Rate cut not enough

Growing calls for freeze on debt repayments to ward off ‘social disaster’ aspect of Covid-19.
Moratorium should be ‘long enough’ for people from all walks of life to recover from the economic disruption caused by the virus. Image: Reuters

A growing number of organisations and consumer activists are calling on the government to follow international trends and impose a moratorium on debt repayment obligations due to the devastating impact of the coronavirus.

Consumer defence group Lungelo Lethu Human Rights Foundation is calling for a moratorium on debt repayments for six months, and a freeze on any debt-related legal proceedings.

The National African Congress of Trade Unions (Nactu) has likewise called for a freeze on debt repayments, as is happening in many other parts of the world.

“Potentially hundreds of thousands of South Africans stand to lose their jobs as a result of the economic downturn,” says Nactu secretary-general Narius Moloto. “We are looking at social disaster unless we provide immediate relief to those in financial distress.

“Already thousands of workers in restaurant and hospitality trade, and those involved in contract work, have lost most or all of their income,” says Moloto.

Nactu is calling on government to use its emergency powers to kick-start a massive infrastructure programme to get the country back to work as fast as possible.

This week, US President Donald Trump announced a freeze on foreclosures and evictions until the end of April. Several other countries have announced or are planning to introduce debt repayment holidays for consumers in distress.

Debt counsellor Michelle Barnardt says government will have to provide relief given the dire level of overindebtedness in the country, with nearly four out of 10 people already in arrears on one or more accounts. “If people cannot work and earn income they will not be able to make monthly debt payments. This will include groups like attorneys, advocates, and those in entertainment and hospitality.

“Drastic times calls for drastic measures,” says Barnardt. “In Afrikaans we say ‘Jy kan nie bloed uit ‘n klip tap nie’ [You can’t draw blood from a stone].”

“This situation is definitely affecting everything and everybody, and government must step up to the plate and prevent anyone being victimised as a result of this terrible economic downturn.”

Read: SA to regulate price increases linked to coronavirus – trade minister

Consumer lawyer Leonard Benjamin advises anyone facing legal action as a result of their deteriorating financial position to mount a legal defence. “It would be shameful if any court issued a judgment against a debtor in these circumstances, and almost certainly unconstitutional.

“No court can issue a judgment without considering all the circumstances of the debtor, and the economic impact of the Covid-19 virus is certainly sufficient grounds to defend against a monetary claim.”

Lungelo Lethu president King Sibiya says he is inundated with calls from people who have been unable to earn an income these last few weeks as a result of the virus. “These include people who earn commissions, part-time workers and informal sector workers. The impact of the virus could be catastrophic for the economy. We cannot expect people who have suffered a serious loss of income to be able to repay debts until the economic impact has stabilised.

“We are therefore calling on the government and the banks to be sensitive to the dire situation people find themselves in, and to allow a debt repayment moratorium. Many people, through no fault of their own, are going to find themselves seriously in arrears as a result of the economic disruption caused by the Covid-19 virus,” says Sibaya.

Freeze on evictions

“In addition to a moratorium on debt repayments, we are calling on the government to impose a freeze on any debt-related judgments and on evictions. These must cease immediately.

“This is not business as usual. If we do not address this matter urgently, we face massive social chaos, far worse than anything we have seen up to now,” says Sibiya.

He adds that the moratorium should be long enough for people to recover from the economic disruption caused by the virus. “Many banks overseas have introduced waivers to allow customers time to recover from the economic effects of the virus. We believe we should follow the example of Malaysia and impost a six-month freeze on loan repayments.”

Read: How much could Covid-19 impact the SA economy?

In Malaysia, Public Bank is offering an immediate moratorium of up to six months for the monthly instalment payments on loans and financing for individual and business customers affected by the outbreak. Last week Italy announced plans to introduce a moratorium on debt repayments, including mortgages, to help families and businesses cope, according to the Wall Street Journal.

In the UK, the government is backing mortgage holidays of up to three months. There are also calls in Ireland for mortgage holidays of up to six months.

All countries around the world are looking at imposing similar measures.

“We must follow the international example and impose a freeze on debt repayments for a reasonable period of time,” says Sibiya.

No time to waste

Moloto says there is no time to waste in getting the economy moving as fast as possible. “The construction sector is in terrible shape, in large part due to crony capitalism and state capture, but we cannot assume that conditions will turn around on their own. They won’t.

