IMF may yet be SA's last resort

17 January 2016 - 02:00 By Jabulani Sikhakhane

Thabo Mbeki and other ANC leaders scuppered a deal Nelson Mandela had agreed to in principle with the IMF in October 1996 for South Africa to borrow billions of dollars to dig the country out of a deep financial hole.

Mandela, according to the IMF's account of events, agreed to the deal - subject to approval by the government - during a breakfast meeting he had with Michel Camdessus, the IMF's longest-serving MD.

These and other details are contained in a book by James M Boughton, titled Tearing Down Walls: The International Monetary Fund 1990-1999. The period covered by the book overlaps with Camdessus's tenure (1987-2000) as MD, but also with the transition of South Africa from apartheid, and the democratically elected government's first term of office.

The ANC's refusal to accept IMF assistance helps explain why some of the party's veteran leaders, including Tito Mboweni, have recently been very vocal in calling for South Africa to avoid a ratings downgrade. A downgrade of government debt would trigger a sell-off of government bonds and, ultimately, send South Africa, cap in hand, to the IMF.


In December 1993, five months before the April 1994 elections, South Africa's transitional government had signed for an $850-million loan from the IMF. However, Camdessus was convinced the country "was going to need large-scale financial resources" over and above the December 1993 loan.

But, subsequently, the post-apartheid government showed no interest in borrowing substantial sums from the IMF, despite the fund's efforts to persuade the country to do so.

In February 1995, Camdessus dispatched Alassane Ouattara, then the deputy MD of the IMF but now the president of Ivory Coast, to South Africa to try to get us to accept another loan. When Ouattara failed, the IMF's then first deputy MD, Stanley Fischer, was asked to try. He, too, failed. Fischer is now the deputy chairman of the board of the US Federal Reserve System.

Boughton sums up the reception Ouattara and Fischer got from Mandela and his colleagues as follows: "Bitter memories persisted of the fund's past support to the minority government, and many political leaders believed that IMF lending would come with unacceptable restraints on economic policies and would threaten the country's sovereignty."

Then came 1996, when South Africa's financial position took a turn for the worse, a moment the IMF describes as the "last real opportunity for South Africa to avail itself of the fund's financial resources".

The rand fell sharply on rumours that Mandela was unwell; finance minister Chris Liebenberg resigned; his position was filled by trade and industry minister Trevor Manuel; and in June Manuel announced the Growth, Employment and Redistribution strategy, also known as Gear.

The rand continued to weaken and South African officials, according to the IMF, regularly contacted the fund to find out how the country could regain investor confidence.

At the time, South Africa's foreign exchange reserves were running dangerously low - down to a few weeks' worth of imports. Historically, economists have argued that a country needs foreign exchange reserves that can pay for a minimum of three months' worth of imports.

To show how willing the IMF was to accommodate South Africa, Fischer had told Manuel that the fund would accept Gear as the basis for the loan agreement. Typically, the IMF imposes a set of economic and fiscal reforms before it agrees to assist a country experiencing financial difficulties.

Camdessus visited South Africa twice in 1996, the second time in October, when he had breakfast with the ANC president at his Johannesburg home. It later transpired that, while Mandela was meeting Camdessus, other ANC leaders were also meeting to debate the merits of the IMF's offer.

Tearing Down Walls does not disclose which ANC leaders were in that parallel meeting, but Mbeki, then the ANC's and the country's deputy president, Manuel and Mboweni, then labour minister, would have been present.


The backdrop to their meeting was a resolution taken at the party's May 1992 policy conference where it was decided that South Africa's relationships with the World Bank and the IMF "will be conducted in such a way as to protect the integrity of domestic policy formulation". Delegates had also decided that post-apartheid South Africa must pursue policies that enabled the country "to reduce dependence on international financial institutions".

At a media conference held by Mandela and Camdessus on that October morning after their breakfast, Mandela - according to the IMF account - said: "If we want IMF assistance, the IMF must be convinced that the way that we are handling our monetary policy is consistent with the guidelines it has set.

"I am personally convinced that the guidelines ... are very good - without any country allowing the IMF to undermine its sovereignty ... What is important is that we want financial assistance from the IMF."

That was not to be. That evening, Manuel was sent to explain to Camdessus that the ANC had "vetoed the proposal" - and South Africa went on to dig itself out of the 1996 financial hole.

Since the December 1993 loan agreement, South Africa has never tapped IMF resources. But failure to address the country's current financial difficulties may well see post-apartheid South Africa finally being forced to surrender the integrity of its domestic policy formulation to the IMF.

Sikhakhane is deputy editor of The Conversation Africa