair Bolsonaro, could drop out of the bloc and, at minimum, will hitch his regime to that of United States President Donald Trump. Yet in spite of oft-expressed Sinophobia, Bolsonaro has grudgingly just agreed to continue the rotation of Brics heads-of-state summit hosting (although this is likely only to occur in Brasilia next November).
There will be much Trump-style geopolitical, economic and especially environmental chaos starting on January 1 when he becomes president, such as paving over the Amazon. But compared to November, fewer insiders I talked to on a visit to Brazil earlier this month (including former foreign minister Celso Amorim) fear that Bolsonaro will reduce the bloc to Rics through a “Braxit,” the way he has just done to the United Nations Framework Convention on Climate Change summit. (His predecessor Michel Temer had agreed to host it in Brazil late next year, but Chile will now take over.)
The oft-stated contrast between the agendas of Brics and Washington, as articulated by Zuma’s scribe Gayton Mckenzie, for instance, was in any case mainly myth. From 2014, Lagarde has enjoyed the power to co-finance the more desperate of Brics borrowers (Brazil and Russia also suffer junk status), because the contingent reserve arrangement’s articles of agreement stipulate that if Pretoria (or any other borrower) wants the next $7-billion in Brics funding within its $10-billion quota range, it must first get an IMF structural adjustment programme.
If Pretoria needs financing to repay increasingly onerous foreign debt tranches in 2019, could this fractured society withstand IMF austerity, given what Business Day has already termed 2018’s “savage fiscal consolidation” that reduced basic-infrastructure grants? Even a confirmed neoliberal, Johannesburg’s Democratic Alliance Mayor Herman Mashaba, cried foul on treasury’s 65% budget cut to the city’s housing programme last week.
At the global scale, the Brics financial institutions are not up to the huge bailout requirements necessary if financial meltdowns similar to 1998 and 2008 reappear in coming weeks, for instance because of Britain’s anticipated “hard crash” from the European Union on March 29. In even the recent weeks’ relatively mild economic turmoil, South Africa’s currency was the world’s most volatile (out of the 31 most traded). The rand continues to zigzag in part because of former finance minister Malusi Gigaba’s February 2018 relaxation of exchange controls on R500-billion worth of local institutional investor funding that can now depart South Africa. (That puts into context the oft-remarked R100-billion exit threat from Citibank’s World Government Bond Index once Moody’s finally drops the junk axe on the domestic-denominated securities rating.)
But, while we continue to pay close to a 9% hard-currency interest rate on 10-year state bonds (even higher than does Venezuela), there will be willing buyers — until the next world financial melt ratchets rates even higher. And in spite of Brics babble about IMF reform so as to lessen the load of borrower conditionalities, there have been no changes in economic philosophy under Lagarde. Worse, Africa lost substantial voting power in the 2015 quota restructuring, including Nigeria by 41% and South Africa by 21%. The main countries that raised their respective IMF shares were China (35%), Brazil (23%), India (11%) and Russia (8%).
An IMF reform that leaves most Africans with less voice is better considered reform, Ramaphosa himself seemed to concede in a speech to the UN in September, complaining that the IMF and other multilateral institutions still “need to be reshaped and enhanced so that they may more effectively meet the challenges of the contemporary world and better serve the interests of the poor and marginalised”.
Because their interests are not served by either Washington’s or the New Development Bank’s lending to corrupt parastatal elites, the “poor and marginalised” need another strategy. Just as in the days of the Jubilee 2000 debt-repudiation movement, led two decades ago by poet Dennis Brutus and Anglican Archbishop Njongonkulu Ndungane, it’s overdue that we talk about, and audit, South Africa’s foreign debt.
Including parastatal and private borrowers (for whom the state ensures hard currency is available for repayment), foreign debt stood at $171-billion as of mid-year (up from $25-billion in 1994). That figure, the South African Reserve Bank announced last week, is down nearly 8% from March 2018’s $183-billion, but only as a result of “nonresidents’ net sales of domestic rand-denominated government bonds as well as valuation effects”. More painfully in rand terms, foreign debt increased from R2.165-trillion in March to R2.347-trillion at end-June.
The main foreign debtors remain Eskom and Transnet. They have contracted, over the past eight years, South Africa’s three largest-ever loans:
- In 2010, $3.75-billion from the World Bank, mainly for the Medupi coal-fired power plant (a deal for which Eskom chairperson Valli Moosa was criticised by the public protector for “improper” conflict of interests since he sat on the ANC finance committee, during the notorious Hitachi corruption of the ruling party);
- in 2013, $5-billion from the China Development Bank, mainly for Transnet’s purchase of imported infrastructure inputs, especially for corrupt port-petrochemical expansion in Durban and a coal export rail line to Richards Bay (billions of rands were illicitly directed via China South Rail to the Gupta empire); and
- in 2016, $5-billion again from the China Development Bank, mainly for Eskom’s other coal-fired mega-generator, Kusile, initially arranged by Molefe and renewed at the Brics Sandton summit last July.
None of these loans can be justified, especially on ecological grounds — since they all rapidly increase the climate debt we South Africans owe both future generations and, more urgently, worsening droughts and floods. Moreover, with state procurement corruption costing in the range of 35% to 40% per contract, according to the lead treasury official in 2016, there is a strong case for a full debt audit, followed by the demand that the World Bank, China Development Bank, Brics Bank and other lenders also assume liability.
After all, the Hitachi deal with the ANC’s investment wing, Chancellor House, led the US government to fine the Japanese firm nearly R300-million in 2015 — for Foreign Corrupt Practices Act violations at Eskom — and hence when Public Enterprises Minister Pravin Gordhan (responsible for borrowing the $3.75-billion in 2010) last week blamed Hitachi incompetence for recent load-shedding, that alone should invoke World Bank debt repudiation.
Kim should not only have addressed this largest — and perhaps worst — loan in his institution’s history. The World Bank’s portfolio also includes the largest share in the notorious CPS-Net1 “financial inclusion” strategy to rip off millions of poor South Africans, and a $150-million debt-plus-equity stake in Lonmin, which until just before the 2012 Marikana massacre (not long after Kim became president) the bank was celebrating as a best-case for corporate social responsibility.
Add to all this the new threat of Faustian Pact 2.0 from the ethically-challenged Lagarde. The need for a new Jubilee movement is obvious. All existing anti-corruption initiatives should be pursued, but our ever lower expectations mean that a genuine “Ramaphoria” — which, if serious, would include repudiation of the Gupta and ANC fraudsters’ financial facilitators, such as the World Bank, China Development Bank and Brics Bank — is a fantasy. Instead, the meme best describing our current state of governance is, indeed, Ramazupta.
Patrick Bond is a professor of political economy at the Wits School of Governance