IRR to IMF donor nations: Do not be misled on SA government’s dangerous policy intentions

10 June 2020 - Giving financial aid to South Africa while its government continues to pursue destructive policies that have wrecked the aspirations of generations will only sustain the hardship South Africans have endured for at least a decade.

Press Release 

Giving financial aid to South Africa while its government continues to pursue destructive policies that have wrecked the aspirations of generations will only sustain the hardship South Africans have endured for at least a decade.

This is the message the Institute of Race Relations (IRR) will be conveying to the largest donor nations to the International Monetary Fund (IMF).

The IRR announced today it would be writing an open letter to the United States of America, Japan, China, Germany, France, United Kingdom, Italy, India, Russia, Brazil, Canada, Saudi Arabia, Spain, Mexico, Netherlands, South Korea, Australia, Belgium, Switzerland, and Indonesia.

IRR Deputy Head of Policy Research Hermann Pretorius said in an online media briefing this morning that these countries would be urged, in considering any appeal for relief from South Africa, to bear in mind the implications of government policy, its damaging effects on the economy and on the country’s prospects of creating a stable, fair and prosperous future.

He said contributors to the IMF “need to know why our country has been brought to its knees once again, and why the people of this country, especially the poorest and most vulnerable, are enduring avoidable hardship. I wish to say to the donor nations of the IMF: Ne vous trompez pas. Lass dich nicht irreführen. Do not be misled.”

Here is the full statement by Pretorius:

The IRR today launches an international campaign of interaction with the most important and prominent donor countries to the IMF regarding the provision of financial support to the South African government and why the IMF and its donors must take full and honest cognizance of the policies and policy intention of the African National Congress (ANC) and its alliance partners, the South African Communist Party (SACP) and the Congress of South African Trade Unions (COSATU).

The countries the IRR will be approaching are: United States of America, Japan, China, Germany, France, United Kingdom, Italy, India, Russia, Brazil, Canada, Saudi Arabia, Spain, Mexico, Netherlands, South Korea, Australia, Belgium, Switzerland, and Indonesia.

It is 43 years ago today that the United Nations Special Committee Against Apartheid convened a summit at the Palais des Nations in Geneva to decide how the international community must respond to the worsening situation in South Africa following the South African state’s use of violence against its own citizens in pursuit of the furtherance of its ideological ends and its political survival.

South Africa is no longer the nation it was then, and for this much credit must go to the people of this country who, when the duty fell on them to alter the trajectory of our country, made the right decisions to give freedom a fighting chance. The changes for the betterment of our country achieved since 1977 attest to the strength, integrity, and decency of the people of South Africa. Recently, some claims were made that our country was better off under the apartheid regime. This is a sentiment of dangerous inaccuracy that overlooks the dehumanization of especially black South Africans under the rule of ideologically entrenched racial discrimination. It is also a sentiment that ignores the vehemence and vigour with which the South African Institute of Race Relations fought against oppression and for a free South Africa.

But it is a travesty that now, more than four decades after the summit at the Palais des Nations, our people, especially the most vulnerable and poorest South Africans, face circumstances tragically reminiscent of those that so appalled the international community 40 years ago: a violent, oppressive and destructive ideology rules, enriching a minority, while the majority of people live in fear, poverty, and destitution.

At the beginning of this month, it was made public that the South African government had entered negotiations with the International Monetary Fund regarding a bailout of $4.2 billion. The circumstances that have led to this politically complex decision by the governing ANC, in alliance with the SACP and COSATU, have been in development for years – the IRR has been monitoring the gradual worsening or weakening of debt, fiscal, and economic circumstances. During this time of wasted opportunities, the IRR maintained its role of now almost a century – that of being a leading voice in warning successive governments to change course by pursuing alternative, pro-freedom, pro-growth policies and proposing such to government and policymakers in all spheres and circles of influence.

While cognisant of the importance of national sovereignty, the IRR has in the past recognised the merit in the South African government seeking to approach the IMF for support and such offering opportunities for structural change and reforms much needed to reverse the decline and malaise that have come to characterise the South African social economy. With the global economic impact of the Covid-19 pandemic and the accompanying governmental decisions to deal with the pandemic, the economic and fiscal situations in South Africa have become unquestionably dire. From this has arisen the decision by the ANC and its allies in the SACP and COSATU to approach the IMF.

However, it must be appreciated that the Covid-19 crisis was essentially a crisis on top of several other crises, the combination of which has pushed South Africa near the brink. The Covid-19 pandemic did not cause the structural weaknesses in the South African economy or undermine the government’s ability to improve the lives of all South Africans – it merely exposed it. As the IRR has been warning successive governments for well over a decade – it has been and continues to be the policy failures of government that has seen unemployment rise, productivity and economic growth stagnate and decline, investment and capital fleeing our country, social unrest increase, and civil dissatisfaction climb. 

