IMF emergency loan: What’s the fuss?

debt
When the IMF made the announcement it was received with pessimism and concern as people wondered if it’s not part of the grand scale looting spree. Picture: iStock

VOICES


The announcement, early this week by the IMF of an emergency loan worth $4.3 billion (about R70 billion) to address the Covid-19 coronavirus pandemic attracted great confusion, noise and concern.

On one level it has exposed deep ignorance with the world of global lending financial institutions.

On another, it has highlighted the stagnation in ideological development with many so-called left forces in their world outlook and understanding of the lending institutions.

Most disturbing though has been its exposure of entrenched fractures within the ANC which could be a signal of a factional war at play.

Alliance partner Cosatu, said the trade union federation was concerned that the loan would be looted and not benefit the poor. Its spokesperson, Sizwe Pamla, highlighted the alleged looting of the R500 billion Covid-19 relief funds allocated to fight the pandemic.

“This loan and all this corruption affect the poor and taxpayers in most cases. So it is dangerous to request a loan with such extreme conditions in the country,” Pamla said.

Granted, the timing of the loan could not have been less impeccable. It came when the nation is engrossed by revelations of grand scale looting at various levels of government, including the alleged involvement of staffers from the highest office of the land.

Most disturbing though has been its exposure of entrenched fractures within the ANC which could be a signal of a factional war at play

Resources meant to respond to the pandemic have allegedly made their way to the pockets of some connected individuals which brings into question the ANC’s – and President Cyril Ramaphosa’s – position on corruption.

So, when the IMF made the announcement it was received with pessimism and concern as people wondered if it’s not part of the grand scale looting spree.

The EFF condemned the loan as being “part of the neoliberal agenda”.

The party’s national spokesperson, Vuyani Pambo, was quoted as saying: “Loans from the IMF always come with neoliberal and neo-colonial conditionalities and South Africa will not escape from this reality. Whether immediately or in the long run, the IMF will impose conditionalities which will certainly undermine South Africa’s macroeconomic and fiscal policy sovereignty.”

The grievance advanced by the EFF and others is borne from the historic legacy of the Brentwood Institutions – the IMF and the World Bank. It’s a grievance used when an orator, or an organisation, seeks to claim a left platform. More often than not, it is devoid of facts and understanding of the financial institutions landscape.

I would be the first to admit that the most devastating programme imposed by the IMF and the World Bank on third world countries are the Structural Adjustment Programmes (SAP). The widespread use of SAPs started in the early 1980s after a major debt crisis.

The debt crisis arose from a combination of:

  • Reckless lending by Western commercial banks to third world countries;
  • Mismanagement within third world countries; and
  • Changes in the international economy.

So, the question around the IMF loan is not ideological but a practical one.

In the first instance, I believe we need to answer the question: Why a loan when we are sinking in debt?

Put differently, what other option are available short of a loan?

It is my contention that the criticism is less about getting a loan than it is about the lender.

This is based on the deceptive notion that other global lending institutions – especially China – may offer better conditions than the IMF.

The proponents of this view tend to shy away from the fact that all international financial institutions impose conditionalities.

This is because international agreements or collaborations must deal with the risk of non-compliance which could arise by accident or opportunism.

Different mechanisms have evolved for managing that risk. One consists of ex ante demands on borrowers.

To make the point clearer, over the past decade China has spent billions of dollars on loans for infrastructure funding across Africa.

These include a $3.8 billion railroad in Kenya; a $7 billion port in Tanzania; and a $3.1 billion dam project in Mozambique. The Nigerian projects are among the newest.

Between 2000 and 2014, China delivered $94.5 billion in loans to several countries in Africa, according to the China-Africa Research Initiative at the Johns Hopkins School of Advanced International Studies.

IMF
International Monetary Fund logo at IMF headquarters on Pennsylvania Avenue in Washington DC. Picture: Tim Sloan/AFP/Getty Images

In 2014, Beijing unveiled a $12 billion funding package for Africa and in 2015 it announced $60 billion in loans and aid to the continent.

By the way, what is called aid is actually repayable loans that seek to secure Africa’s natural resources, China’s capital flows into Africa and also to create business opportunities for Chinese service contractors, such as construction companies.

As economies in Africa have been growing, governments sought to build much needed infrastructure and found a willing lender in Beijing. In doing so, they have pushed to minimise, if not end, their dependence on the IMF and the World Bank.

The IMF’s required reforms included open markets, scrapping government subsidies, deregulating key sectors, privatisation and debt management. For the IMF, low-income countries must seek debt relief before they look for new loans, and countries must abide by a debt limit framework to benefit from debt relief.

Rather than stringent reforms, China allows loan recipients to choose and implement infrastructural projects as they deem fit. With China, African leaders are able to retain most of their policy-making space. African nations preferred the “nuance” of China’s loans, which are based on a “win-win philosophy”.

The “win-win philosophy” isn’t what is appears to be. The Chinese loans for massive infrastructure projects don’t seem to have helped.

Many analysts believe they may have aggravated African countries’ problems by incurring debts for unaffordable projects that perhaps aren’t even really needed.

Some analysts even suspect China of a deliberate strategy to trap African countries in perpetual and unrepayable debt so that they have to cede vital strategic assets such as ports to Beijing in lieu of repayments.

According to the Institute for Security Studies, rumours abound in the Zambian media – fiercely denied by government – that the Lusaka international airport may have to be given to China to pay off debt.

Angola is often cited as a typical example of an African oil producer that has “mortgaged its future” by signing over future oil production to China to repay large loans.

In the 2018 Regional Economic Outlook for sub-Saharan Africa, the IMF says public debt rose above 50% of GDP in 22 countries at the end of 2016, up from 10 countries in 2013.

“Debt servicing costs are becoming a burden, especially in oil-producing countries and Angola, Gabon and Nigeria are expected to absorb more than 60% of government revenues in 2017,” the IMF said.

The ANC is indicted to prove itself as a leader of society as its members are linked to the grand scale looting while the poor suffer

I may delve into the EU conditionalities that were revised during the Eurozone debt crisis, but I hope the point is already made. Conditionalities are not a preserve of the IMF and/or World Bank, neither are they a special feature of neoliberal agenda but they are an international practice of all international financial institutions, including China.

South Africa, like many African countries, is running fast to a debt crisis with current government debt sitting at 62.2 % of GDP in the first quarter of this year.

Business Tech reports that our debt levels “will exceed 100% of GDP by 2024/25 and rise to almost 114% by 2028/29, according to a document presented by Finance Minister Tito Mboweni and seen by Bloomberg”.

This is a gravest concern which threatens our sovereignty more than our ideological differences on where the loans come from.

The Ramaphoria has waned so fast that the Gupta apologists have been emboldened to a point of claiming that the looting nine years were nothing compared to what is happening now.

The ANC is indicted to prove itself as a leader of society as its members are linked to the grand scale looting while the poor suffer.

This brings to question its claim to legitimacy as a people’s liberator, especially as the elections loom next year and in 2024.


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