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R1-billion Zimbabwe loan controversial but strategic

Lynley Donnelly

Zimbabwe's appeal for financial assistance puts South Africa in a position to make requests for political change in the cash-strapped country.

Media reports suggest that Biti is looking for nearly R1-billion from South Africa, but neither the treasury nor the department of international relations and cooperation would confirm this. (Reuters)

It follows a request from Swaziland for a loan of R2.4-billion that was first mooted in 2011. This was after its main source of revenue, payments from the Southern African Customs Union, fell sharply during the economic recession. The tiny kingdom has also faced financial administration problems, which contributed to pro-democracy challenges to billionaire King Mswati III's rule.

Whether Zimbabwe succeeds in its plea will only be revealed following a meeting later this month between Gordhan and his Zimbabwean counterpart, Tendai Biti. The situation in the country is fraught under the coalition government of the Movement for Democratic Change (MDC) and Robert Mugabe's Zanu-PF.

Media reports suggest that Biti is looking for nearly R1-billion from South Africa, but neither the treasury nor the department of international relations and co-operation would confirm this.

Civil society organisations and trade union federation Cosatu have criticised assistance for Swaziland.

Potential aid to a second neighbour with a questionable human rights and governance record is bound to raise eyebrows. But given that Zimbabwe is in a critical transitional phase, "hopefully" towards a post-Mugabe governance arrangement, support at this time could constitute a strategic investment in a more democratic future, said Peter Draper, senior research fellow at the South African Institute for International Affairs.

Losing substantial credibility
Failure to secure funding could mean the MDC, which is responsible for the country's finances, could lose substantial credibility domestically if the government went technically insolvent, said Draper. "Zanu-PF would be encouraged to ramp up off-budget revenue sources, with all that implies for democratic governance."

Any proposed loan could come with political conditions, although it was not clear what these would be, he said. At a minimum, he posited that South Africa might want to ­corral Zanu-PF back into constitutional negotiations.

"Their reaction to potential conditions would be another interesting dimension that could undermine South Africa's mediation effort," said Draper. "These are hard choices for the South African government, which should not be trivialised into black-and-white categories."

The loan to Swaziland is yet to be finalised, despite a memorandum of understanding signed in June.

In response to a parliamentary question in early August, Gordhan said assistance to Swaziland would take "the form of a conditional loan from the South African Reserve Bank to the Central Bank of Swaziland".

The memorandum, which outlined "a set of political, fiscal, collaborative and capacity-building measures that the respective parties must pursue", governed the Swaziland loan, he said.

Still negotiating
Two agreements needed to be signed. The first is the loan agreement between the respective central bank governors and the second is the financial conditions agreement between the respective ministers of finance. Neither has been finalised and the financial authorities of the two countries were still negotiating, the treasury said.

Loan repayments are intended to begin in 2015 with a debit order that is placed on Swaziland's Southern African Customs Union revenue shares, according to the treasury.

It is not clear what the obstacles in negotiations are.

The state has not outlined the detailed terms of the recently signed memorandum of understanding, but in its responses to requests for comment the international relations and co-operation department indicated that Swaziland had to fulfil conditions articulated in a statement the treasury made in 2011.

These included confidence-building measures such as promoting economic and social development, multilateral co-operation, democracy, human rights and good governance, as well as instituting fiscal and related technical reforms that the International Monetary Fund (IMF) requires. Swaziland is also expected to receive capacity-building support from South Africa and cooperate in multilateral engagement with institutions such as the World Bank and the African Development Bank.

Clayson Monyela, spokesperson for the international relations and cooperation department, confirmed that no payments had been made to Swaziland.

Monyela said there was no decision on whether South Africa would grant the loan to Zimbabwe or apply any conditions to it.

In 2008, South Africa loaned Zimbabwe R300-million through the African Renaissance Fund to support agricultural development. The department manages the fund and, according to Monyela, it is part of a series of packages granted to boost sustainable development on the continent.

 "The funded projects are being monitored and evaluated on a continuous basis to ensure that the objectives of the renaissance fund are achieved and that the finances are applied in the manner for which they were intended," he said.

A budget support grant of R300-million was granted to Zimbabwe in 2009 to pay for the rehabilitation of municipal infrastructure, including water reticulation, health services and education.

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