Back to Index

Lifeline or licence for Mugabe?
Stan du Plessis
August 11, 2005

http://www.businessday.co.za/articles/article.aspx?ID=BD4A78628

IF CURRENT negotiations are successful, South African taxpayers could soon be funding the cost of a loan to the Zimbabwean government. The immediate purpose of the loan is apparently to roll over existing debt owed by Zimbabwe to the International Monetary Fund (IMF), on which Zimbabwe has defaulted. If the loan exceeds this immediate requirement it will amount to a more general lifeline for a government in fiscal disarray.

It is disconcerting that these negotiations have proceeded to such an advanced stage while the South African public has yet to hear convincing reasons for supporting such an irregular project.

There is a basic incoherence at the very core of the negotiations: on the one hand we are told that Zimbabwe is too close to fail financially, as the ensuing economic chaos might engulf SA, or at least impose massive regional costs.
On the other hand we are told that the South African government is attaching what are called tough conditions to the prospective loan, including conditions of a political character, in addition to the economic conditions which such loans often entail.

But these two positions are fundamentally at odds: the first is a position of unconditional support for the Zimbabwean government, depending as it does on the unconditional facts of geographic proximity, while the second is a conditional position qualifying our support by the compliance of the Zimbabwean government with a set of conditions. The rationality of this loan depends on which of these positions will take precedence.

Starting with the unconditional argument: this argument makes nonsense of the present wrangling over conditions. If it is taken at all seriously - as it seems to be by President Thabo Mbeki - then conditions simply do not matter. Bearing in mind that the very IMF loans on which Zimbabwe has defaulted also carried conditions, we can reasonably expect that the Zimbabwean government will soon fall foul of any conditions the South African government might impose.

But that would hardly lessen the force of the unconditional argument for supporting Zimbabwe. On the contrary, as Zimbabwe sinks further into debt the crisis will become increasingly acute and, since Zimbabwe will still be too close to fail, SA's financial support risks becoming open-ended.

The incoherence to which I am pointing does not change if another unconditional argument is swapped for the "too close to fail" argument, for example, the cabinet's argument that it would support Zimbabwe financially, provided that the support would be to the benefit of the "Zimbabwean people as a whole".

Practical politicians know all to well that there are no loans or spending programmes that benefit Zimbabweans (or for that matter South Africans) "as a whole". The art of government is about making difficult trade-offs with limited resources, and it is disingenuous to suggest that we can do in Zimbabwe what we cannot achieve at home.

Which brings me to a further concern; this loan will not be without costs, even in the unlikely circumstance that it is repaid. In financing Zimbabwe, the South African government is trading off domestic needs against doubtful international goals, and the public has a right to know how this trade-off is made. To put it bluntly: how did the self-inflicted economic crisis in a neighbouring country come to trump domestic needs in SA?

If, however, the conditions really did matter then we have to assess the likelihood that Zimbabwe will honour the conditions, including repaying the loan.

The primary purpose of conditions for an international loan is to raise the likelihood that the loan will be repaid. Unfortunately, the track record of the Zimbabwean government could scarcely be worse in this regard, as was comprehensively shown by its inability to meet the conditions attached to the same IMF loan which the South African government is now hoping to roll over on Zimbabwe's behalf.

IMF financing is highly concessional and certainly more so than the terms that the South African government could get on the capital markets. It defies belief to think that the Zimbabwean government could meet the cost of a more expensive loan from SA, carrying political conditions in addition to economic ones, when it has just failed with respect to the IMF loan.

In this regard it is important to remember that Zimbabwe's failure to meet the IMF's conditions is not due to some act of God, but almost entirely to the foreseeable consequence of ruinous policies, implemented in the face of repeated international warning and, ultimately, condemnation.

Perhaps it is not surprising that the same South African government that evidently failed to anticipate the economic catastrophe in Zimbabwe, though it was plain for all to see, is now ready to offer conditional finance as if the Zimbabwean government had not yet convincingly demonstrated its lack of credibility in such transactions.

At the time of writing, the Zimbabwean government was holding out for a sweeter deal, hoping to exclude the political conditions which have so far been insisted on. Such brinkmanship is an ideal opportunity for the South African government to reassess the whole transaction. It is an opportunity to untangle the conceptual muddle of the prevailing approach by dropping the arguments for unconditional support and realising that conditional finance for a Zanu (PF) government is throwing good money after bad. SA should offer no financial assistance as long as Zanu (PF) prevails.

*Du Plessis is associate professor in the economics department at the University of Stellenbosch.

Please credit www.kubatana.net if you make use of material from this website. This work is licensed under a Creative Commons License unless stated otherwise.

TOP