Ethel Hazelhurst
South Africa was among 12 countries that pledged extra resources to the International Monetary Fund (IMF) at the Group of 20 (G20) summit in Los Cabos, Mexico, on Monday.
But the $2 billion (R16.6bn) pledged will remain part of South Africa’s foreign exchange reserves, according to the Treasury. “The funds will be invested and earn interest and would only be drawn down in emergency circumstances.”
Goolam Ballim, Standard Bank’s chief economist, said South Africa’s participation in the collective effort to rescue the euro zone showed leadership.
He said some might criticise the decision to contribute, given South Africa’s own “fiscal fragility” and high unemployment. But he described it as “a form of insurance for the future”.
He explained: “Recessions are expensive. In the four years to 2011, the global economic problems have cost South Africa R500bn in national income foregone and every working age adult R20 000 in personal income. We should consider the $2bn as a down payment towards resolving the global problems.”
Global events determine South Africa’s economic outlook. Europe is one of the country’s biggest export markets so South Africa cannot afford to ignore its plight.
The SA Municipal Workers’ Union has already expressed its dismay and complained that the contribution came at a time when “hundreds of thousands of public sector workers are being told that they must accept pay increases of 6.5 percent”.
The Treasury noted the resources accumulated by the IMF would be available for the whole membership and would not be earmarked for any particular region.
“The resources would be channelled through temporary bilateral loans and note purchase agreements to the IMF’s general resources account,” the statement explained.
South Africa’s participation was based on the assumption “that all the quota and voice reforms agreed upon in 2010 will be fully implemented in a timely manner, including a comprehensive reform of voting power and reform of quota shares”, the Treasury said.
Reforms that will give the Brics nations of Brazil, Russia, India, China and South Africa and other emerging economies more influence in the IMF have been on the agenda for several years. And the Brics have been pressing for a speedier implementation.
Last week a senior Brazilian government official complained the reform efforts were being frustrated.
“We see that countries that know they will lose influence are resisting the (quota) formula,” he said.
Nevertheless, Brazil agreed at Los Cabos to contribute $10bn to the firewall fund. Also at the G20 summit, China said it would put in $43bn; Russia $10bn; and India $10bn.
The biggest contribution, $60bn, has been pledged by Japan. This is followed by $54.7bn from Germany, the largest economy in the euro zone; $41.4bn from France; $31bn from Italy; $19.6bn from Spain; and $15bn each from Saudi Arabia and the UK.
The US, heavily indebted itself, is not taking part in the collective rescue, ahead of the year-end presidential elections.
South Africa’s contribution is in line with that of the Czech Republic and ahead of the $1.5bn pledge by Colombia, the $1.2bn by Slovenia and the $1bn each from Malaysia, Thailand and New Zealand.
IMF managing director Christine Lagarde said a total of 37 IMF member countries “representing about three fifths of the total voting power have joined this collective effort. The additional contributions to the firewall fund have risen to $456bn, almost doubling our lending capacity.” page 22