With Friends like Tito Mboweni, Who Needs the IMF?
Resist SA’s new structural adjustment programme
25 June 2020
Tito Mboweni’s supplementary budget has proved that he is not fit to manage this crisis. The minister has completely ignored the immense suffering of the mass of poor people. Instead, he has chosen this moment to push through his favourite structural adjustment agenda – a la the IMF – in the name of dealing with debt. The callousness of enacting budget cuts and hiring freezes in the middle of a crippling health and economic crisis cannot be understated, nor forgotten.
It is clear that now, more than ever, that at the very least, the government should be using every tool in its arsenal to stimulate the economy out of the depression it is hurtling towards. For 24 years the treasury has pursued a strategy of chasing foreign investment to get growth. For 24 years it has been a monumental failure.
Growth will only occur through meaningful redistribution of wealth and income. This is the lesson of the Covid crisis that has rung true across the world.
Today, redistribution could have started by reversing the R14bn in “bracket creep” compensation from February. It gave meaningful extra money only to the rich. It is now completely misplaced and unaffordable to the fiscus. All citizens must start to understand and embrace that there is no way out from this crisis without drastically reducing inequality in the country.
Today, the preparation of a graduated wealth tax on the wealthiest 1% should have been announced, to be fast-tracked and introduced as soon as possible, starting with the disclosure of individual financial wealth in the personal income tax declarations in this fiscal year.
Even the Financial Times urges: “Radical reforms – reversing the prevailing policy direction of the last four decades – will need to be put on the table. Governments will have to accept a more active role in the economy. They must see the public services as investments rather than liabilities, and look for more ways to make the labour market less insecure.” (Editorial, 3 April)
But there is no sign of a stimulus or state intervention in the budget. The treasury is even failing to use the moral high ground presented by Covid19 to begin to implement the NHI and get rid of close to R30bn in tax breaks for the privileged few who have medical aid. This would be the first step towards the eradication of the two-tier health system which has intensified the current crisis, as well as a source of additional revenue.
Instead, the supplementary budget made dramatic cuts in budget areas most crucial for poor and working class people. These include R2bn cut from Basic Education, R9.9bn from Higher Education and Training, R2.3bn from Human Settlements, R2.4bn in Agriculture, R2,9bn in Land Reform and Rural Development, etc, etc.
Most departments are now in a “hiring freeze” during the country’s worst unemployment crisis in recent history, and on top of this sits February’s proposed R160bn cut to the public sector wage bill which will result in tens of thousands of public sector workers being retrenched.
There will be no sovereign debt crisis if the government put our people to work and reindustrialised our economy. The revenue to repay debt would flow into the fiscus.
And yet, this budget itself admits that all of this is only a warning shot – the worst is still to come, as it commits to freeing up R250 billion expenditure cuts over the next two years, while promising the use of harsh zero-based budgeting in all future budgets.
Other long term targets of Mboweni’s reforms are the State Owned Enterprises. The Eskom Roadmap that promotes the increased privatisation of the electricity sector is “non-negotiable” according to his budget speech, expressing the private sector’s long standing wish: to turn public entities such as Eskom into profit-generating businesses, rather than utilities run in service of the public.
The justification for all these bitter pills is South Africa’s debt crisis. Yet by going to the IMF and the NDB, Mboweni is accelerating the SA debt spiral. Increasing the foreign debt with our weak exchange, which we are unable to regulate, puts us in an even more vulnerable position in the long run. For example, Eskom’s 2010 loan from the World Bank was made when the exchange rate was R7 to the dollar, but today it is over R17 and Eskom is still paying.
The country’s massive unemployment crisis is only going to get worse as a result of the cuts in this budget. Less jobs and less money to spend, inevitably more retrenchments will follow as demand collapses. The government will raise less money, putting them back at square one, and so on, as the vicious cycle continues. Mboweni would do well to remember that this “unemployment spiral” is more deadly than his “debt hippopotamus”.
All this when there is an alternative. We should use the state to dramatically invest in public services, a mass housing programme and the expansion of public services. We should also be using the opportunity to transform Eskom into a publicly owned renewable energy utility. This has the potential to create hundreds of thousands of climate jobs that would help to address South Africa’s unemployment crisis and simultaneously combat climate change.
Above all else we need the implementation of a basic income grant of an amount no less than the upper bound poverty level of R1280 per month. Many South Africans were going hungry before the outbreak of pandemic. The pandemic has made this worse, increasing the urgency of this measure. Yet Mboweni insists that the measly emergency grant remains temporary. This is the time for an urgent basic income grant and for the establishment of an employment guarantee scheme.
These are not daydreams. Contrary to mainstream opinion, South Africa still has resources at its disposal. Aside from measures like an urgently needed progressive wealth tax, there are also large pools of domestic resources which have been left out of the conversation. Currently, the Government Employees Pension Fund (GEPF) has R2 trillion in accumulated reserves. The $7 billion Mboweni recklessly wants to borrow in dollars corresponds to R120bn. This is a small amount to the vastly overfunded state pension fund. The GEPF should stop making risky investments of R1 trillion and more in a financial economy that is completely disconnected from the real economy. Not harnessing and redirecting these resources in a crisis like this is unconstitutional.
We should immediately audit all public debt. Where debts in parastatals are found to be the result of state capture and corruption they should be annulled. This includes the 2010 World Bank loan to Medupi, which based on the current pace of re-payments will only be repaid by the end of the century.
Finally, leading economists, including a former director of the SA Reserve Bank, have argued that we can monetise part of the debt by forcing the Bank to play its role as a bank to the government and not to private banks. All of these measures stand to confront the power of financial capital. Embarking on a path that redistributes wealth presupposes the implementation of more stringent capital controls.
Of course none of these urgent measures will be undertaken by the pro-business government of Ramaphosa. This reactionary supplementary budget must be a wake up call for SA’s labour and social movements. They must unite to resist the attack on the public sector and the selling of our country to private corporations, the IMF and other creditors.
If the lives of women and children really matters, we must resist! If black lives really matter, we must resist! If working class lives matter, we must resist! If South Africa matters as a nation, we must resist!
Statement by Alternative Information & Development Centre