It is regrettable that the governing ANC implemented policies that saw it deviate significantly from the policy course it had pursued to marked success in the first decade of its governance. Through pragmatic and restrained fiscal policy and a liberalised economic policy, the governments of presidents Mandela and Mbeki achieved much progress that resulted in the improving of the material circumstances of millions of South Africans, especially black South Africans bearing the unjust and heavy burden of the socio-economic devastation of apartheid and its legacy. Important progress was made in righting the fiscal ship of South Africa, illustrated by the achievement of budget surpluses in 2007 and 2008. In 2008, South Africa’s debt-to-gross domestic product ratio stood at 27%, bearing testament to the prudence of government spending in the preceding decade. Simultaneous to the improving fiscal health of the country, economic growth managed to fall in step with the world average for the first time in decades, achieving GDP growth rates above 5% for the years 2004 to 2007. While the government at the time faced accusations of so-called “jobless growth”, the data exposes this as an untrue and politically opportunistic accusation. Unemployment fell by almost 10% in those years, its only sharp, sustained fall since 1994.

However, with the change in leadership of the ANC in 2007, combined with the economic crisis of 2008/09, South Africa’s outlook changed for the worse. While state capture has received the bulk of the blame for the failures of government over the last decade, the reality is that changes in government policy should bear the blame. Fiscal prudence was abandoned in favour of increasing and uncurbed government expenditure, while state intervention in the economy, already becoming prevalent during the Mbeki years, was stepped up to a significant degree in mining, labour, agriculture, investment, economic planning, income regulation, and property rights. The country, over the next decade, would start reaping the whirlwind.

Going into this current crisis, with Treasury estimates of economic contraction in excess of 16% and IRR estimates of unemployment rising to above 40%, even 45%, it is clear why noted economist Dawie Roodt called the Covid-19 crisis “a crisis on top of other crises”. Economist Russel Lamberti has correctly identified the Covid-19 crisis as a trend accelerator. The truth is that the South African raft was sinking before this current storm.

Despite the ANC’s own successes in government prior to its change of gear in 2007, and its successive failures, the administration of President Ramaphosa has stubbornly and deliberately refused to alter the policy course that had wrecked the hull of the South African raft. It is with due regard to this that the IRR has made the significant decision to approach the most important and prominent donor nations of the IMF.

Last week, IRR Head of Policy Research Dr Anthea Jeffery published a research paper titled The Ten-Year Lockdown, with worse still to come. I quote from it now:

South Africa’s stringent Covid-19 lockdown has largely been lifted with the shift from Level 4 to Level 3 on 1st June. Under Level 3, most businesses are now allowed to operate, albeit subject to strict social distancing and hygiene conditions. However, the country has also been in an unacknowledged policy lockdown for at least the last ten years.

This is especially so since Jacob Zuma came to power in 2009 – and began implementing ‘radical economic transformation’ (RET) policies aimed at changing the ownership, control, and very structure of the economy. Mr Zuma was helped to power by the SACP precisely because, unlike President Thabo Mbeki, he had pledged his support for RET.

Contrary to widespread belief, RET policies have continued under President Cyril Ramaphosa – whose rise to power was also facilitated by the SACP – and whose ‘new dawn’ pledges have thus far proved meaningless. If anything, the president’s reform rhetoric has simply provided cover for major additional RET policies implemented under his watch. Mr Ramaphosa has also recently made it clear that ‘radical economic transformation’ must now ‘underpin’ the ‘reconstruction’ of the economy.

In the past decade, the private sector has been subjected to ever more onerous, costly, and damaging regulation. Coercive labour laws have been made more rigid. Black economic empowerment (BEE) goalposts have been ratcheted up, with still more damaging effects. Property rights have been steadily eroded, to the point where the Constitution is now to be amended to allow expropriation without compensation (EWC) – nationalisation by another name.

The rigour of this 10-year policy lockdown remains as yet largely unrecognised. However, by the time the Covid-19 lockdown started in March, the impact of the policy lockdown was clearly visible.

Labour law rigidities and a national minimum wage had continued to deter employment and price the unskilled out of jobs, adding to social instability. Business autonomy and operational efficiency were being steadily whittled away by escalating employment equity and BEE rules. Most property owners, both individual and corporate, faced a growing risk of EWC. Pressure for prescribed asset requirements for pension funds was increasing. So too were demands for a wealth tax, stricter exchange controls, and a money-printing mandate for the South African Reserve Bank (SARB).

