South Africa and international financial institutions – liaison group could recalibrate relations
Since the onset of the COVID pandemic in 2020, South Africa has borrowed a total of around US$7 billion (around R106 billion). The money came from the International Monetary Fund, the New Development Bank, the African Development Bank and the World Bank.
The country assumed these debts without any transparent or accessible process of public consultation or publicly available studies on the expected impacts of these loans on poverty, public health, job creation and social welfare in the country.
It is worrying. The government’s obligation to repay these loans has financial, economic, social and possibly political implications for all South Africans. This could affect how much the government can spend in the future to create jobs, tackle poverty and inequality in South Africa, and support 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 mere organizations 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 government engagements with these institutions. It could also have important implications for South Africa’s longstanding efforts, together with its partners in Africa, the BRICs and the G77, to promote fairer governance of the global economy.
A group of civil society organizations and academics, including myself, responded to these concerns by proposing that the government establish a South African IFI Engagement Group. We argue that such a group will enhance the effectiveness of South Africa’s relations with international financial institutions. This in turn should help the country derive the maximum benefit from its membership in these organizations while minimizing the associated costs.
How it would work
The controversies relating to the financing of international financial institutions have two aspects.
The first concerns the borrowing government’s own decisions and actions. Formally, international financial institutions only provide funding to support policies or projects that the government promotes. This means, for example, that the South African government decides 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 that response.
Similarly, the electricity utility Eskom and the government decide to build the Medupi coal-fired power plant, then approach the World Bank to finance the project.
Therefore, the government is the appropriate target for any criticism of these decisions. This includes its decision to accept the terms on which the institutions offer the funding.
The second set of considerations relates more to the specific responsibilities of international financial institutions. Most have policies that inform both their staff and the public about how they will assess and manage the impacts of the projects and programs they fund.
For example, local communities may argue that they were wronged because the World Bank did not follow its own policies when it made the decision to fund Medupi.
The South African government is clearly not responsible for these decisions of the international financial institutions even if they directly affect the communities. Nevertheless, he should have an interest in knowing about these community concerns. Communities are not passive participants in the policies and programs promoted by the government. They can influence their success and complicate the government’s ability to access funding.
One way for the government to mitigate these risks is to create an engagement group.
The objective of the group would be to facilitate an exchange of views between the government and interested civil society actors on the country’s relations with international financial institutions.
Members of such a group would include representatives from the National Treasury, other ministries and civil society. Civil society representatives would be selected from a range of organizations. These could include think tanks and trade unions interested in issues relating to international financial institutions.
In order to promote a frank and open exchange of ideas, these meetings must be held under Chatham House rules. These are that those present at the meeting can share the information they receive, but they do not reveal the identity of those who said it.
The agenda for the meetings could include any matter relating to South Africa’s engagement with any of the institutions of which South Africa is a member.
The group could provide a mechanism through which the government could hear the concerns of affected communities before finalizing its borrowing plans. Or before they become potential threats to a project’s success.
For example, civil society representatives would be better placed to learn from local communities what they think of a renewable energy project proposed to be funded by international financial institutions. They may strongly oppose it because they suspect that the jobs created by the project require skills that the community does not have. They may also fear that the construction will negatively affect their current income-generating activities.
The engagement group would provide the government and local communities with a forum to discuss these concerns. This would help the government to develop a more accurate assessment of the risks and benefits of the project. This, in turn, would allow him to make a more informed decision about whether to borrow money.
It could also educate civil society representatives on the rationale for the project. This would help local communities and their supporters to make more informed decisions about the project.
Another example is that one of the international financial institutions may be considering changing its climate change policies and need member state approval for the changes. The engagement group would provide a forum in which the government could hear the views of non-state actors. This would help the government make informed decisions. It would also help South African representatives to more convincingly defend the government’s position within the institutions.
Such engagement groups are not without precedent. They exist in countries like the United States and the Netherlands. They operate informally and have not been written down. But in our engagements with the individuals who are involved in them – or who have worked with them – we have learned that they have helped to improve the effectiveness of their countries’ engagements with institutions as well as to promote accountability and reforms. operational.
There is no reason to think that a South African engagement group would be any less effective in enhancing the effectiveness of the country’s engagement with these institutions. In fact, it would contribute to the President’s stated goal of forging a stronger bond between government and society so that they can all work towards creating a more just and equal society.
Danny Bradlow, SARCHI Professor of International Development Law and African Economic Relations, University of Pretoria