South Africa and international financial institutions: a liaison group could recalibrate relations
Since the onset of the COVID pandemic in 2020, South Africa has borrowed a total of about US$7 billion (about R106 billion). The money has come from the International Monetary Fund, the New Development Bank, the African Development Bank, and the World Bank.
The country has assumed these debts without any transparent or accessible process of public consultation or publicly available studies of the expected impacts of these loans on poverty, public health, job creation and social welfare in the country.
This is concerning. The government’s obligation to repay these loans has financial, economic, social and possibly political implications for all South Africans. It could affect how much money the government can spend in the future on creating jobs, dealing with poverty and inequality in South Africa and on supporting the just transition to a carbon free economy.
It could also change the relationship between South Africa and these institutions, known collectively as the international financial institutions (IFIs). Instead of being merely organisations from which South Africa can obtain technical advice, they are now important creditors of the country. This can influence the balance of bargaining power and the tone of the government’s engagements with these institutions. It may also have important implications for South Africa’s long-standing efforts, together with partners in Africa, the BRICs, and G77 to promote fairer governance of the global economy.
A group of civil society organisations and academics, including myself, have responded to these concerns by proposing that the government establish a South African IFI Engagement Group. We maintain that such a group will enhance the efficacy of South Africa’s relations with the international financial institutions. This in turn should help the country extract the maximum possible benefit from its membership in these organisations while minimising the associated costs.
How it would work
Controversies relating to international financial institutions finance have two components.
The first focuses on the borrowing government’s own decisions and actions. Formally, the international financial institutions only provide financing to support the policies or the projects that the government is promoting. This means, for example, that the South African government decides on its policy response to the COVID-19 pandemic, and then decides that it will borrow money from the IMF or the African Development Bank to support this response.
Similarly, the state power utility Eskom and the government decide to build the Medupi coal-fired power plant and then approach the World Bank to fund the project.
Consequently, the government is the appropriate target of any criticism of these decisions. This includes its decision to accept the terms on which the institutions offer the financing.
The second set of considerations relate more to the international financial institutions’ own responsibilities. Most have policies that inform both their staff and the public about how they will assess and manage the impacts of the projects and programmes they finance.
For example, the local communities may contend that they have been harmed because the World Bank did not comply with its own policies when it made the decision to fund Medupi.
The South African government is clearly not responsible for these decisions by the international financial institutions even though they directly affect communities. Nevertheless, it should have an interest in learning about these community concerns. Communities are not passive participants in the policies and programmes promoted by the government. They can influence their success and can complicate the government’s ability to access financing.
One way for the government to mitigate these risks is to create an engagement group.
The aim of the group would be to facilitate an exchange of views between the government and interested civil society stakeholders about the country’s relations with the international financial institutions.
The members of such a group would include representatives of National Treasury, other government departments and civil society. The civil society representatives would be selected from a range of organisations. These could include think tanks, and trade unions, interested in international financial institutions issues.
To promote a frank and open exchange of ideas, these meetings should be held under Chatham House rules. These are that those at the meeting can share the information they receive, but they don’t reveal the identity of who said it.
The agenda for the meetings could include any issue relating to South Africa’s engagement with any of the institutions in which South Africa is a member.
The group could provide a mechanism through which government could learn about concerns of affected communities before it finalises its borrowing plans. Or before they become potential threats to the success of a project.
For example, the civil society representatives would be in a better position to learn from local communities what their views are about a proposed renewable energy project to be funded by international financial institutions. They may be strongly opposed because they suspect that the jobs created by the project require skills that the community does not have. They may also be concerned that construction would adversely affect their current income generating activities.
The engagement group would provide both the government and the local communities with a forum in which to discuss these concerns. This would help the government develop a more accurate assessment of the risks and benefits of the project. In turn, this would enable it to make a more informed decision about whether to borrow the money.
It could also educate the civil society representatives about the rationale for the project. This would help the local communities and their supporters make more informed decisions about the project.
Another example is that one of the international financial institutions may be considering changing its policies on climate change, and need member state approval for the changes. The engagement group would provide a forum in which government can learn about the views of non-state actors. This would help the government make informed decisions. It would also help South African representatives advocate more persuasively for the government’s position at the institutions.
Such engagement groups are not unprecedented. They exist in countries such as the US and the Netherlands. They operate informally and have not been written about. But in our engagements with individuals involved in them – or who have worked with them – we learnt that they have contributed to enhancing the efficacy of their country’s engagements with the institutions as well as promoting accountability and operational reforms.
There is no reason to think that a South African engagement group would be any less effective in enhancing the efficacy of the country’s engagement with these institutions. In fact, it would contribute to the president’s stated aim of forging a stronger bond between government and society so that they can all work to create a more just and equal society.
Danny Bradlow, SARCHI Professor of International Development Law and African Economic Relations, University of Pretoria
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