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South Africa, Zimbabwe Discuss Bailout Package


South Africa's top finance officials have been meeting with their counterparts from Zimbabwe to discuss the terms of any loan to help Zimbabwe pay its debts to the International Monetary Fund. Under IMF rules, Zimbabwe could be expelled from the institution for failing to meet its obligations. The South African offer to help Zimbabwe is tied to political and economic conditions that Harare is resisting.

For more than a month, Zimbabwe President Robert Mugabe has been trying to secure a loan of about $1 billion to make minimum payments on Zimbabwe's debt, to fund food and agricultural products and to pay for fuel.

Last month, South Africa said it would consider providing a line of credit to Zimbabwe, but attached several economic and political conditions to the offer. Mr. Mugabe balked at the terms, and instead went to China, which refused the assistance he was seeking.

At a minimum, Zimbabwe needs to pay the International Monetary Fund $50 million to avoid expulsion when the fund meets to review Zimbabwe's status in the coming weeks. Zimbabwe currently owes the fund $295 million. Together with its other international debts, Zimbabwe could accrue a $1 billion balance of payments deficit by the first quarter of 2006.

This week, Mr. Mugabe's emmissaries were back in South Africa. Government spokesman in Pretoria, Joel Netshitenzhe, said Mr. Mugabe may get about 10 percent of the $1 billion he wants. Another official, who asked not to be named, said the assistance will be given in exchange for commitments to constitutional reforms, negotiations with the opposition and restoration of the rule of law. In addition, the official said, South African Finance Minister Trevor Manuel wants Zimbabwe to implement an economic recovery plan that can be sustained over the long term.

South African officials have not publically confirmed these conditions, saying only that any assistance must go to "economic recovery" and "political normalization" and that South Africa's dealings with other countries are not based on conditions.

Privately however, government officials are expressing some optimism that South Africa may now have some leverage to influence developments in Zimbabwe. South Africa has drawn criticism for failing to address international concerns about its neighbor's economic decline and human rights situation.

However, convincing Mr. Mugabe to accept South Africa's conditions could prove difficult. Mr. Mugabe has in recent weeks frequently said he would not accept any assistance that comes with conditions. And, he has refused to ask the World Food Program for food aid, which an estimated four million Zimbabweans are expected to require by early next year.

Political analyst John Stremlau of the University of the Witwatersrand in Johannesburg, says President Mugabe is likely to continue to resist South Africa's prodding toward change for as long as he can.

"I don't think any of us can predict whether or not Mugabe is prepared to compromise his policies, which have raised such international concern," stated Mr. Stremlau. "South Africa's central interest has been to promote a government of national unity, which would allow Mugabe to step aside, and for a new breed and a will of leadership to emerge, and I think that's probably what is behind this bargaining around the loan."

Zimbabwean economist Tony Hawkins says, even if South Africa were to lend Zimbabwe the full amount it wants, the benefits would not last long.

"I don't think it would have anything like as major [an] effect as some are suggesting," he said. "In the current year, it looks as though Zimbabwe is going to run a balance of payments deficit in the region of $700 million to $1 billion. So, it could well be that, if this loan were to materialize, it would be pretty much used up by the first quarter of next year."

In the past six years, Zimbabwe's economy has contracted by 40 percent, and unemployment in the formal sector has risen by a third. Professor Hawkins says the effects have been far-reaching.

"People are obviously an awful lot poorer than they were. Incomes are on average about 40 percent lower. We have seen a big outflow of skills, black skills, white skills - a lot of the younger people have moved on. We have seen shrinkage, in terms of companies - a number of foreign companies have just sold out and moved off, or relocated some of their operations, mostly to South Africa," added Mr. Hawkins. "We have seen virtually no investment since 2000. We have seen a very serious deterioration in underlying infrastructure, anything from urban lighting, and sewerage and housing, right through to telephones, railways, aircraft, electricity provision."

The World Bank estimates that until the government's recent campaign to relocate tens-of-thousands of people from urban homes and businesses, the informal sector, or the gray market, comprised 60-percent of Zimbabwe's economy. Mr Hawkins says the losses to the informal sector from what the government calls a cleanup campaign have affected suppliers in the formal economy. But he says the real effect has been to those people who made what was already a meagre income selling from the streets or micro-businesses.

"But in the informal sector level, you have people who, a few months [ago] were earning five [hundred] to 600,000 Zimbabwe dollars [about $13 US on the informal market] a day from selling vegetables to people on street corners," said Mr. Hawkins. "And we are now told that they are, perhaps, earning one [100] - or 200,000 dollars a day, by doing the same thing very clandestinely."

Professor Hawkins says, even if Zimbabwe does accept and implement the conditions set by South Africa, long-term recovery in the Zimbabwe economy will be very slow, and it will take at least a decade for the economy to start growing again.

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