The 10-year policy lockdown had thus severely hobbled the private sector before the Covid-19 pandemic began, with the economy already in a technical recession. Since then, more than nine weeks of hard lockdown have crippled the economy and pushed it down on to its knees. GDP, warns Business For South Africa (B4SA) could contract by between 10% and 17% this year. The International Monetary Fund (IMF) sees the budget deficit reaching 13.3% this year, with public debt as a ratio of GDP rising to 86% in 2021. Add in the state’s other liabilities (such as its guarantees of Eskom debt) and overall public debt looks set to increase to 110% of GDP by 2023.

Around 100 000 businesses barred from normal operation under the lockdown could go bankrupt or give up the struggle to survive. The unemployment rate is expected to rise to 50%, as minister of cooperative governance and traditional affairs Dr Nkosazana Dlamini-Zuma said in late May. The consumer spending that has long contributed some 60% to GDP will be sharply reduced. Tax revenues will go down this year by a projected R285bn, worsening the R370bn deficit anticipated in the February 2020 budget. But public spending – on Covid-19 relief for lost income, larger social grants, additional bailouts for distressed SOEs, and increased interest payments – will nevertheless have to go sharply up.

The economic devastation from the Covid-19 lockdown will be more severe and prolonged in South Africa than in other countries where lockdowns have also been deployed. This is largely because the 10-year policy lockdown already in place had brought so many firms and individuals to the brink. The Covid-19 crisis then pushed them over the edge – while the pre-existing damage will make it harder to climb back.”

Dr Jeffery concludes:

“[The Tripartite Alliance] will seek to bar retrenchments, step up BEE requirements, forge ahead with EWC bills, speed up the introduction of the NHI, and put great pressure on pension funds to invest in ‘developmental’ projects managed by state-run DFIs. It will demand both a damaging wealth tax and much stricter exchange controls to limit capital flight. It will keep pushing for a major shift in monetary policy to gain access to SARB reserves, reduce interest rates to 0% or less, and start printing money to fund state spending under the rubric of quantitative easing and modern monetary theory.

It will use the economic devastation triggered by the lengthy lockdown to push for the rapid adoption of these measures as part of essential ‘reconstruction’ and the ‘radical economic transformation’ intended to underpin this process.

Given the massive inefficiency and often rampant corruption in the public service and SOEs, the notion that increased state control will speed up economic recovery and ensure its success should be laughed out of court. But the opposite is likely to occur. The voices speaking out in defence of capitalism – which has in fact helped lift billions out of poverty all around the globe – are likely to be limited.

Far more media coverage is sure to be given to ANC/SACP demands for ever more public ownership and comprehensive state control. Increasingly, this may become the only accepted narrative.

However, at the heart of ANC/SACP plans lies a fundamental fallacy and a profound conceit. Notes Johannes Wessels, Director of the Enterprise Observatory of SA: ‘In the mind-set of collectivist planners it is not a problem to resurrect the economy. For them, the economy is a product of their command. It can be picked up from the floor, just...as Nomvula Mokonyane [then minister of water and sanitation] boasted she would do in relation to the rand.’

The ANC/SACP alliance seems to think that it has only to say the word and the economy, as Mr Wessels adds, will ‘rise again, magically from nowhere, in a radically transformed mode’. The reality, of course, could not be more different.”

To conclude:

The IMF states its mandate as follows:

“The IMF promotes international monetary cooperation and provides policy advice and capacity development support to help countries build and maintain strong economies.”

The importance of this mandate to especially the developing nations of the world cannot be overstated. Much is made of transformation, but the most vital transformation is that of transforming hardship and poverty into inclusive, sustainable, and real growth.

The IRR has not taken this decision to approach IMF donor nations to inform them of the realities of the policy landscape in South Africa lightly. But the reality is that creditors or benefactors to South Africa need to know why our country has been brought to its knees once again, and why the people of this country, especially the poorest and most vulnerable, are enduring avoidable hardship. I wish to say to the donor nations of the IMF:

Ne vous trompez pas. Lass dich nicht irreführen. Do not be misled.

The provision of financial support to a South African government that has not denounced and distanced itself from the destructive policies that have wrecked the aspirations of generations will be the act of sustaining the hardship South Africans have endured for at least a decade, and are likely to continue enduring.

 

Media contact: Hermann Pretorius, IRR Deputy Head of Policy Research – 079 875 4290; hermann@irr.org.za

Media enquiries: Michael Morris Tel: 066 302 1968 Email: michael@irr.org.za

Kelebogile Leepile Tel: 079 051 0073 Email: kelebogile@irr.org.za

Ends

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