South Africa only fulfilled the last repayment on billions of foreign debt dating back to the 1985 debt crisis on August 15, 2001. Exactly 16 years later, to the day, of PW Botha’s Rubicon Speech that triggered the crisis.
When Enoch Godongwana spoke at the weekly Sunday presser at Luthuli House, one was reminded that he was once a worker leader. One of the easily identifiable members of the “revolving door” between trade unionism and the upper echelons of the Luthuli House machinery, he once held the position that Irvin Jim occupies.
His recollection of how he was informed by his comrades in 1985 of the State of Emergency cut an interesting parallel with the comments made by Wits economics school head and former Reserve Bank employee, Prof Jannie Rossouw. As early as January 2016 Rossouw argued that we are seeing “a slow-motion repeat of the events of 1985 “. A State of Emergency was announced in July of that year, and a “debt standstill” (US banks led by Chase Manhattan put a halt to their lending operations to the Pretoria regime and South African banks) followed in August of the same year.
In recounting the events of that year, Godongwana recalled how he was informed of the State of Emergency while he was having a beer at a tavern called kwaGama in kwaThema. He first rebuffed the suggestion that it was a notable development, until he woke up sober the next day to the reality of what it meant;
“The streets were full with police including railway police. There were still railway police then. Everywhere… then it dawned on me; this is like martial law.”
He made the example to suggest that South Africans have never really known the implications of “junk status”, and that the only real comparison would be the debt crisis of 1985 that followed the implementation of the State of Emergency.
There are similarities. The downgrading of foreign-denominated public debt to sub-investment or “junk” grade, much like in 1985, happens in a context of deep divisions in the ruling coalition and growing discontent challenging the credibility and hegemony of the ruling party as a leader of society. South Africa was also recovering from the severe drought of 1982 and 1983, a big sell-off of the rand and low commodity prices placed the Pretoria regime on its knees.
Even then, bankers were bankers (much like the “discredited” but influential ratings agencies now), as they showed when the apartheid government needed financing to establish a coal-to-oil synthetic fuels plant to counter an international oil embargo.
The differences are noteworthy. We are not under any form of sanctions now, nor is South Africa the pariah it was in those times. There are also significant differences in the key economic variables between then and now; inflation stood at 16% (compared to 6.3% in 2017) and output (or GDP) growth was in negative territory at -1.2% (although growth of 0.3% in 2016 doesn’t make for a difference to gloat about, nor “significant”). Interest rates hovered at between 20 and 25%, compared to the 2017 repo rate which has been kept at 7%.
The historic parallels are important, however the differences in “time”, the state of the global economy and socio-political context are equally important. That’s why comparisons with Colombia and other countries should be taken as just that, comparisons, and not as instructive of what will probably happen here. It could be worse, or it could be better. Colombia took just over a decade to recover from their slump into junk status, while Japan did it over 24 months. One cannot really toss the bones on this one, without deploying some combination of guesswork and conjecture. This may have been what Godongwana meant when he said there needed to be a broader conversation between the ANC and society to get to some common understanding of the consequences of junk status.
Allow to me use the example of 1985 again. If just to reinforce, with a domestic example, what this could mean. South Africa only fulfilled the last repayment on billions of foreign debt dating back to the 1985 debt crisis on August 15, 2001. Exactly 16 years later, to the day, of PW Botha’s Rubicon Speech that triggered the crisis! That final repayment of $6.885-billion (R56.85-billion in 2001 rands) is a reminder that 16 years is a long time. It is even a much longer time if we understand that the 17-million grant recipients in South Africa will, as the latest Reserve Bank bulletin shows, increase to 18-1million at the end of the 2019/20 fiscal year. Every penny, even if it moves through the grubby hands of CPS for now, goes to serve a growing need.
Much like it presents a material crisis, one also thinks such a moment presents, as it did in 1985 for the National Party elites, an opportunity to undertake fundamental structural and socio-economic change. Perhaps this is what we were expecting from the Luthuli House presser on Sunday. A sign of some form of policy direction to guide the June policy conference conversation, and the remainder of the fifth democratic administration and beyond. What was a constitutional avenue out of the political impasse in 1985 may now require a package of long-term economic interventions. We heard a few of the ideas, which at the level of ideas coalesce into what could be a “package”: black industrialists programme (which as Thandi Gqubule’s question showed would need more flexible monetary policy and relaxation somewhat of the inflation target), procurement set-asides and the usual commitment to an extensive welfare programme and social wage.
The concerns of the agencies have rested on a few structural challenges found to be common across all of the agencies; low growth, rising debt to GDP ratio, a rise in contingent liabilities (especially guarantees for state owned entities), governance of SOEs and difficulties around financing the fiscal and current account deficits. Which is understandable; governments pay debts on the basis of how much tax they can raise to pay for expenditure which includes debt servicing. It is when the suggestions of reform by the agencies go beyond these and into domestic policy deliberations that the waters get murkier.
More unsettling is the weight placed on the “stances” of the agencies on key policy questions, and what they call “noise” and “policy uncertainty”. Yet some consistency is needed in the application of policy advice. For instance, is our debt to GDP ratio unsustainable? The UK, with its Brexit challenges, has seen no change in its sovereign rating since 2013, yet its debt to GDP ratio is 90%. Which political events weaken institutions and “standards of governance and public finance” and is Brexit not enough of a trigger?
Ratings agencies are, as Gugile Nkwinti said in the presser, “institutions of dominant capitalism”. No part of our lives (how we eat, shelter and clothe ourselves) is insulated from finance capital and the logics of borrowing and lending. The ratings agencies have given us our “credit score”, and similarly to our people and the wall units they get on hire purchase, we’re closer to the credit bureau’s black list than we were a few weeks ago.
Much of the challenge rests in the communication machinery of the ANC, and how it communicates its ideas in a contested and tense political and socio-economic climate. The ruling coalition, when it is not publicly playing out the drama of its demise, must realise that it is not as powerless in crafting a plan as it may think. But first one must acknowledge the problem, without being lured by the hero/villain politics between the different ANC factions.
Ta-Nehisi Coates reminds us that the conversation of tactics starts from the basis of understanding that you do not control or influence all power dynamics (much like you can’t raise the rand as simply as you drop a one-rand coin), the balance of forces or even the response of the enemy, but how you respond to these;
“We [cannot] control our enemies’ number, strength or weaponry… we did not lay down the direction of the street but despite that, we could – and must – fashion the way of our walk.”
That walk, if it is about unity as a way out of the crisis, unlike when Enoch Godongwana woke up sober after a night at kwaGama tavern, must accept the caution and facts, even if the consequences are not yet known. That needs a commitment and sacrifice beyond just which slate to endorse before December, as the 16-year fiscal burden from 1985 showed. DM
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Ayabonga Cawe is an economist by training, and aside from a short stint as a researcher at a government agency, he has never been a disciple of market doctrine. He speaks and writes on history, political economy and public policy. A pan Africanist, he earns his keep in the development sector as a project manager, but is often found in watering holes of the city, camera in hand holding court with other restless youth of different persuasions.
"Every time I read Pride and Prejudice I want to dig her up and beat her over the skull with her own shin-bone" ~ Mark Twain on Jane Austen