South Africa could be paying “a couple of hundred million US dollars” towards a rescue package for troubled euro zone countries, Finance Minister Pravin Gordhan said yesterday.
Gordhan told journalists at a press conference in Pretoria, on his return from the annual meeting of the International Monetary Fund (IMF) in Washington, that there had been a general recognition that “we’re all in it together and everyone has to make a contribution to the solution”.
South Africa, and other members of the IMF, would make a monetary contribution.
Iraj Abedian, the chief economist of Pan Africa Capital, said South Africa would have no choice but to contribute.
“As a shareholder we have to cough up,” Abedian said.
He added that the question of whether the amount was reasonable would depend on the outcome of any rescue package. “If the rescue package is ineffective and the money is lost then whatever we contribute would be too much. But if the package works then it is not too much.”
Azar Jammine, a director and chief economist at Econometrix, said it was clear that there was a concerted global movement to assist in alleviating the crisis where the Group of 20 would contribute to assist the affected nations.
Should these countries’ economies collapse, South African exports would suffer and this would have large implications for the South African economy.
The spokeswoman for Cosatu, Phindi Kunene, said the country had a wide range of pressing needs and economic demands that needed to be dealt with, such as education, health and the housing backlog. She referred to the IMF as an organisation wholly aimed at reinforcing the power held by the First World, which was problematic.
“The working class around the world should not have to pay for a crisis caused by the capitalists. It’s asking South Africa to punch above its weight when it has domestic problems,” she said.
Gordhan said that South Africans should be aware of the threats to the economy posed by the global crisis and repeated the IMF warning that “we live in a dangerous world”.
He said the world was facing a triple challenge: sovereign risk in the euro zone countries, fiscal instability and the exposure of banks to a sovereign default. And he warned the unfolding events in the euro zone could affect the lives of ordinary people everywhere.
The finance minister urged the IMF to do more to protect “innocent bystanders” from the fallout, if these problems escalated. But he noted that everyone had to play a part and policy decisions would be critical.
Gordhan said: “We mustn’t be paralysed by fear but, with a sense of urgency, make right policy choices within South Africa to stabilise the situation.
“We have to look at the way government spends taxpayers’ money and the money we borrow. We need to spend less on consumption and more on investment.”
The finance minister noted “underspending on infrastructure by municipalities and provinces” was an example of what could be remedied.
In the advanced economies, citizens and policymakers would have to make “emotional and cultural changes”, Gordhan said. These included adjusting to being debtor rather than creditor countries.
“Moreover, what is beginning to emerge is that political promises, made in certain countries, may not be delivered on because of the constraints they face.”
Euro zone countries provide comprehensive welfare cover, including pensions, which are not prefunded. As revenue from taxes dwindles to a trickle, the over-borrowed governments will not be able to meet their pension and other commitments.
Gordhan noted the anomaly that, though the problems originated in the advanced economies, emerging markets suffered when investors fled to safe havens – traditionally US treasury bonds. The trend has seen emerging market currencies weaken sharply in recent weeks. – Additional reporting by Ayanda Mdluli