How much more pain can SA’s poor take? ‘I

CityPress - - Business - Terry Bell busi­ness@city­

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.

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