Opinionista Patrick Bond 14 February 2013

Zuma’s big speech to… Moody’s

President Jacob Zuma’s State of the Nation Address will be for the benefit only of financiers and the credit ratings agencies that gave Enron a clean bill of health four days before it imploded. All else will be lip-service.

With his State of the Nation Address on Thursday, Jacob Zuma will try to stabilise a situation often described as a “crisis”. We suffer multiple South African crises, and Valentine’s Day reminds that our many deep-seated patriarchal systems generate extreme gendered violence. Since Tokyo Sexwale appears a political down-and-outer, who better to use the day for retribution than a man acquitted of rape in 2006 but whose defense strategy was exceptionally misogynist.

But Zuma won’t mainly speak to the more than one in three women who suffer sexual attacks, will he? Nor will his speech convince the desperate workers and poor people in Western Cape farms, the retrenchment-ridden North West province mining belt and shack settlements in our wretched industrial wastelands, even if these South Africans have already reached breakpoint just a month into the new year.

Instead Zuma’s charm will be directed towards financiers, whose nervousness about South Africa led Moody’s to downgrade our national credit rating last September, because “The revision reflects Moody’s view of the SA authorities’ reduced capacity to handle the current political and economic situation.”

Should Zuma continue pandering to Moody’s, as well as to the four big banks, overseas mining houses and openly-corrupt construction companies – ranging from the white-owned JSE-listed cartel to littler bling-based BEE firms here in Durban? All are pressing for faster implementation of the promised trillion rand in infrastructure subsidies, mainly for more white-elephantine megaprojects.

After all, it’s easy to question Moody’s competence and ethics, for the firm had rated notorious energy speculator Enron “investment-grade” until four days before the company’s December 2001 bankruptcy. Recalled US-based journalist Alexander Cockburn before he died last year, “Banks with huge sums at stake allegedly pressured Moody’s to keep quiet, even though Moody’s had privileged access to Enron’s internal financial operations.”

Moody’s became even less accountable, and from 2000-07 gave AAA ratings to 46,000 US residential mortgage-backed securities. By late 2008, according to University of Massachusetts economist Robert Pollin, “We could say the crisis occurred because people like Moody’s rating agency always misread the buildup of bubbles. They assume the rise in asset prices represents something fundamentally different about the economy, and then open the floodgates for financial speculation. Moody’s don’t have a clue as to what they are talking about.”

Moody’s competence can be judged by its need to repeatedly downgrade countries and firms over a short period: over a 12-month period in 2008-09, ratings were cut to junk status in Iceland (a downgrade by seven notches), Greece (six) and Latvia (four), to mention a few.

Moody’s own report on such failings, “Archaeology of the Crisis,” confessed abuse of political power: “Accepting the existence of crisis is the Faustian pact that policymakers have made with the financial industry. However, the pact is an implicit one, as policymakers are reluctant to concede that they will have to intervene in extreme situations – that is when almost no capital cushions could be large enough to absorb truly exceptional problems.”

Interprets Cockburn, “In other words, says Moody’s man, capitalism is impelled by competitive pressures that are often profoundly anti-social in consequence and lurches from crisis to crisis – on average roughly 7.5 years apart since the late 1800s, as the late Charles Kindleberger once demonstrated – that in the end require the intervention of the state, which has to save the system from the consequences of the market’s excesses.”

Wall Street bailouts create vast state deficits, so by August 2011, Moody’s even downgraded Washington’s rating from AAA to AA+. According to Mark Weisbrot of the Center for Economic and Policy Research, “Like most of Wall Street and the politicians that they can buy, they want the US government to cut spending and reduce its deficit. They are not particularly concerned about the more than 22 million Americans who are unemployed, involuntarily working part-time, or have given up looking for work altogether. They would prefer a ‘grand bargain’ on spending that cuts senior citizens’ Social Security benefits.”

In SA, Moody’s also wants ordinary people’s wallets to thin. Recognising this last May, ANC secretary general Gwede Mantashe warned that more union and citizen opposition to the proposed e-toll system and sub-minimum youth wage would lead Moody’s to lower our ratings.

So it is the hostile audience of Moody’s, S&P and Fitch that Zuma will mainly speak to, followed by Pravin Gordhan’s budget speech in the same spirit.

Thanks to such obedience, since 1994 South Africa’s banking and insurance activities have risen from 5% to 13% of GDP. Because of banker power, by 2011 SA Reserve Bank governor Gill Marcus maintained the second highest prevailing nominal interest rate in the world, after Greece. And because of financial speculation, the price of SA real estate rose 400% from 1997-2008, twice as high as second-highest Ireland and four times faster than even the bubbly US.

The choice for Zuma and Gordhan is to continue these trends by pleasing Moody’s, or reverse the deepening crises by directing resources to non-corrupted service delivery.

What a shame the crises will thus deepen. DM

Patrick Bond directs the UKZN Centre for Civil Society


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