“These are virtual war-time conditions requiring emergency action.

“We have a chance here to create hundreds of thousands of jobs in the next few months,” he adds. “As a first step, government must place a freeze on debt-related legal action and impose a six to 12-month freeze on debt repayment obligations.

“We understand this will come at a cost to the banks, but we cannot put the interests of the banks above that of the people.”

Read: The reality virus bites deep

Get access to Moneyweb's financial intelligence and support quality journalism for only
R63/month or R630/year.
Sign up here, cancel at any time.

AUTHOR PROFILE

COMMENTS   32

Sort by:
  • Oldest first
  • Newest first
  • Top voted

You must be signed in to comment.

SIGN IN SIGN UP

We need more voices in the cry for debt relief, times will change and the economy will recover, people will be able to participate in economic activity. Our government must help, today and not waste another day.

Rubbish ! As is the expectation that Landlords should bail out Tenants .
Landlords are often Retirees using their properties as part of their pension Planning . Same as Pensioners /savers who are using their savings interest to survive now being expected to subsidise /support those who live on credit whilst driving a BMW !!
If you live on Credit its your responsibility to meet your obligations not fall over like BoomBang and expect everyone to bail you out !

@edalsg

You correctly start you argument with exactly with what you are about to say…

Rent is not a debt, that cannot be put in this cluster. The pensioner if bonded, will get a freeze on the bond but get the rent on his property… Who is better off then?

The government can only freeze what is administratable. You cant expect the government to intervene in the salary advance you got from your employer… We talking big item loans here. Car finance, Housing Loans, Bank Overdrafts, Credit Card Debt, Commercial Bank Loans to companies etc, etc. We not talking about your Edgars account.

Another communist. Or is it different now.

I am curious re:freeze on debt repayments, how will this affect bank depositors and savers?
Will they still be paid interest?
If so then where will this money come from if banks are not allowed to collect deposits loaned out?

Not being able to evict non-pqying tenants sounds like a nightmare for landlords. Will their creditors also give them leeway? Will the municpalities give rates holidays? How will this affect service delivery, wages and grants? Where will the money come from to oay these?
Will the courts differentiate between tenants genuinely in need and those using corona as an excuse to squat?
What effect will this have on overburdened courts and at what cost?

Some of these proposals sound great but I dont hear anyone talking through the ramifications or considering the potential fall out and knock on effects.
The true potential for disaster is born in govts and people reacting and undertaking measures without thinking them through properly

@Daviddebeer…

Can I ask you one question and try to be honest in your answer/

Would you not be happy if your debt repayments can be frozen for sometime, even for 3 months?

I am so terrible sorry to disappoint you I don’t have any debt. By the way I couldn’t give a (can’t use the word) for over indebted individuals.

@Boombang — k I’ll play.

The debtor in me likes lower interest rates, the creditor in me likes higher interest rates.
Thats about the simplest I can put it.

Hopefully most people have both debt and savings, or savings but no debt and understand the relationship between debit and credit.

Re: would I like to have my payments frozen personally — no not really. I didnt take this option when FNB offered it once (i dont recall for what).
Sure I would like the premium back in my disposable income but I made the debt. No one else. The quicker I pay it off the quicker i get more disposable income available.
And if I do need it, and here is what puzzles me about your question — the option to go and talk to your lenders about debt reprieve or restructure the terms IS available. Like right now.
You may not get it but the option is already there.

To mandate it universally, means shifting the cost onto a counterparty because thats how govts roll.
And herr is where I am not trying to be contrarian for the sake of it. It alarms me that there are no devils advocates questioning the ramifications of these policies.
If they go for it, then go for it.
I just want to hear them acknowledge they considered whether alleviating A might cause hurt to B and whether B will also be alleviated or is expected to just suck it up.
Basically are they making a reasoned gamble or an emotive response hoping its all going to be ok?

David your comments below refer

“Some of these proposals sound great but I dont hear anyone talking through the ramifications or considering the potential fall out and knock on effects.
The true potential for disaster is born in govts and people reacting and undertaking measures without thinking them through properly”

Clearly proposals need clear defining and structuring, but this is not the forum. We need as many proposals from as many people as possible, to get a groundswell going, so that those that have most merit can be implemented immediately. Approach your ward, your bank, your friends, your supermarket, your workers, your bosses, and throw these about.

Rather send cheques to every family.

…it will take 10 years for govt to verify & load everyone’s address on a d-base.

