How much more pain can SA’s poor take? ‘I
t’s the rich wot lives in clover It’s the poor wot gets the blame.”
So goes a line in an old English music hall song. It sums up what is starting to happen as the country waits to see what effect subinvestment grade, or “junk” status, will have.
Workers and their unions will also take the pain and rock what Finance Minister Malusi Gigaba alleges is a stable economic boat.
He maintains that junk status will have little impact.
However, this week we heard news of more unemployment and of business bosses being paid R69 000 a day.
So, Gigaba either lied or was unaware of what this junk designation meant. Because it will have adverse effects. And the sufferers, as I mentioned in this column in April, will comprise mainly working people and the unemployed.
The reason is simple. When government and business start to feel the pressure of the increased cost of loans and debt servicing, they always act in the same way.
They pass on this pain to the consumers, to the workers and the legions of unemployed who all pay into the fiscus – at the very least by means such as value-added tax.
So, at a very basic level, what the designation of junk status from the ratings agencies means is that it will cost government, business and every other borrower more to access loans and repay debt.
Interest rates will rise for householders and government. Even a 1% rate hike will increase South Africa’s annual interest payment, paid by the taxpayers.
It is also useless to complain about the ratings agencies or dismiss them.
They are a reality in the casino of an economic system that relies on well-heeled gamblers placing their bets on corporate and national entities around the world.
These agencies are like horse-racing tipsters, although they operate in a more manipulated game than their counterparts, who deal with the so-called sport of kings.
It is often pointed out, particularly within the labour movement, that the same ratings agencies were the very organisations which commended – and so, boosted – the fortunes of the subprime mortgage market a decade ago.
This led to the 2008 financial debacle in the US that triggered the ongoing economic crisis.
So, Gigaba is correct in implying that these agencies do not represent anything real.
They merely speculate about where the most lucrative investments exist, acting as advisers for a tiny monied minority that seeks only to extract maximum profits.
But their word about areas labelled “troublesome” or “junk” means less investment in such areas.
It also means – perhaps more importantly – that borrowers in territories classified as being below investment grade become subject to punitive interest rates.
This approach puts pressure on indebted governments, which almost invariably respond by imposing austerity measures.
Posts are frozen, jobs are lost or not created, and inflation rises as the exchange rate falls and the ranks of the unemployed swell. It does not happen overnight. It takes time. And do not be surprised when workers and the poor not only reject the blame, but also strongly resist any more pain.