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The following article is an opinion piece by Patrick Bond, who directs the UKZN Centre for Civil Society.
With his State of the Nation speech on Thursday, President Jacob Zuma will try to stabilise a situation often described as a “crisis”.
But Zuma won’t speak mainly to the more than one in three women who suffer sexual attacks. Nor will his speech convince the desperate workers and poor people on Western Cape farms, in the retrenchment-ridden North West province mining belt and shack settlements in our industrial wastelands, even if these South Africans have already reached breaking point just a month into the new year.
Instead Zuma’s charm will be directed towards financiers, whose nervousness about South Africa led Moody’s last September to downgrade our national credit rating.
Should Zuma continue pandering to Moody’s, the four big banks, heartless mining houses and openly corrupt construction companies – ranging from the white-owned JSE-listed cartel to littler bling-based BEE firms in Durban – which are all pressing for faster implementation of the promised trillion rand in infrastructure subsidies, for more white-elephantine megaprojects?
It’s easy to question Moody’s competence and ethics, for the firm rated notorious energy speculator Enron as investment-grade until four days before the company’s December 2001 bankruptcy. Journalist Alexander Cockburn recalled before he died last year, “Banks with huge sums at stake allegedly pressured Moody’s to keep quiet, even though Moody’s had privileged access to Enron’s internal financial operations.”
Moody’s from 2000-07 gave AAA ratings to 46 000 US residential mortgage-backed securities. By late 2008, according to University of Massachusetts economist Robert Pollin, “We could say the crisis occurred because people like Moody’s rating agency always misread the build-up of bubbles.”
Moody’s competence can be judged by its need to repeatedly downgrade countries and firms over a short period: over 12 months in 2008-09, ratings were cut to junk status in Iceland (a downgrade by seven notches), Greece (six) and Latvia (four).
Moody’s own report on such failings, Archaeology of the Crisis, as interpreted by Cockburn: “In other words, says Moody’s man, capitalism is impelled by competitive pressures that are often profoundly anti-social in consequence and lurches from crisis to crisis – on average roughly 7.5 years apart since the late 1800s, as the late Charles Kindleberger once demonstrated – that in the end require the intervention of the state, which has to save the system from the consequences of the market’s excesses.”
Wall Street bailouts create vast state deficits, so by August 2011, Moody’s even downgraded Washington’s rating from AAA to AA+. According to Mark Weisbrot of the Center for Economic and Policy Research, “Like most of Wall Street and the politicians that they can buy, they want the US government to cut spending and reduce its deficit. They are not particularly concerned about the more than 22 million Americans who are unemployed, involuntarily working part-time, or have given up looking for work altogether. They would prefer a ‘grand bargain’ on spending that cuts senior citizens’ social security benefits.”
In South Africa, Moody’s also wants ordinary people’s wallets to thin. Recognising this last May, ANC secretary-general Gwede Mantashe warned that more union and citizen opposition to the proposed e-toll system and sub-minimum youth wage would make Moody’s lower our credit ratings. So it is the hostile audience of Moody’s, Standard & Poor’s and Fitch that Zuma will mainly speak to, followed by Pravin Gordhan’s Budget speech in the same spirit.
Thanks to such obedience, since 1994 South Africa’s banking and insurance activities have risen from 5 percent to 13 percent of GDP. Because of banker power, by 2011 Reserve Bank governor Gill Marcus maintained the second highest prevailing nominal interest rate in the world, after Greece. And because of financial speculation, the price of property rose 400 percent from 1997-2008, twice as high as second-highest Ireland and four times faster than even the bubbly US.
The choice for Zuma and Gordhan is to continue these trends by pleasing Moody’s, or reverse the deepening crisis by directing resources to non-corrupted service delivery.