SA gives R16.5bn to help bail out Europe

R16.5bn to IMF sends ‘right signals’

SOUTH Africa’s contribution towards an International Monetary Fund “firewall fund” would stimulate manufacturing and was sending the “right signals” to trade partners in Europe, economists said yesterday.

The IMF fund, totalling $430-billion (R3.5-trillion), was to guard against further deterioration in the eurozone economies and “would be drawn on as necessary by IMF members”.

President Jacob Zuma attended the 2012 G20 Summit in Los Cabos, Mexico, where world leaders on Monday night made “firm commitments” to increase IMF resources to exceed $430-billion, so they could serve as a backup in the event of further deterioration in the eurozone situation, National Treasury spokesman Jabulani Sikhakhane said.

The $2-billion (about R16.5-billion) would be drawn as necessary from South Africa’s foreign reserves. Econometrix economist Manqoba Madinane said contribution to the “firewall fund” was in South Africa’s best interests, as the eurozone accounted for 33% of the country’s net trade.

Europe, an export destination for South African manufacturing output, has been gripped by a debt crisis for the past few years, threatening employment and growth in South Africa’s manufacturing sector.

Manufacturing, driven mainly by the automotive sector, is one of the Eastern Cape’s major economic sectors, contributing an estimated 30% towards employment and 17% of provincial output.

“We have very large exposure to the European Union. I think this is an important signal that we are willing to help,” Madinane said.

“A key component driving jobs is the manufacturing sector which has been shedding jobs in large numbers in the past few years because our export demand has fallen significantly. We need the EU to recover.”

First National Bank chief economist Cees Bruggemans said South Africa had $50-billion (about R414-billion) in foreign reserves and could afford a $2-billion contribution to fulfil its global obligations.

Sikhakhane said: “Global growth has slowed, and unemployment is rising. The resources could be used by all of the members of the IMF to stave off the risk of another financial crisis which would likely lead to a sharp global slowdown and rising unemployment.” In April, G20 countries and a significant number of other IMF members confirmed their participation in this effort.

The move comes at a time when Portugal, Italy, Greece and Spain (nicknamed Pigs) battle to ward off the debt crisis, with Greece’s second election in less than two months won by the pro-austerity New Democracy Party.

“The firm commitments to increase IMF resources exceed $430-billion.

“These resources will be available for the whole membership of the IMF, and not earmarked for any particular region,” Sikhakhane said.

According to economist Dawie Roodt, South Africa’s contribution towards the fund would have minimal impact on the national economy as the reserve fund, which is used to buy American treasury bonds, would simply be lent to the IMF.

“It’s a good political gesture. The public does not need to be concerned because the money will be taken from reserves the South African Reserve Bank normally uses to buy American treasury bonds,” Roodt said.

It’s a good political gesture. The public [need not] be concerned