And when they’re ready to roll it out….the system of cheques would’ve been abolished as a bygone dinosaur 😉

…then they’d have to get everyone’s banking details, or crypto wallet info.

NOPE, just BETTER to drop company & individual tax to 15% (a la Mauritius), and then the economy will start humming 🙂

If “SA’s big rate cut is ‘a plaster on a gaping wound'” then that is because they never dealt with the cANCer in the whole body.

True. ANC = economy devouring virus (thanks to socialism/populism)

I remember in 1998 when Dr Chris Stalz was the Governor of the Reserve Bank, he hiked the repo rate every time when the Rand weakened against the US Dollar. (The average exchange rate for 1998 was R4.98= US$1). Of course, all the pensioners loved Oom Chris because at one time the prime rate peaked at 25%. I on the other had just bought my first car and the repayments were painful. The banks repossessed so many houses they couldn’t find any buyers and people just had to pay what they could afford. Not so sure what Oom Chris would have done about the current R17.35= US$1.

The whole world is in trouble, America has more COVID-19 deaths than South Africa… Then why is the dollar gaining strength over the rand and other currencies… The developing world will forever be used to enrich the West.

Its population is much more
The US Economy has received a massive Stimulus and its citizens are PAID a “bonus” rather than getting Debt relief to support the economy .
The Developing World will forever Blame the West for their own incompetence/and expect handouts .

This is a bizarre socialist entitlement culture idea and speculation by a seemingly clue less author. It is always the private sector biz that takes the knock. The govt workers could not care and still get paid. What is a” background” in finance and mining in any case. Quality of MW articles declining fast

Please explain slowly how money thrown at citizens will solve MEDICAL problem !!!!!! — IDIJITS ALL

Thats not the reason so no explanation isrequired. Its an Economic not Medical stimulus.

Is it that difficult to understand that this virus is going to kill what little economic growth this country was experiencing? Its like taking an already sick man and smashing him over the head with a club. People are going to lose their jobs. This was already happening and will now speed up. This economy runs largely on consumer spend. In times of strife, people stop spending. The immediate consequence is job losses. Methinks you’re the idiot here.

Somewhere there should be a reasonable degree of Darwinism in play. We want the damage to the economy to be minimal, but why should people who have not been over-leveraged up to the eyeballs pay for those who have done exactly that? If they get bailed out now, they’ll simply see that their action have no consequences.

The way things are shaping up, this is going to be essential if we survive this crisis. The banks have got the ability to survive the pain, individuals do not. a 3 month mortgage moratorium will do a huge amount to relieve the burden on people. That said, if this happens, how will we know that owners are actually passing this on to their tenants?

Like someone said, this is like war and drastic action is needed.

For one thing we need to start from the bottom which is stuff like minimum wages. With that in place, I cannot pay more than 5 workers on my farm (who all get more than the minimum anyhow). If I was able to pay 7 workers with the total I now pay to 5, then we have more people with hope and bucks in pocket. This spread throughout our economy will drive up employment opportunities.

BEE needs to go to the wall. Not only is it counter productive, costly, imbued with cronyism and corruption but red tape intensive. On top of that it is mostly beneficial to only a few individuals. EE is what is needed here so that every single SA is recognised and enfranchised, not only “black people”.

A government civil servants/soe salary cut of 25 – 40%, plus a tax holiday for all taxpayers, will go a long way toward helping those people in the informal sectors who don’t have a salaried job (contract or part time workers) have food in their belly.

We go further to apply pressure on supermarket chains, who apply further pressure on their suppliers, to make a R go further. If i sell my cabbages to P&P for less, but I have lower input costs from lower wages and a freeze on repayments or/and interest and taxes, then everyone benefits.

clearly banks and repayment regimes need to be a part of this also. Banks have traditionally been top stocks because they make lots for their shareholders. Now we need them, as with their shareholders, to participate in giving to the economy and country.

Rates and taxes on properties should have a tax holiday or be maintained at a fraction of current.

If a landlord is going to forgo his rent receipts and end up with squatters, then the laws also need to be repealed that give squatters rights to remain whilst not paying. This will empower landlords to make good decisions and help people in need rather than spend his energy trying to evict them. In this event the tenants and landlords can work together to achieve unity, rather than unproductive antagonism and aggression to no persons benefit.

