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Don’t repay unjust debts

Relieving the debt burden is a matter of national urgency, writes Kumi Naidoo

If South Africa is serious about reconciliation and justice, we need to look creatively at the burden of debt incurred by the previous government.

Over the last year, non-governmental organisations (NGOs), churches, the Human Rights Commission, Sanco and trade unions have raised concern about the resources that go towards servicing the debts incurred by the apartheid government. In 1997, more than one-fifth of our national Budget was allocated to debt servicing. Our national debt, which now stands at R305- billion, costs society almost R40-billion a year.

There have been discussions with the Ministry of Finance about how the apartheid debt could be better managed. These proposals emanate from studies commissioned by non-governmental organisations and the churches and are backed by some of the country’s leading economists. Some media reports have carried factual errors; and contestable comments from the Ministry of Finance have created confusion and pessimism about the issue.

All parties, however, agree that it is immoral for those who suffered under apartheid to be expected to repay the very loans taken to oppress them. Sadly, unless we are able to deal with the debt in a creative manner, future generations will have to carry the burden.

It is untrue that nothing can be done because the structure of the debt is too complex. The submission to the truth commission on the apartheid debt has proposed specific actions that could be taken.

First, with regard to the 5% of the debt owed to European banks, we propose that an appeal be made by President Nelson Mandela, South African civil society leaders and civil society in the respective European countries, for these banks to voluntary forgive this debt. We are not suggesting a unilateral cancellation. We believe that the weight of moral pressure and the embarrassment associated with making these loans should motivate these banks to comply.

Secondly, the biggest component of the debt, some 40%, is owed to the Public Investment Commission (PIC) which invests civil servants’ pensions. This is where the biggest opportunity lies and the reluctance of the Ministry of Finance to reverse an act of apartheid keeping undertaken by the National Party is puzzling. In 1989, the NP, seeing the inevitability of democratic rule, changed the structure of the civil servants’ pensions from a “pay-as-you-go” towards a “fully funded” system..

Crudely put, companies need to have a full pension fund stock since they might go bankrupt and might need to pay off all the workers at one go. Governments, on the other hand, as is the case in many parts of the world, only need to hold enough funds to cover the annual payments of those who have retired. Usually, the incoming pension contributions of the younger workers subsidise the older workers.

There is no reason for the civil servant pension fund to be fully funded. The fund in South Africa is almost 70% funded and growing. This is substantially more than is needed for government to meet its pension obligations. The fund sat at about R10- billion in 1989. Today it holds a whopping R135-billion. To have such huge reserves means the government has to borrow further and, therefore, the debt grows even more. It is proposed that we change back to the pre-1989 formula, allowing the government to both reduce its debt burden and release money for poverty eradication programmes.

The arguments advanced by the Ministry of Finance against these proposals are unconvincing. They have said that the proposals being made will hurt civil servants’ pensions. We are not advocating a path that will see civil servants, notwithstanding in most cases their loyal support for the apartheid regime, lose their pension benefits.

The Constitution guarantees a fair and just pension to all civil servants, but does not say, however, that we must use the current formula, which does not make any difference to the pension payouts received by individual pensioners. The fact that there is an excess amount sitting with the PIC does not increase or decrease the current pension payouts.

The director general of finance has argued that many governments in Europe which currently use the “pay-as-you-go system” are now considering changing to a fully funded system.

The demographic realities of Europe, with a growing ageing population, might necessitate such a shift, but it remains to be seen whether such changes will be effected. However, we have a disproportionately young population and this reflects itself strongly in the civil service.

The third component of the debt is owed to local commercial institutions such as Sanlam and Old Mutual. There are mechanisms available to government that need to be explored. We need to know how much was loaned; by whom and when, and mainly how the interest payments are structured. Here we are talking, in part, about the pensions of citizens and we would need to be sensitive about how we proceed.

It is wrong, however, to accept that our hands are tied and we have no options. The options available here, which also apply to the other parts of the debt, include long- term interest holidays (no payment of interest for a negotiated period), negotiated cancellation of certain portions of this debt, a complete forgiving of the interest portion of the debt, and other forms of restructuring. The burden, of course, should not be borne by the individual policy holders but by the institutional shareholders wherever possible.

As Reverend Molefe Tsele of the South African Council of Churches (SACC) notes, this is not only about righting previous wrongs, but also about the future, since this historical burden will be with us for decades to come. We owe it to those who perished fighting apartheid and to future generations to responsibly explore every possible avenue to bring down the burden of the debts incurred by the previous government.

Right now, when future generations ask if we gave thorough consideration to all the options regarding these unjust debts, we will have to say a resounding no! The African National Congress conference, and all political organisations, should add their voices to that of civil society organisations, which argue that there are many possible solutions that must be pursued vigorously and rationally as a matter of national urgency.

Kumi Naidoo is executive director of the South African National NGO Coalition

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