On Tuesday the treasury announced that South Africa had committed $2-billion (about R16.58 billion) to an International Monetary Fund “firewall”, meant to prevent future financial crises.
President Jacob Zuma committed some of South Africa’s reserves at the G20 summit, a meeting of the world’s greatest economies, in Los Cabos, Mexico, said spokesperson Jabulani Sikhakhane.
“The funds used for this purpose would be considered part of South Africa’s foreign reserves,” he said.
“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.”
Participating countries with no way out of a financial crisis would access the so-called firewall fund through a temporary loan, with conditions, and not purchase agreements to the IMF’s general resources account.
Sikhakhane said the commitment of funds was on the premise that South Africa’s voting power and quota shares in the IMF were reformed, as agreed to in 2010.
The Congress of the South African Trade Unions (Cosatu) swiftly condemned the government’s decision.
“South Africa is one of the most distressed economies in the world, with massive levels of unemployment, poverty and inequality … and should therefore be a beneficiary rather than a contributor to such a fund,” said Cosatu spokesperson Patrick Craven.
“It seems to be an attempt to show international institutions and big powers that South Africa is one of the ‘good boys’.”
While Zuma’s decision has clearly upset its alliance partner, experts are confident it will not affect relations ahead of the ANC’s elective conference in Mangaung, or the party’s policy conference to be held in Midrand next week.
“I don’t think it will have a significant effect. It might just have a ripple effect, but it won’t be that significant. There were many decisions that government has made that Cosatu was not happy with, but they have always taken a long term look at their relationship with government”, political analyst Eusebius McKaiser told the Mail & Guardian.
Manqoba Madinane, an economist at Econometrix said that this was a good move by Zuma.
“Zuma’s pledge of R2-billion is a good thing as it is an acknowledgement of our responsibility to the eurozone. We must remember that 30% of our exports are due to the eurozone and so it’s in our best interest to do this.
“Because this amount is significantly less than that of other Brics countries, it shows prudence on the part of the President, it shows that he is aware of other economic responsibilities at the same time.
“It is also key to promote the entire continent at this summit, given that within the next decade Africa will be at the centre of world economic growth. It is important for the president to showcase Africa as an investment choice”.
Business Unity South Africa (Busa) explained that the loan should be seen as a “sensible investment”.
“The loan to the International Monetary Fund only represents about four percent of South Africa’s forex and is a loan on which the country will earn a return and which will eventually be repaid,” Busa deputy CEO Raymond Parsons said.
South African business had an important stake in the maintenance of stable global economic growth through appropriate contingency plans, he said.
“It is also inevitable, if South Africa is to enlarge its influence in global agenda-setting structures like the G20, Brics and the IMF, that it be seen to be making an additional financial commitment at this critical juncture in world economic affairs,” Parsons said in a statement.
Economist Mike Schussler however, said that Zuma must return with the hope of taking South Africa and the continent to bigger ventures and boost the countries returns in other sectors.
“He should try to get more access for our agricultural sector. Apart from also being there to promote Africa as a continent, and to show the world that we [South Africa] are part of the wider African continent, he should also consider, for example, that the airline Emirates flies to 21 different African countries, and our local airlines fly to something like 18 African destinations.
It doesn’t make sense that other countries make more money out of Africa than Africa itself does. It is also very important for him to make it known to the world that we are one with Africa”.
On the R2-billion that South Africa is contributing the IMF, Schussler said that the West once came to our rescue, and so we must do the same.
“Back in 2001 when the rand was in severe pressure, Europe came through for us. We must also start realising that we are all on this planet together and must take equal responsibility for it,” he said.
Craven said that since 1993 there had been a false assumption that South Africa was a developed country, and fiscal and monetary policy had been based on this assumption ever since.
“The result has been that the already high levels of unemployment, poverty and inequality have become even worse, with massive job losses, especially in the key manufacturing sectors,” he said.
Cosatu wanted to know which ANC conference resolutions gave the government a mandate for such a contribution to the IMF.
“Were the alliance partners, or even the ANC NEC [national executive committee] consulted over the decision?” asked Craven.
Cosatu wanted ANC delegates at next week’s policy conference to endorse the policy in the ANC discussion paper on international relations, which proposed that the World Bank and IMF be reformed.
“The decision must be reversed and the US2bn used to alleviate the plight of the poorest South Africans and to invest in the restructuring of our economy,” said Craven.
The ANC welcomed the loan to the IMF to prevent a global crisis threatening the world economy.
“We believe that South Africa, as a member of both the United Nations and the G20, has an obligation to join hands with the rest of the world in averting a repeat of the last global economic meltdown,” ANC spokesperson Jackson Mthembu said on Wednesday.
“Our contribution, together with the rest of the world’s countries, will enable the IMF to intervene decisively, using the crisis fund that has been established, to the imminent threat to the world economy.”
Earlier, the presidency said the commitment to the IMF “firewall” was not a gift, but a sound financial investment. “If the IMF uses the funds, the money is lent to the IMF and not a gift … [and] for all of this time the money will be earning interest for South Africa,” Zuma’s spokesperson Mac Maharaj said.