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Should the $4.3 billion #IMF loan to South Africa (announced today) scare us? Potentially, yes. But, in my view, not for all the reasons you might be hearing.
Some thoughts, a thread…
1/n
Some thoughts, a thread…
1/n
1.Does the loan come with strict conditions?
The biggest danger of borrowing from IMF & World Bank is imposition of economic “reforms” that limit social spending, slash wages and privatise.
This loan is from the Rapid Financing Instrument. 2/n
The biggest danger of borrowing from IMF & World Bank is imposition of economic “reforms” that limit social spending, slash wages and privatise.
This loan is from the Rapid Financing Instrument. 2/n
This does not involve the signing of an “economic programme” (as with structural adjustment programmes). There is no formal contract with conditions. The full amount is made available immediately so the IMF doesn’t give funds in batches based on meeting certain criteria. 3/n
2.What are the funds for?
Officially, funds are based on “balance of payments” needs – i.e. the need for foreign currency. But everyone accepts that the real issue is tax shortfall and spending needs due to COVID-19. So the funds will be spent on budget items. 4/n
Officially, funds are based on “balance of payments” needs – i.e. the need for foreign currency. But everyone accepts that the real issue is tax shortfall and spending needs due to COVID-19. So the funds will be spent on budget items. 4/n
3. Is it wise to borrow in $?
Depends. Poses risks coz exchange rate can change. But the loan is also extremely cheap (in comparison to SA other borrowing). In total charges+interest on IMF loan= $209 billion (over 5 years). A 5-year bond (7.52%) would mean interest= $1585. 5/n
Depends. Poses risks coz exchange rate can change. But the loan is also extremely cheap (in comparison to SA other borrowing). In total charges+interest on IMF loan= $209 billion (over 5 years). A 5-year bond (7.52%) would mean interest= $1585. 5/n
Very roughly, we need to expect rand to immediately move from R16 to R21 per dollar for it to be more expensive to take this loan.
[These are super rough calculations not looking at inflation, staggered repayment of principle, staggered exchange of $ into R, etc.]
[These are super rough calculations not looking at inflation, staggered repayment of principle, staggered exchange of $ into R, etc.]
4. Are there other sources available?
Treasury has not presented a suite of revenue raising options, including tax increases. It should have. There are some alternatives, but more than likely we can’t finance the gap without borrowing. 7/n
Treasury has not presented a suite of revenue raising options, including tax increases. It should have. There are some alternatives, but more than likely we can’t finance the gap without borrowing. 7/n
5. What about corruption?
Corruption is major problem, no question. But SA was planning to spend this money anyway, it just expected to raise it from taxes. So corruption isn’t more or less a danger/problem with this loan than with other revenue. Shows very low trust in gov.8/n
Corruption is major problem, no question. But SA was planning to spend this money anyway, it just expected to raise it from taxes. So corruption isn’t more or less a danger/problem with this loan than with other revenue. Shows very low trust in gov.8/n
6.What’s the real danger?
The real danger is that our government *wants* to do the things that the IMF has previously forced on other countries. The Letter of Intent to the IMF (from Treasury and SARB) is full of the same analysis and solutions as we’ve heard already -->
9/n
The real danger is that our government *wants* to do the things that the IMF has previously forced on other countries. The Letter of Intent to the IMF (from Treasury and SARB) is full of the same analysis and solutions as we’ve heard already -->
9/n
slashing spending, zero-based budgeting, cutting salary costs, inflation targeting, unbundling etc. The accompanying analysis by the IMF restates the same stuff, this is what they usually say about SA in their annual reports.
10/n
10/n
Although the IMF is an undemocratic and unaccountable body with an awful track record, my tentative view is that it is SA eco policy, and Treasury using the IMF loan to advance this, that is the real danger. Combined with complete lack of transparency. Open to discussion.
11/n
11/n
7. Have we missed the boat?
IMF loan was always coming. Potentially, in simply say “No to IMF loan” SA civil society hasn’t had their eye on the ball. The IMF analysis and SA Letter shows that advancing socio-economic rights wasn’t part of the discussion.
12/n
IMF loan was always coming. Potentially, in simply say “No to IMF loan” SA civil society hasn’t had their eye on the ball. The IMF analysis and SA Letter shows that advancing socio-economic rights wasn’t part of the discussion.
12/n
We need to challenge the transparency of these processes, the power relations involved, and the criteria used to build economic plans.
End.
End.
