World Bank loan – noise of a falling tree in a forest

DEBT-TO-GDP (gross domestic product) ratio has been paraded as the biggest threat to South Africa’s economic development. In this regard government borrowing, especially from the International Monetary Fund (IMF) and World Bank, remained taboo until a bigger taboo Covid-19 visited the world and loosened South Africa’s taste buds toward these sources of lending.

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Three years ago, at one of the many investment summits, President Cyril Ramaphosa correctly identified that our investment drive requirements are a trillion rands.

At the onset of Covid-19 Business4south Africa compiled an investment portfolio document adding to earlier calls, but stepping up in the context of Covid-19. Little if anything at all happened to the Business4south Africa document.

Last week, however, the World Bank loan of R11 billion dominated the scene and this adds to the brouhaha around the R70bn from the IMF of July last year.

Looking back, so resolute was South Africa on its sovereignty that when the US wanted to twist former president Nelson Mandela’s hand against his decision to visit Libya over the Lockerbie bombing – where 270 men, women and children lives were lost in the bombing of Panam Flight 103 over Lockerbie, Scotland, on December 21, 1988 – the US at the time threatened to withdraw their donation/loan to South Africa.

But Mandela stood up to the US and said no one in the universe could dictate to him. He told them point blank that their money was peanuts, to which the senator said if it’s peanuts do not eat them.

Mandela proceeded to Libya and successfully persuaded then president Muammar Gaddafi to surrender the people who blew up the plane so they could face trial.

While the policies South Africa finds ourselves implementing were designed under Mandela and former president Thabo Mbeki, they were, however, very decisive in not taking a loan either from the IMF or the World Bank.

They abhorred outside-led policy influence. They held a heightened aversion to the IMF and the World Bank after the history of structural adjustment programmes that in many countries destroyed social services, and in particular health and education, which the Mandela and Mbeki administration considered as crucial.

However, many agree that Growth Employment and Redistribution (Gear) was nothing more than a self-imposed Structural Reforms Programme. Gear failed dismally to live up to its acronym of growth and employment.

There was none of that.

But Gear achieved a bit in redistribution through social expansion programmes. In time, though, Gear was replaced by Accelerated and Shared Growth Initiative for South Africa (Asgisa), which momentarily lifted growth and employment to levels that had hitherto not been witnessed.

But it was short-lived. On January 17 this year, Redge Nkosi, who was the founding executive board member of the London-based Monetary Reform International, penned a seminal paper responding to what he says: “It had to take one-and-half decades of suffering for the South African Reserve Bank (SARB) to recognise that the conduct of monetary policy may, after all, never be the same again. Why and how?”

Nkosi’s question of why now is important because the stance the Reserve Bank intends taking, albeit denied by itself, when it says in the consultative paper “Quantitative Easing … is not required in South Africa”. It is exactly this that Nkosi argues should be done.

In his opinion piece in Business Report he contends as follows about the Reserve Bank Paper: “The paper’s central thesis is about de-linking money from monetary policy (interest rate policy).

“Once money is divorced from monetary policy, the central bank suddenly acquires significant freedoms critical to engaging in policy adventures such as quantitative easing (QE) and related unconventional monetary policies. The SARB, however, rejects that its proposed reforms are a prelude to QE.

“But here is how the SARB used its current monetary policy implementation framework technicalities to reject calls for QE and back up its failure or refusal to save a moribund South African economy.”

What is R11bn relative to a trillion rands? It is 1 percent of the requirement, yet the noise these peanuts have made is one of a falling tree in a forest.

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Is Nkosi not pointing us to the right noise – that of a growing forest through the use of SARB balance sheet to contribute through a rand denominated development finance rather than pander to the equivalent of what Mandela called peanuts, but this time around, laced peanuts and sinker, that will certainly stop Mandela’s trip to Libya.