Editorial

Fiscal discipline vital to economic independence

24 February 2019 - 00:00 By sunday times


The sovereignty of any nation lies in its ability to guide its fiscus. Once that is taken away, politicians and civil society become mere commentators to events that will unfold in the country as those holding the keys to the treasury decide its fate. Nations get to this state when their debts and their servicing overwhelm the state and there is no choice but to hand over the running of the country to bondholders.
SA has not reached the point where the shots are called in the Washington headquarters of the International Monetary Fund, or by the algorithms of bond traders in New York or London. But if the government does not follow the strict fiscal discipline of decades past, it's a position we are likely to move ever closer to. And as the state travels down this path, or attempts to, there will be detractors criticising the pandering to bondholders and investors who are more than likely to be foreign.
Critics such as Irvin Jim of the National Union of Metalworkers of SA or Julius Malema of the Economic Freedom Fighters should remember that bondholders may literally be the "Masters of the Universe". Presidents of the world's most powerful country in the world, the US, have discovered this in recent times.
Bill Clinton in the early '90s was irritated by them. All his election promises of higher spend on education, public works and a middle-class tax cut were curtailed as his advisers convinced him that the best he could do for the economy was to show commitment to fiscal discipline.
"You mean to tell me that the success of the economic programme and my re-election hinges on the Federal Reserve and a bunch of f***ing bond traders?" Clinton raged at the time, according to Bob Woodward.
Barack Obama, who came to the presidency on a ticket of reining in the excesses of Wall Street, would also have to shift his position as he sought support for the bailouts that his administration had to accept at the start of the presidency.
There are rules that have to be navigated, and throwing tantrums leads to isolation and in turn high costs of funding, as every nation that goes knocking on China's door for support knows.
SA's budget is still thankfully driven out of Pretoria and adopted in parliament, but there are chapters in that document where we can see the creep of bondholder influence. Creep being an understatement.
Those pages speak to the future support of state-owned enterprises, Eskom and SAA being the most troublesome. Their reorganisation into three distinct operations, with their separate management and boards and the imposition of a chief reorganisation officer, are guarantees that only a concerned creditor would demand. In essence, these agencies are in what is called business rescue in the private sector.
By restructuring the businesses, the boards of these large corporations - among the biggest in the country - their sole shareholder, the state, and their most important stakeholder, the bondholders, will get a clearer insight into the performance of their underlying businesses. Imagine if Mark Cutifani and Anglo American's board were the only executives responsible for its vast portfolio, without devolution of power to its platinum or iron ore branches. It would be a near impossible, if not impossible task.
The restructure of these vertically integrated SOEs of a bygone era was always inevitable. And it does possibly pave a path to future privatisation. Eskom's generation business is already partial privatisation.
As we unmask other parts of these businesses, there will be units that will require further private participation to meet recapitalisation needs. The only comfort is that these monopolies are not simply transferred as a whole to the private sector. We can hazard a guess that it would be just as bad if, say, Patrice Motsepe owned the entire Eskom.

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