With the announcement that the government had concluded negotiations with the International Monetary Fund (IMF) for a $4.2-billion loan (around R70.54-billion), alarm bells must have rung in certain quarters. Alarm bells, because of course with loans come conditionalities and repayment terms.

But in other quarters there would have been celebratory bells.

RW Johnson must be one of those cheering, since his more than 15-year prediction has finally come to pass: that the black government of South Africa would be going cap in hand to beg a loan from the IMF. Year after year since his prediction, as every Budget speech was made in Parliament, he must have waited to hear that we as a country have finally decided to go to the IMF, hence admitting that we fucked up the governance of the country, just as he has always predicted we would do.

The question is whether he is right or whether this loan is nothing more than a very practical step in the right direction given the material conditions on the ground, especially in the midst of the Covid-19 crisis.

IMF conditionality refers to the fact that when a country borrows from the fund, the country government agrees to adjust its economic policies to overcome the problems that led it to seek financial aid in the first place. Such policy adjustments are conditions for IMF loans and serve to ensure that the country will be able to repay the IMF.

Usually, there is only really one kind of loan a country can take and that is the Stand-by Arrangement loan (SBA) which the IMF explains as being designed to help countries address short-term balance of payments problems – it comes with “programme targets” and disbursements are conditional on achieving them. A Stand-by Arrangement period is normally 12-24 months, and the money must be repaid in 3-5 years. The loans can be set up without being taken up – in other words, countries can opt to draw on an approved loan at a later stage.

Naysayers point out that these terms are where the dreaded structural adjustment programmes sit.

But South Africa has not taken such a loan. Instead, it has opted for the kind of loan the National Party took out just months before the 1994 elections, which the Mandela government repaid over the five-year term of his administration.

According to the IMF website, a member country may request IMF financial assistance if it has balance-of-payment problems, if it lacks or potentially lacks sufficient financing to meet its net international payments obligations (eg, imports, external debt redemptions) while maintaining adequate reserves. According to the IMF, this provides a cushion to ease the adjustments needed to correct balance-of-payment problems and help restore conditions for strong economic growth.

Our government and Finance Minister Tito Mboweni have been at pains to explain that this is not why we have made the current loan; we do not have a balance-of-payments problem. Instead, the loan is a new category from the IMF altogether. It’s called a Rapid Financing Instrument (RFI) which provides assistance, with limited conditionality, to all members facing a crisis of sorts – in this case, the Covid-19 pandemic and its associated economic challenges.

A PricewaterhouseCoopers (PwC) report describes three potential scenarios for South Africa’s economy during 2020 based on the scale of the government’s economic policy responses. All assumed that a budget constraint would see the government implementing a fiscal stimulus of R59-billion, equivalent to 1.2% of GDP.

In a “mild” scenario, the Reserve Bank would also cut interest rates to 1% from 5.25%.  This is the most hopeful scenario and would see South Africa’s GDP drop by 8.4% during the year. The other scenarios are far more dire. The “medium” scenario would see an economic collapse of 13.8% and a “severe” scenario would see it drop by 20.4%.

Writing in New Frame, Duma Gqubule notes that by comparison, GDP declined by 1.5% in 2009 in the wake of the global financial crisis. PwC’s best-case scenario is almost six times worse than the GDP decline after the global financial crisis.

Current estimates are that South Africa has already lost three million jobs due to the coronavirus and there are concerns that the figure could go as high as seven million this year if the economy does not recover. In the period December 2008 to March 2010 the country lost one million jobs.

Taking the above into consideration and the associated challenges that the Covid-19 pandemic have conjured up for us, it makes perfect sense that our government will turn to the IMF and its RFI loans scheme to offset some of the obvious budgetary constraints we face.

But what happens if we do not manage our finances properly over the short to medium term and do indeed find ourselves in that proverbial balance-of-payments crisis? What will our government do to avoid this eventuality? Can this government take the difficult decisions that are required to avoid making another trip to the door of the IMF? If we take this route, quite simply, how can our government avoid falling into the poverty trap that is historically associated with IMF conditionalities?

Let us say we find ourselves acknowledging that we have a balance-of-payments problem, and send a respectable delegation to the IMF to go and make our case for a significant SBA loan. What is the likelihood that the officials at the IMF say, no? Will they not instead tell the delegation to go back home and inform the SA government that bold and difficult decisions have not been made to stabilise the economy of the country, that the request for a loan is premature. Basta! Do what you must do first before you come running to the IMF.

It’s worth a cursory look at what conditionalities entail:

On the macroeconomic front, structural adjustment conditions include:

• Policies to tackle inflation. In practice, this may involve higher interest rates or higher taxes.
• Policies to deal with a budget deficit. This might mean higher taxes, and lower spending.
• Removal of tariff barriers which protect domestic industries and opening the economy to free trade.
• Abandoning fixed exchange rates and allowing the local currency to float. In practice, this involves a devaluation which can help give exports greater competitiveness and help boost domestic demand. The downside is that it increases the cost of imports and usually reduces living standards.

Microeconomic structural adjustment

Here policies are designed to increase competitiveness and productivity in the economy. These tend to involve “free market” supply-side policies such as:

• Privatisation of state-owned industries. The objective here is to raise money for the government, but also, in theory, it might improve efficiency and productivity because private firms have a profit incentive to be more efficient.
• Ending food subsidies. This can distort the market and lead to oversupply and hold back diversification of the economy to a more industrial-based economy.
• Reducing red tape and bureaucracy.
• Closing tax loopholes and reducing corruption.
• De-regulation of markets to encourage competition and more firms to enter the industry.

We have done none of the above in any serious way and yet we have run begging to the IMF. This is pathetic, to say the least. We are showing about as much courage here as we are showing when dealing with the taxi industry. We don’t have the balls to tackle the sector which everyone knows must be tackled. They remain a law unto themselves, but we don’t confront the problem. Instead, we cower and give in to their every demand. In the same way, we are avoiding the tough choices and decisions our government must take before we even consider knocking on the IMF door.

We cannot afford free higher education and yet we have it – just because a few buses were burned, and Jacob Zuma wanted a legacy. We continue to cower in the face of unreasonable demands from our unions, especially public-sector unions, because we don’t want to take them on. We know that 3,600 employees at SAA must go, but we cannot make the decision. Similarly, more than 10,000 employees must be told to go home at Eskom, but nada, no decision is being made. We have to legislate the matter of land expropriation without compensation. We need laws that will give us the instruments that enable us to act. Property ownership is a mega tool that we must use to facilitate the financial emancipation of people – but we are doing nothing. We should be considering privatisation of some components – not all, but some components – of our state-owned enterprises, but yet again, we have shown that we do not have the balls to make the difficult decisions.

And so, we have taken the easy way out, the path of least resistance. We have decided we must indebt future generations for decades, diminishing their quality of life because we did not have the courage to take the decisions we know to be right.

I’m not suggesting it’s easy. We all know what it took for us to get to this point. But we still tolerate white privilege in the face of widespread, abject poverty; we have not changed the fact that by and large, the captains of industry remain white; and State Capture and corruption have become the order of the day. I know it’s not easy but let’s be bold as we look to the future, let us seek consensus but ultimately let us have the courage to make the decisions we must make.

Remember Winston Churchill’s words: “Fear is a reaction. Courage is a decision.” Let us display courage. DM