The South African Federation of Trade Unions has consistently opposed the need to borrow from the international financial institutions for reasons we will once more outline in this statement.
We have noted with deep concern and anger that the International Monetary Fund issued a communication confirming that it has lent South Africa a $4.3 billion or about (R70 billion following the acceptance by the government of all conditions stipulated by the IMF.
These conditions are based mainly upon the so-called fiscal consolidation made in the supplementary budget in June 2020. This includes expenditure cuts of R230 billion over the next two years; a commitment to freeze public sector wages for 2020/2021; and a plan to put an artificial ceiling on the debt to GDP ratio.
SAFTU has already rejected these policies. We have argued that this policy platform is exactly what has landed us where the country is today: an economy that moves from years of stagnation to recession – and now directly into a Great Depression, with a record-breaking unemployment rate for any industrial society, shockingly high levels of poverty, a society that has become the most unequal in the whole world, structured racial and gender oppression and ecologically-catastrophic policies.
The people who will celebrate both the international loans and conditions attached are the beneficiaries of the status quo. They will not be affected by the massive cuts in state expenditure, as they long ago contracted out of the chronically understaffed and under-resourced public healthcare system, public education, public transport and even public policing given that they have their own private security arrangements. They will certainly be directly and indirectly affected though, because deindustrialisation, rising social anger and declining state sovereignty will heighten this country’s contradictions between classes, races and genders – so if some right-wingers believe the IMF will “sort out” this country via shrinking the state, then this is a very short-term, self-destructive way of thinking.
SAFTU insisted from the beginning that the government’s economic stimulus package is wholly inadequate. Government claims that it has a R500 billion stimulus, when in reality has only released R170 billion in new money – a pathetic 3.4% of the GDP. The rest of the funding will come at the expense of other service deliver priorities, as well as deep cuts in state workers’ salaries. We have argued that the government at least out a side 15% of the GDP which would have been above a trillion rands to intervene. Government was advised against the policies adopted by even the most conservative governments in the UK and US. Today the government is unable to protect industries such as liquor, tobacco, tourism that had to be closed down to protect the spread of the virus, as it simply has no resources to protect jobs and firms.
The Coronavirus Rapid Mobile Survey, published on 15 July, exposes an appalling and unprecedented economic and human catastrophe. The report revealed a net loss of three million jobs between February and April. “The impact is colossal and it shocked us,” said Dr Nic Spaull, principal investigator for this survey.
“One in three income earners in February did not earn an income in April, which translated into an almost immediate job loss when lockdown was declared. 47% of respondents reported that their household ran out of money to buy food in April 2020… All of us were numbed. It is devastating and upsetting.”
The international loan will not reverse but exacerbate this catastrophe
SAFTU called for full transparency regarding all the loans provided by the international financial institutions. We do not understand the rationale for hard-currency borrowing, which in 2020 is expected to total $7.5 billion from international financial institutions, including the World Bank, BRICS New Development Bank and African Development Bank.
After all, the economy has achieved a current account surplus (it is usually 4%+ of GDP in deficit) thanks to the crash of imports and lack of profits flowing back to multinational corporations. Moreover, the $52 billion in current Reserve Bank foreign reserves suggest that we are not short of dollars. In other words, it is a bizarre fiction for the IMF to argue it must make this loan to South Africa “to meet the urgent balance of payment (BOP) needs stemming from the outbreak of the COVID-19 pandemic” when even the top Treasury official responsible for international finance admitted to Goldman Sachs in a conference call (on April 26), that “finding additional funding is not urgent.”
The cost of a dollar loan is much higher than a locally-sourced credit from our very liquid financial markets (witness the Johannesburg Stock Exchange’s recovery), since we must repay it in dollars – even though we can expect the South African currency to continue its decline in coming months and years, thus making the loan much more expensive in real terms.
The IMF, World Bank and even the African Development Bank (AfDB) are mainly western-controlled and attempts by the BRICS bloc to change the voting power came to naught. The South African government actually lost 21% of its voting power in 2015 when the four other BRIC countries raised their shares dramatically (e.g. China by 37% that year). Other important countries such as Nigeria and Venezuela lost 41% of their shares. So the Bretton Woods Institutions (the IMF and World Bank) remain under the thumb of European and U.S. leaders, with no genuine change in their neoliberal ideology evident.
And the AfDB – also western-dominated – is no better. In addition to the World Bank’s $3.75 billion loan in 2010, the African Development Bank has made massive loans to Eskom to pay for the corruption-riddled Medupi power plant – at a time it became well known that Hitachi was essentially bribing the ruling party (through Chancellor House) to get the boiler-making tender worth many tens of billions of rands. Hitachi admitted its wrongdoing to the U.S. Securities and Exchange Commission and in 2015 paid a $19 million (R315 million) fine, which South Africans did not receive a cent of. In 2019, the BRICS New Development Bank also made a massive loan available for Medupi.
Yet while these banks knew of the corruption, construction incompetence and carbon-emissions associated with Medupi, they have the gall to both demand repayment on their loans – at a time Eskom is cutting off millions of township residents – and also now offer the Finance Minister a new loan that the country does not need and will not be able to afford to repay.
The foreign debt that South Africa owes reached $185 billion at the end of 2019 and is now 62% of our anticipated 2020 GDP of $300 billion. The only time South Africa defaulted on foreign debt was in 1985 when the debt was just 41% of GDP. Continuing to run to the AfDB, World Bank, BRICS New Development Bank and especially the International Monetary Fund will end with this presidency and future rulers cracking down with austerity for the masses of South Africans.
We know that conditions are being imposed with this huge increase in unnecessary foreign debt, that will lead to a classical Structural Adjustment Programme. The Letter of Intent that spells out the loan conditions reflects the heartless supplementary budget the Finance Minister imposed last month.
The possibility of Quantitative Easing, higher taxes on corporations and the rich, tighter exchange controls, a crackdown on Illicit Financial Flows and other strategies to address the debt load, will evaporate if the IMF is calling the shots.
SAFTU has consistently argued that:
These circumstances are desperate, and the bogus way this loan is being foisted on South Africans by the IMF and government, leaving us all much poorer in so many ways, requires urgent rectification.
Therefore, our position is that since the IMF loan is based on a fiction – an urgent Balance of Payments crisis – and therefore is illegitimate, a future government should declare this loan as an Odious Debt. A future government will expect the IMF to take responsibility for its cancellation, because it is unjust and immoral for our generation to pass this to the next, given that we have so many other alternatives to finance our defence against Covid-19..