South Africa has announced at the G20 summit in Mexico that it would contribute $2 billion (about R16.5bn) to the International Monetary Fund’s firewall to try to prevent the European debt crisis spreading to the rest of the continent and the world.
The decision solicited an angry response from labour unions with Cosatu calling for the decision’s reversal. But the DA and an independent analyst lent qualified approval to the decision, but expresssed some concern about what SA would get in return for its generosity.
Cosatu strongly condemned the “donation” yesterday, calling for it to be reversed and for the money to be invested in SA infrastructure.
The decision “seems to be an attempt to show international institutions and big powers that South Africa is one of the ‘good boys’”, it said.
“The reality is, however, that South Africa is one of the most ‘distressed’ economies in the world, with massive levels of unemployment, poverty and inequality, far above the levels in any other G20 nation, and should therefore be a beneficiary rather than a contributor to such a fund.
“Cosatu wants to know which ANC conference resolutions give the ruling party a mandate for such a contribution to the IMF? Were the alliance partners or even the ANC NEC consulted over the decision?
“How does this decision square with the repeated Treasury (warnings) that the government has absolutely no money to meet the public-sector wage claim or to pay off Sanral’s debts?
“How will communities with no sanitation, running water, electricity or tarred roads be expected to understand that an amount of money that could have built more than 30 000 RDP houses should be donated to a fund set up to protect big business?”
Cosatu said it agreed with its affiliate, the South African Municipal Workers Union (Samwu), that the IMF and World Bank were not neutral institutions and had impoverished vast numbers of people, including through a policy of privatisation.
But DA finance spokesman and MP Tim Harris said it was important that SA join international efforts to prevent future financial crises. “Such crises, especially if they affect our trading partners like Europe, can, and will, have a devastating knock-on effect on the South African economy.”
But he also noted that the IMF had raised more money for embattled Europe than it had for past financial crises in Russia, South Korea and Mexico combined. So SA’s contribution should be conditional on the IMF showing the same generosity in future to developing countries that might get into trouble, as it was now showing to Europe, he said.
Danny Bradlow, professor in law at the University of Pretoria and co-ordinator of the Global Economic Governance Programme at the SA Institute of International Affairs, also lent qualified approval to the government’s decision.
“Sometimes you have to pay to play. The big question now though is whether we get to play now that we have paid.”
He noted that SA had given the money in anticipation that the democratic reforms of the IMF agreed to by all countries in 2010 – intended to give emerging and developing countries more say in its decisions – “will be fully implemented in a timely manner”.
But Bradlow said he doubted that this would happen as US President Barack Obama was unlikely to try to push such reforms through a hostile Congress in an election year.
In Los Cabos, Mexico, leaders are set to confirm they will double the IMF's firepower. The fund’s managing director, Christine Lagarde, said pledges now totalled $456bn, up from the $430bn in April, even though some emerging nations were frustrated with the slow pace of winning more power at the global lender.
Explaining the decision to invest the $2bn, the SA government said: “The crisis in Europe persists and is affecting the rest of the globe. Global growth has slowed, and unemployment is rising.
“At the G20 summit in Cannes (last year) world leaders agreed to increase the resources of the IMF so that it can serve as a backstop in the event of further deterioration in the euro zone situation.
“The resources could be used by all members of the IMF to stave off the risk of another financial crisis which would likely lead to a sharp global slowdown and rising unemployment.”
The government stressed that the firewall would be available for all countries and regions and that the $2bn “would be considered part of South Africa’s foreign reserves”.
“They will be drawn down only if they are needed and only after other resources have been depleted. The funds will be invested and earn interest, and would only be drawn down in emergency circumstances.
“If the funds are drawn down, they will ultimately be repaid and they will continue to earn interest over this period.”
The $2bn is in addition to the $532.4 million SA contributed to the IMF’s $579bn NAB (New Arrangements to Borrow) backstop fund in November. A chart published by the IMF showed Brazil, Russia and India each pledged $10bn, China pledged $43bn, while SA offered $2bn. The government stressed that if the IMF instructed it to provide foreign currency to another IMF member country under the NAB, the IMF would guarantee repayment of the loan plus interest. And if SA ran into debt problems after lending money under the NAB, “this money will be repaid to South Africa immediately”