None of this is good for politics, but we have a national disaster here that only parliament can help alleviate. We need more bipartisan co-operation between the current political parties without trying to get political mileage. If we are to avert chaos, rioting and desperation this needs immediate attention, with or without C19

In short, we all have to jump in to help. Every single bit helps, every act of kindness, compassion and giving, helps others who have less. We all need to accept that we now have less to spend, less income and that our fellow SAs are part of our lives.

C19 may be the best trigger for the government, our frozen institutions and private sector to take such drastic steps.

Meanwhile, carry water, regularly wash your hands and everything you touch daily, stay clear or others as much as possible and if you are coughing, wear a mask made of an old T shirt

Would the courts similarly rule that a taxpayer would not have to pay tax to the government during these circumstances?

And similarly would the government refuse to pay interest on their debt to pension funds who bought their debt?

People disagreeing are those people with historic advantages.
Privileged to not live paycheck to paycheck so they have savings to fall back on. Privileged to have grown up in a family that can pay for studies so they can have a well-paying job. Privileged to not have to pay your parents rent money when you get your first job. Enabling you to use that money for personal, financial development like savings. Privileged to have grown up with both parents. Privileged to have a daily meal when growing up. Privileged to have bought your first car when others were being oppressed. This is no fault of your own and you shouldn’t be apologizing for these privileges. You got a headstart, are where you are thanks in large to these privileges. You did nothing to deserve those privileges, were lucky to be born to parents who could afford those privileges. Now you don’t have any sympathy for those that did not have these privileges through no fault of their own. Again, you do not need to apologize or even feel bad about these privileges. However, please be mindful of them.

So what of those people who weren’t privileged according to your definitions, people like myself. People who worked the extra shifts and overtime and didn’t spend more than they could afford, keeping up with the joneses. People that went part time night classes to the local technical college to study and improve themselves. Please take your lame excuses of privilege and bury them so deep we never have to hear again of such pathetic drivel. Work hard, work overtime, volunteer extra shifts. Do the hard stuff so that you’re not up to your eyeballs in debt and then expect others to bail you out at their expense

The financialization of capitalism instead of being driven by truly productive activities, is the reason economies are in such a mess. Instead of money being created to finance true productive activities of providing real goods and services, bank created debt, has exploded to the point where instead such debt funds existing assets like real estate, share buybacks and other expenditure, instead of capital used to generate real profits from the sale of real goods and services rewarding workers in the real economy of supplying those goods and services.
Instead interest and financial costs, most of which are financing existing assets, ( in the US estimated to be of the order of 80% of all loans made), being treated as an economic overhead, which they really are, are incorporated as one of the largest components of countries GDP, as if they have produced anything of value at all, other than the push of a computer button.
In its totality in an economy, this creation of debt which is a financial trap, expands exponentially, growing at compounding rates of interest, that normally far exceeds the rate that any country’s economy is able to grow. This removal of money from being spent by citizens on goods and services which are the real economic drivers, has resulted in wealth extraction and economic stagnation, which is so obvious today.
This “unearned” wealth in the hands of creditors at the expense of debtors, leads to the point where assets are attached in settlement of debt. This situation has resulted in the concentration of wealth in less than 10% of the richest individuals on earth. Even countries are suffering from this malaise, Greece, France Italy and others are prime examples, where they have sold off national assets in an attempt to stay afloat.
Modern economics is not considering the debt side of the equation at all, but has created a situation where the misuse of borrowed capital, through the creation of debt , has resulted in asset price inflation of monumental proportions. The resultant increases in property and and stocks and bonds, has created a “good feel” mentality where people feel wealthy as house and stock prices inflate, persuading them that they are wealthier than they really are and promoting imprudent spending until the bubble bursts, when everything is lost.
Unfortunately, apart from the creators of these bubble conditions, most of the population doesn’t realise what is happening until it is too late and have to face the consequences of their exploding debt.
Although the pandemic will probably have a serious effect on the economy, it should not mask the systemic weakness that exists and which has militated against the sustainability of economies and is contributing to the ability to sustain the shocks that could be compounded by its progression.

You’ve nailed it. That’s it and the whole of it. But what can one do? This is powerful systems deeply entrenched in modern financing. Difficult to see the end game here.

rsa needs a prime rate of nothing more than 5 %

End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR

Podcasts

NEWSLETTERS WEB APP SHOP PORTFOLIO TOOL TRENDING CPD HUB

Follow us:

Search Articles:Advanced Search
Click a Company: