South Africans should accept that the IMF is neither their worst enemy nor their saviour

South Africans will learn the actual terms of the IMF financing at the end of July.
Image: Andrew Harrer/Bloomberg

The South African government has asked the International Monetary Fund (IMF) for $4.2 billion. The money would come from a facility that provides financing to countries

facing an urgent balance of payments need, without the need to have a full-fledged program in place.

According to the IMF managing director this means that the recipient can spend the money freely but should keep the receipts. Nevertheless, reports that South Africa has been negotiating a letter of intent with the IMF suggests that at least part of the financing will be linked to tougher IMF conditionalities.

The letter of intent is a letter from the government to the IMF in which it sets out the policies that it intends to implement to correct the macro-economic problems that caused it to seek IMF support. The IMF board decides to provide a country with financing on the basis of this letter. Its contents are the core of the conditionalities attached to IMF financing.

South Africans will learn the actual terms of the IMF financing at the end of July when its board of directors considers the country’s request for financial assistance.

But many have already made up their minds about this transaction. Some see it as a humiliating defeat in which the country will be forced to surrender its sovereignty and accept demeaning and immiserating economic policies. Others see it as the first step back from the abyss. They expect the IMF to force the country to take its medicine, as bitter as it may be, and regain economic health.

Both these views are overwrought and ultimately misleading. South Africa has more bargaining power in its relationship with the IMF than either view suggests. In the end, the terms of the IMF arrangement will depend on how effective the government was in its negotiations with the IMF.

To understand this, we need to answer three questions: Will South Africa have to surrender part of its sovereignty to the IMF? Is the IMF a particularly unreasonable negotiating partner? What responsibilities does the IMF have in negotiating the conditions?

The three questions

Will South Africa have to surrender part of its sovereignty to the IMF?

Sovereignty is a complicated and sensitive issue. It raises concerns about a state’s autonomy and ability to control its own destiny. One manifestation of sovereignty is a state’s decision to sign an international agreement. It shows that it is an actor on the international stage capable of reaching binding agreements with other subjects of international law – states and international organisations like the IMF.

Nevertheless, most international agreements restrict the sovereign’s freedom of action.

Consider, for example, the African Continental Free Trade Agreement. This agreement obliges South Africa to open – and keep open – its economy to trade with the rest of Africa. Before agreeing to this limitation on its freedom of action, South Africa negotiated with its co-signatories to minimise the cost of its commitments and maximise the benefits it expects from the arrangement.

South Africa’s arrangement with the IMF is similar. It is exercising its sovereign prerogatives when it decides to enter into an arrangement with the IMF. Before doing so, the country should negotiate for the best possible deal with the IMF.

Is the IMF a particularly unreasonable negotiating partner?

No bank, charitable foundation or international financial institution provides large amounts of financing without attaching conditions designed to ensure that the recipient uses the funds responsibly and pays them back as agreed. These conditions can range from demanding collateral to requiring promises that restrict the recipient’s future conduct in some way, such as limiting the ways in which it can use the funds.

The IMF conditions its financing on policy measures rather than on collateral or promises about the use of the funds. Historically, these conditions were ideologically driven and controversial. They included reducing the economic role of the state, making economies more market friendly and more globalised.

More recently the IMF leadership has incorporated issues such as inclusiveness, sustainability, social safety nets and gender parity.

It is not easy to predict what the exact mix of conditions will be in any particular case. The experience of other countries suggests that the actual mix is a negotiated outcome. Consequently, the conditions’ content and wording will depend on the country’s economic situation, its willingness to engage in tough negotiations with the IMF and on how effective it is in convincing the IMF of the validity of its positions.

What responsibilities does the IMF have in negotiating the conditions?

The IMF’s Articles of Agreement states that it should help countries

correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity.

Thus, the IMF should demonstrate that whatever conditions it attaches to its funding are consistent with the recipient’s prosperity over the medium term. It must also show that it is not helping one IMF member state at the expense of its responsibilities to other member states.

In addition, the IMF, like any international organisation, should comply with applicable customary international law principles.

First, it must respect the sovereignty of its member states, including their laws. Second, it must respect their international legal obligations and not undermine their ability to meet these obligations. Third, the IMF, which is a specialised UN agency, should, pursuant to the Universal Declaration of Human Rights, [contribute to securing the

universal and effective recognition and observance” of human rights.

Based on these principles, the IMF has three responsibilities in regard to its arrangement with South Africa. First, it must ensure that the conditions attached to its financing are consistent with the South African constitution. In particular this means that the IMF must ensure that its conditionalities are consistent with the bill of rights in the constitution.

Second, the IMF must make sure that it does not require anything that is inconsistent with South Africa’s treaty commitments. These includes the state’s international human rights and environmental obligations. Out of respect for South African sovereignty, the IMF must defer to South Africa’s interpretation of these commitments, provided they are not inconsistent with international law.

Third, the IMF should explain how it has determined that the effect of its conditionalities is consistent with the applicable international legal principles. It is important to note that this requirement does not mean the IMF cannot require the state to take such actions as cutting its budget. But it does mean that the IMF has a responsibility to show that these cuts are the least cost way of achieving its objectives.

South Africans should not view the IMF either as the protagonist in its nightmares, or as its saviour. Instead the country should treat it as it would any other financial institution. It should demand that it live up to its own international responsibilities and demonstrate why it thinks its agreement with the government will benefit all South Africans. 

Danny Bradlow, SARCHI Professor of International Development Law and African Economic Relations, University of Pretoria

This article is republished from The Conversation under a Creative Commons licence. Read the original article.


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

You must be signed in and an Insider Gold subscriber to comment.


What does it say about a government that has to CONTINUALLY BORROW?? Inept?? On the job trainees? economically clueless? Remember YOU voted for this GUBMENT !!! (I am American) So it’s not a racial slur!They took this country to JUNK! Now do you really think they have a “RECOVERY” plan?????????????????? Your #I’mstaying isn’t working in the circles I go in.

So, Zokey, did the great unwashed masses also burnt your town to the ground and looted everything they could lay their hands on during the BLM debacle?
I hope you kept your powder dry during all off this.

Oh Chris, I see America printing money and soon it will collapse. I just see S A going there faster. I mean with all the fraud and corruption AND NO ONE GOES TO JAIL???????????????? And don’t get me wrong it’s in both countries

For a moment there I thought you were talking about the USA.

The cadres/struggle stalwarts [AKA ‘warts’] will steal most of the money as usual, while the already heavily overburdened taxpayer will be forced (read: fleeced) to cough up in order to pay back the IMF.

As the Greek tax dodgers, socialist government and welfare queens noticed, to their immense chagrin, the good days of looting and living the high life are over once you’re bailed out by the likes of the IMF. State pensions got cut, the government payroll got slashed, and the tax dodgers were made to pay. Athens burned. Hard times are coming for SA’s looters and welfare parasites.

What is R70 Billion going to achieve?
This is just enough to cover our year end short fall…

South Africa needs to reconcile all of its debt
R3.7 Trillion for Federal debt
R4.8 Trillion for Municipal debt
R8.5 Trillion for job creation (17 mil unemployed x R500,000 per job)
R3.0 Trillion to bailout the consumers
R20.0 Trillion Required ($1,200,480,192,076.82)

The debt clock is ticking up at R6,106.00 per second

If you are going to approach the IMF at least make it worthwhile and stop wasting everyone time and attention with this singing, dancing and blaming.

At what point can we start to blame the anc and their voters for causing the pain, suffering and humiliation?

That is what they call leadership?????????????????????

Tell the IMF not to worry – – Cyril (who was deputy president whilst all the looting went on – and himself a very rich man due to BEE handouts) is now in charge of fighting corruption and will get every cent back………Just another promise he will not keep – just saying it to appease the IMF.

Parliamentarians will not understand what the IMF is nor what these loans entail. They’ll only be asking three questions

1. This is a handout right?
2. If not, can we pay it back with printed money
3. How can we scour as much of this money before the ship sinks?

Humiliating defeat?
The ANC loonies do not know the emotion of embarrassment and I certainly am not going to feel humiliated on their behalf. They still cannot appreciate their own ineptitude and never will. Let them swallow the medicine. But I doubt they will learn from it.

My Domestic assistant was Genuinely convinced that the Paler Population got money free ex an ATM !!
I believe that the Majority of RSA,s Population thinks the IMF Loan is in fact a Gift , as part of their Freedom !!!
Never have so few supported so many for so long !!!

IMF bailout, proudly brought to you by the ANC. Higher taxes await SA citizens, more looting and IMF defaults in 5-10 years with cries of the nasty West (WMC thrown in to add to the narrative) for dictating the terms…..

The article is optimistic and trusting to the lender. It’s silent on the possibility of this loan turning out to be reckless lending. I do not doubt the mandate of the IMF.

But here is Africa history suggests that this is gonna end badly. The worst defense I have heard is “SA is a member”. By that so SA should not be criticised for approaching these institutions. That logic alone is like saying an individual can borrow from a bank because the bank has money and I qualify for a loan.

You do not fix a leaking can by adding more water. I really worry about what happened to to all the money SA had. Getting more money without answering the question is recklessness on SA part.

#Iamstaying does not fix the leaking can either. At its best its a bet that the worst won’t come in my lifetime. Or a resignation to the fact that it may not be greener on the other side.

My estimation is that real chaos will start when the Buffalo finishes its term or is removed from office whichever happens first.

Pattern: (a) uprising (b) ‘freedom’ [1993] (c) blame (d) destruction of prior infrastructure and corporate memory (e) borrowing from hated capitalists [present day] (f) endless poverty (g) blame … (f) endless poverty etc etc ad infinitum

It is quite bizarre for the author to think that the IMF is responsible for seeing that the funds it lends are appropriately employed, yet at the same time allowing the recipient to carry on as it wishes. In the case of SA the fact is that current government policies are driving the country to ruin, and unless they are comprehensively overhauled nothing will change in that regard. Therefore, the IMF is obliged to intervene in SA’s fiscal policies – or politely decline the loan request.

Which reality brings us to the “humiliating defeat” and “loss of autonomy” part of the story.

Frankly, humiliating to the populist political elite, and if it results in access to more advanced technology and better skills in designing, implementing and overseeing policy, so much the better.

A more stable and less cumbersome framework for the rest of us ants to get on with the thrive in our hive- excellent!

SA in junk territory led by a junk and corrupt party

The IMF MUST include one key criterium for the bailout: NO ANC RACISM. We’ve had enough.

Lend/borrow is a bad and vulgar word kids!

Interesting that people dont trust the IMF… I dont trust our own gov, never mind the all the other govis…

A discussion about fiscal responsibility is probably a daunting prospect for our government. Hence the feelings of a loss of sovereignty. The IMF is not threatening our sovereignty at all. South Africans have no reason to fear the IMF. On the other hand, profligate government cadres, looters, and corrupt politicians and their connected friends should fear the IMF.

How disappointing that pres. CR’s speech on Covid corruption was not on principle, or because it is the right thing to do, but only because the government needs the IMf loan.

God i wish i could live in the USA to compare SA problems to america ridiculous

End of comments.




Instrument Details  

You do not have any portfolios, please create one here.
You do not have an alert portfolio, please create one here.

Follow us:

Search Articles:
Click a Company: