Presidency defends IMF loan

AP

The Presidency said on Wednesday that the US$2 billion which SA has committed to the International Monetary Fund to help prevent global contagion from the European sovereign debt crisis would not be a gift, as critics have charged, but a loan.

And President Jacob Zuma said this and pledges from other countries at the G20 summt in Los Cabos, Mexico, were designed "to avoid further global instability. This gave an important signal to the rest of the world."

The Presidency was reacting to sharp criticism, especially from Cosatu, which condemned the pledge of the US$2 billion and said it should have been spent on SA’s own poor rather than to help up shore up rich countries in Europe. However business, the DA and some independent analysts welcomed the pledge as a sign that SA is playing a responsible role as a global citizen, though with some reservations.

“”There seems to be a great deal of confusion about the reason for and the implications of South Africa's commitment to support IMF resources,” the Presidency said on Wednesday.

They clarify as follows:

It's a gift to the IMF

"In fact, initially this is simply a commitment to support the IMF if needed so it sits in our foreign reserves. If the IMF uses the funds, the money is lent to the IMF and not a gift. For all of this time the money will be earning interest for South Africa. The capital of the loan will ultimately be repaid to South Africa. It's like lending money to a very strong bank. This is not a risky loan."

The money could be used for more urgent purposes

“The funds used for this purpose are part of our foreign reserves. We need to hold reserves to keep our currency stable. They do not require an additional budgetary allocation.

The money does not help jobs in South Africa

“There is a real risk of global crisis today. If the global economy falls sharply, there is a serious risk that we will lose more jobs. In the last global recession we lost 1 million jobs. Our contribution to the IMF is intended to help stave off this kind of crisis happening again.

The money is for Europe

“The money is available for any member of the IMF that is in trouble, in Europe, in Africa or anywhere else. If South Africa needs help from the IMF, it could borrow much more than the $2 billion that we have set aside for the IMF resourcing."

‘Only developed countries should contribute to the IMF funds

“It's not only developed countries that have contributed to the current funding exercise - countries like China and India have contributed too. China has a lower per capita income than South Africa and yet they have set aside $43 billion for this resourcing exercise. India is considerably poorer than South Africa and China, and yet they are allocating $10 billion. South Africa is allocating $2 billion.

“Like China and India, South Africa is a responsible global citizen. We are in the G20 to support global stabilisation and growth. We need to continue to do our duty.”

Zuma also said that some progress had been made at the summit but "there still is a long way to go before the development goals pursued by Africa are met".

He noted that the G20 had agreed to the Los Cabos Action Plan which obliged each member country ito take different actions which together were intended to stabilise the global economy and support stronger growth.

They had also agreed to an accountability system to help ensure they met their commitments.

"Overall, we agreed that we should put more emphasis on growth. Fiscal consolidation should not be done too quickly.

"As leaders, we committed our resources to support the International Monetary Fund (IMF) in its effort to avoid further global instability. This gave an important signal to the rest of the world..

"We have given support to our development agenda, more support for infrastructure investment in Africa, new strategies for agricultural development, support to strengthen taxation in developing countries and new tools for inclusive green growth.

"More work is needed still to reform international financial institutions such as the IMF and the World Bank so that they can become more responsive to the needs of the developing world. More work must be done as well to mainstream the development agenda within the G20".

Zuma left Los Cabos for Rio de Janeiro to attend the Rio+20 conference on sustainable development.