The apartheid regime left South Africa with huge debts that are preventing real reconstruction and development. In a bizarre twist, the people who suffered at the hands of the apartheid government are now being expected to pay again for their pain and suffering. The following analysis was produced by the Alternative Information and Development Centre in Cape Town.
The South African government has a debt of R311 billion (US1$ = R4.80) and it is growing. In the last budget, the amount the government allocated to interest payments — R39 billion or 20% of the national budget — is now greater than on anything else.
Added to this debt, billions of rands are owed to foreign governments, banks and other financial institutions, which must be repaid in foreign currency. In repaying these debts, the Reserve Bank uses very scarce resources. The foreign debt is R90 billion. Compare this with the R83 billion it is estimated would be needed to employ all the country's unemployed for one year.
Many people's organisations have begun to campaign for this debt to be cancelled. Trade unions (most recently the South African Municipal Workers Union), civics, women's and youth organisations are calling for the money saved by debt cancellation to be placed in a community controlled development fund. This fund would be directed to putting the goals of the stalled Reconstruction and Development Program (RDP) back at the centre stage of our efforts to free our nation from poverty and the misery brought by apartheid.
When the de Klerk government realised its days were numbered, it incurred huge debts so as to prevent the ANC, when it came to power, from implementing programs of redistribution and social upliftment. In 1989, the debt was only R80 billion. Yet, by 1996, it had grown enormously to over R300 billion. What lies behind such rapid growth?
The largest single part of the answer lies in the pension fund for government employees. The assets of this fund have increased by well over R100 billion since 1989. The reason for this 10-fold growth is that, in 1989, the government moved from a "pay as you go" system to a "fully funded" scheme.
In a "pay as you go" system, people who are working today pay into a pension fund and those who retire receive payment from the money put in by those still at work. This way of funding pensions is well established internationally and continues to be used by the government to fund the state's welfare pension scheme.
A "fully funded" scheme means that it has the reserves available to meet its obligations even if all the workers paying into the fund were mysteriously to all stop working at the same time. Such schemes operate in the private pension market as a protection against the company going bankrupt.
The conversion to a fully funded scheme involved a massive injection of government money. Between 1990 and 1996, government contributions to "pump up" the fund totalled R66.3 billion. The government did not have this amount of money, so it raised it by selling bonds on which interest is paid. The government then proceeded to sell these bonds to itself!
It sold the bonds to Public Investment Commissioners (PIC), a shadowy office within the Department of Finance specifically responsible for the investments of the State Pension Fund.
Naturally, PIC gets interest on the government bonds it has bought — very high interest to be sure. Last year the government paid itself (PIC) no less than R10 billion in interest. To put that in perspective, the total cost of the state pensions paid out last year was only R9.2 billion.
This means that the government (through PIC) is not only lending itself money but is using its money to pay itself enormous interest on the money it has lent itself. The result of this madness is that PIC is now sitting on an enormous pile of money — worth R136 billion last year. And it continues to accumulate as the government continues to feed it through direct contributions and interest payments. More recently, PIC has placed large investments in the stock market. These market investments last year earned PIC an additional R4 billion.
Here are a few suggestions (from the RDP) of what could be done with the surplus money the government has sitting in PIC while it continues to tell us that it has no money:
- 1060 new clinics — R1.2 billion;
- 300,000 new homes — R10 billion;
- electrification of 2.5 million homes — R11 billion.
Why did the apartheid government go for such a bizarre scheme? It appears it feared the incoming ANC government might not maintain pensions to the employees of the apartheid state. The apartheid government saw the fully funded system as a secure way of both meeting "gravy-train" pensions for apartheid bureaucrats and allowing for substantial golden handshakes and early retirement packages.
Whatever the reasons, the consequence is that our country's first democratic government is crippled by a scheme that requires the victims of apartheid to continue to live in poverty so that those privileged by apartheid can continue to enjoy their privileges.
South Africa's government has enormous room to manoeuvre in terms of dealing with the debt, and this can be done without harming a pensioner. Instead of implementing severe austerity measures that lead to cuts in social spending and once again penalise the victims of apartheid, challenging the apartheid debt and channelling resources into fighting poverty would bring the RDP back to centre stage.
Democratic South Africa is expected to pay the R90 billion foreign debt left by apartheid.
The loans made to apartheid South Africa — either directly to the government or to private banks and corporations — were vital in keeping apartheid alive. Through these loans, the apartheid regime was able to offset the effects of sanctions. Indirectly these loans helped free resources for the internal militarisation of South Africa and the military destabilisation of the whole of southern Africa.
Pretoria should enter into negotiations with creditors to cancel the debt. The apartheid system was universally condemned as a crime against humanity. Yet foreign governments, banks and businesses were deeply implicated in the creation, development and defence of the apartheid system. Doing business with apartheid was highly profitable. By agreeing to cancel the foreign debt, foreign governments and banks would effectively be making reparations.
The democratic government can rely on the Doctrine of Odious Debt, an old doctrine of international law that allows successor governments to disown the debt incurred by fallen dictatorships.
We anticipate that neither our government nor financial institutions and foreign governments will easily be persuaded by moral and legal arguments alone. A broad campaign, representing the organs of civil society, both here and abroad, will succeed in convincing the parties to do what is right.
[This article first appeared in AIDC's magazine Alternatives. AIDC has a web page at