BUSINESS MAVERICK ANALYSIS

The ANC will struggle to keep economic promises to the IMF after its ‘Rubicon’ moment

By Ed Stoddard and Tim Cohen 29 July 2020

The International Monetary Fund headquarters in Washington DC. (Photo: Andrew Harrer / Bloomberg via Getty Images)

Intellidex analyst Peter Attard Montalto has likened South Africa’s $4.3-billion International Monetary Fund loan to a kind of crossing of the Rubicon. This is spot on… and worrying in many ways. It presents the ruling ANC with two simultaneous problems: Keeping its promises to the IMF and selling its IMF bondage to the cadre core, and its support base. Oddly, the first may be much more difficult than the latter.

Ed Stoddard and Tim Cohen

In his book Rubicon, Tom Holland, an ace chronicler of the ancient world, reminds us that the soldiers of the 13th Legion, as they waited to shoulder arms and cross the Rubicon, were about to shatter the “sternest laws of the Roman people. They would, in effect, be declaring civil war.” 

And the sweeping reforms that Finance Minister Tito Mboweni and Reserve Bank Governor Lesetja Kganyago have committed to are about to unleash a civil war within the ANC. 

This will make the pledges outlined in the Letter of Intent to the IMF difficult to deliver, to say the least. Indeed, such promises have been made numerous times over the years, with increasing frequency under the Cyril Ramaphosa presidency, which gives them a hollow ring.

The letter asserts that “… deep reforms are needed in product markets to remove barriers to domestic and foreign investment, followed by reforms to support job-rich growth… We intend to raise employment-creation by revamping the skills framework, giving firms greater ability to hire labour and undertaking education reforms to make it easier for first-time workers to find a job.”

We have heard all of this before. One of the many hurdles is the shambolic mess that is Home Affairs. If a company is trying to recruit foreign talent because of the dearth of skills here, you can bet vital documents will get lost in the maze that is Home Affairs. This is a reflection of wider failures of governance. 

The letter also says that: “In addition to fiscal consolidation, debt stabilisation will require removing structural constraints to growth,” – another mantra that has yet to be realised. 

Montalto notes that: “The first thing to note is that the letter is signed by Governor Kganyago and Minister Mboweni. This is the norm… Yet both are firm believers in fiscal consolidation and structural reform – and always have been – yet have limited power to move the dial more fundamentally on issues that go beyond their institutions. Therefore there is a credibility question.

“We think Ramaphosa should have signed the Letter of Intent to get over this problem and add further weight to create some momentum behind structural reforms, reflecting a top-down, cross-government commitment being needed. But indeed, this is precisely why he couldn’t, given his deep risk aversion… As such, the commitments must be taken with a very hefty pinch of salt.” 

… Moeletsi Mbeki, political analyst and the Deputy Chairman of the South African Institute of International Affairs, said in an interview on Wednesday that the IMF loan was “politically doable”. 

Crucially, in order to grant the loan, the IMF has accepted the Treasury and the Reserve Bank’s figures about how the economy will perform. The headline figure here is that both are expecting the economic contraction for the full year to come in at around a 7% decline. 

But most economists think this is highly optimistic and are expecting a contraction of around 10% at least, and even that looks doubtful now in the light of the contagion surge.

But as difficult as the economic issues might be, what about the political issues? Think of the ultimate fate of Julius Caesar, the Roman who led the soldiers across the Rubicon.

Political analysts feel the problem of the IMF loan creating a kind of civil war within the ANC is overstated.

Objections have come from various quarters, including the Cosatu breakaway and the SA Federation of Trade Unions (Saftu). Saftu general secretary Zwelinzima Vavi said on Wednesday 29 July that the federation “notes with deep concern and anger that the IMF issued communication confirming that it had lent South Africa $4.3-billion (R70-billion) following the acceptance by government of all conditions stipulated by the IMF”.

In terms of alternative solutions to IMF funds, Saftu had looked at 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.

But Moeletsi Mbeki, political analyst and the Deputy Chairman of the South African Institute of International Affairs, said in an interview on Wednesday that the IMF loan was “politically doable”. 

There are essentially three reasons why the loan would not create a kind of civil war in the ANC. 

First, he noted that as chance would have it, on 29 July 2020, the last of the Rivonia trialists, Andrew Mlangeni was laid to rest. And with the departure of that generation, said Mbeki, the dream of a socialist future in a Soviet or perhaps Scandanavian mould was fading. “That vision is gone now.”

Second, one of the consequences of the Jacob Zuma era was the shattering of the trade union movement. Previously, the communist party was very influential in the union movement. But former president Zuma engendered infighting in the union movement, which has effectively destroyed the power of the unions.

Cosatu is now essentially a public-sector union and its position as both dependent on government as employer and as a representative of mainly state employees, puts it in a weak position to criticise measures that could support salary levels. “They have built Cosatu a golden cage,” Mbeki said.

And third, the leading figures within the economic management of the country have changed. The “exile” group has given way, in general, to people who were active internally during the apartheid period, starting at the top with Ramaphosa, but including Mboweni and Kganyago. “The UDF people now rule.”

“The reality is, the ANC’s serious primary concern is to control state revenues. They see the state as the goose that lays the golden eggs. The debate within the party is about how the omelette is divided, not how it is made.” 

It’s also worth noting that the IMF itself has changed. The old days of the structural adjustment programmes, the focus of much of the left-wing criticism of the IMF, are over, he said. DM/BM

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