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Wednesday, August 17, 2022

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Foreign loans and foreign money, Mr President

President Cyril Ramaphosa.Photograph, Phando Jikelo, African News Agency, ANA.

President Cyril Ramaphosa.Photograph, Phando Jikelo, African News Agency, ANA.

Published Jul 14, 2022


By Redge Nkosi

The political economy of President Cyril Ramaphosa’s foreign currency loans and foreign climate finance deals can be traced to the Department of Finance’s first version of the economic policy document released in August 2019.

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As a policy tour de force for the control of money, and therefore the control of government and democracy by non-state actors (private capital), the document is revolutionary!

Its effects on society, however, as were colonialism and apartheid, are callous. It is perhaps the most appalling hijacking of government by money since democracy.

At its production helm, it could only have been peopled by those with highly loosened moral restraints. Vella Pillay, ANC/SACP economist would not have been surprised.

The document, which morphed into the government’s 2020 Economic Reconstruction and Recovery Plan, was primarily drawn from the reports on South Africa by the International Monetary Fund (IMF), the World Bank and the Organisation for Economic Co-operation and Development (OECD).

It incorporated the worst of the G20’s new global financial architecture, laden with all manner of emerging forms of blatant accumulation, including de-risking advanced nations; financial extraction from developing nations.

The reports of these institutions are a repertoire of neo-colonial schemes that deny citizens, especially the natives, the ability to collectively provide for their future through a welfare state.

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The licensed larceny schemes start with austerity, styled as fiscal consolidation, which anchors the roaming of private finance so it captures and financialises public services, whereas reforms loosen control of state assets away from the people into the hands of foreign interests and their local elite masqueraded by government as private sector.

The absolutely unnecessary foreign loans from the World Bank, IMF, etc, to state firms and national government are conditioned on the government staying the course on austerity (staying the course on increasing poverty, unemployment, inequality, etc) while simultaneously undertaking reforms that secure their economic extraction interests and control of this economy.

Meanwhile, the $8.5 billion foreign climate finance deal (climate colonialism) is purposed by lenders (so-called partners) to denationalise energy security, financialise energy assets, and totally control the nation’s energy infrastructure.

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This, in addition to their control of other network infrastructures such as water, logistics, etc, thus shifting people’s assets to foreigners and their local elite partners.

The parking of money abroad by the local elite is facilitated through their foreign partners using many schemes, including misinvoicing. This is in addition to the already rampant trade misinvoicing well known to exist.

All of the above is underpinned by an already neo-colonial, financialising, de-industrialising macro-economic architecture (framework) designed for South Africa, unthinkingly implemented by the Treasury and the Reserve Bank.

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This defunct framework, built on the “savings to investment” notion, has not only allowed the country to be deeply neo-colonised, but has also subordinated South Africa’s integration into the global financial system.

This means that the framework’s financialising effects contribute to cementing the avoidable currency hierarchy challenges and deepening the existing asymmetries between South Africa and its neo-colonists/imperialists.

As a consequence, colonial local economists with a poor grasp of money and banking cite monetary hierarchy as causing policy space limitation, currency vulnerabilities, etc, when this can easily be unwound.

So, in order to prepare South Africa for foreign and local elite capture, incessant calls for structural reforms had to predate the Treasury document. Their origin: foreign institutions.

But national interests and careful economic sense demand that before any person, let alone the state and its organs, calls for reforms, an independent scientific evaluation (not foreign) of the benefits and costs of such reforms (a very complex subject) would have been undertaken.

Nothing was done.

Yet loud calls were being made, including by the Reserve Bank.

Those that based their calls on the OECD’s documents chose to ignore a warning: the EU’s methodological framework, as admitted by themselves, had significant limitations.

So calls by the likes of the Reserve Bank were uninformed and therefore only political.

Having decimally failed on monetary policy, the Reserve Bank chose to appropriate for itself a government mandate and became the un-mandated champion of the calls for structural reforms.

Elsewhere, they assumed, without any macro-economic science to it, that the inability to return the economy to the pre-2007/8 crisis growth levels lay with the absence of structural reforms.

However, the Treasury’s own modelling, revealed, to their humiliation, that reforms would not yield anything meaningful, let alone generate growth closer to the pre-2007/8 crisis levels, around which their pre-2020 calls had been predicated.

Had the call for structural reforms been scientific and not based on politics, the critical structural reforms would have been in the banking sector.

Reforms of this network industry could blunt foreign and local elite capture, undermine the misguided austerity yet elevate growth, and place small businesses at the pinnace of employment, prosperity and social cohesion.

Combining banking reforms with reforms of the neo-colonial macro-economic policy regime would be profoundly impactful. There’s defeating silence on these.

So the noise about austerity and structural reforms upon which loans and climate finance deals are signed is for the creation of neo-colonial structural traps, but also for deflecting calls by careful economists to dismantle the disastrously failed defunct neo-colonial macro-economic policy regime.

It bears reminding that the highly popularised “fiscus is constrained” phrase upon which pretext foreign loans and foreign climate finance deals are obtained is derived from academic macro-economics: the Intertemporal Government Budget Constraint (IGBC).

Taught as macro-economics, IGBC is itself derived from micro-economics, the study of households and firms and not of aggregates (government finance).

Its erroneous exportation to macro-economics has corrupted economic thought and has become political fodder. It has become macro-economic gospel.

This gospel of macro-economic untruth, well institutionalised at the Treasury and the Reserve Bank, is buttressed by highly placed foreign interests of the economic exploitation of South Africa.

Parliament, unaware of the complex changing patterns of neo-colonisation and accumulation, approves the neo-colonisation of South Africa through loans, climate imperialism and yearly austerity budgets.

Yet, since the 1930s the world had come to know UN Resolution 2169 (XXI), 1938 (XXVIII) and it is now widely accepted that foreign money financing of development in developing countries has always resulted in the disturbing persistence of net financial inflows to developed economies from developing nations.

Countless other UN General Assembly Resolutions and reports such as A/32/177, A/41/180, A/RES/55/2, A/49/309 and many more had noted the negative effects of foreign financing of development in poor countries.

And as is well known, borrowed foreign money never enters South Africa.

Such money simply increases South Africa’s foreign reserves, which are already very high. The rand equivalent is printed by the Reserve Bank and credited to the government account.

This same act can be achieved by the government simply ordering the Reserve Bank to credit its account without the devastating foreign and local elite capture, other risks and the accompanying neo-colonisation of the country.

To arrest South Africa’s economic collapse and its own descent into oblivion, the ANC Alliance must rise, purge among its ranks and bureaucrats the captured, and reject the perpetual neo-colonisation of the country through foreign loans, money, budgets, structural reforms, and the defunct macro-economic policy framework.

@redgenkosi is the executive director and research head for Money, Banking & Macro-economics at Firstsource Money, current and founding executive board member of the London-based Monetary Reform International.