The Multinational Monitor


N E W S   M O N I T O R

Banking on Apartheid

An expanding Business

by Carole Collins

Transnational banks, facing de facto defaults by several major Third World debtor nations, have upped their stake dramatically in white minority-ruled South Africa. Led by banks in Switzerland, the U.S., Britain and West Germany, the new loans have helped South Africa weather its second largest trade deficit in history - $2.8 billion in 1982 - and sustain its massive, capital intensive infrastructure projects and expensive military apparatus. The loans also come at a time when South Africa's gold revenues have dramatically dropped in value.

According to a recent U.N. study, the major international lender to South Africa was the Union Bank of Switzerland, followed by Citibank of the U.S. The eight other top bank lenders included four West German banks, two from France and one each from Belgium and Switzerland. In 1982, South Africa raised at least $2.4 billion in European lending markets, almost five times the $510 million it raised in 1981.

These loans do not include the more than $1 billion in international Monetary Fund (IMF) loans which South Africa successfully negotiated in November 1982, despite unprecedented opposition from 68 countries. Critics charged that South Africa had failed to meet the IMF's own economic criteria or demonstrate its need for the loan. Others noted that South African economic policies undermined free enterprise and free trade, which the IMF loan conditions seek to strengthen.

But the real purpose of the loan was revealed by South Africa's Finance Minister Owen Horwood during an interview three months after the loan was granted: the IMF loan had helped South Africa to repay its higher-interest commercial loans with funds from the less costly IMF monies.

The bulk of this international lending has gone to finance strategic sectors of South Africa's economy essential to maintaining white minority rule, especially the Electricity and Supply Commission (ESCOM) which operates South Africa's energy and nuclear power industries.

In October 1982 ESCOM officials said that they hoped to borrow almost $1.7 billion by the end of the year and an additional $2.2 billion in 1983. During the first three months of this year, ESCOM managed to raise $650 million from international banks. South African Transport Service, which constructs and maintains South Africa's railways, harbors, airports and airline, sought to raise $414 million from overseas banks in 1982.

U.S. loans to South Africa had steadily declined by over half between 1977 and 1980 in the wake of the 1976 Soweto student uprising, 1977 bannings of black civic and political organizations, and growing public sentiment in the U.S. and Europe to end loans to South Africa. Between January 1981 and June 1982, however, U.S. banks increased their loans to South Africa by a whopping 246%.

This renewed lending has highlighted bank financing of apartheid at a time when U.S. direct investment has remained steady or declined slightly. It also comes at a time of unprecedented public pressure to break economic links with white-ruled South Africa. Over 21 state governments and 8 cities and counties in the U.S. are considering some legislative action against apartheid. Similar campaigns have also been launched in Europe.

In October 1982 the United Nations Centre Against Apartheid documented 57 new loans made between 1979 and mid-1982 by over 181 transnational banks from 18 countries. Two-thirds of the loans cited by the study were made to the South African Government or partially state-owned corporations. Fully one-third were made to ESCOM alone.

A comparison of the U.N. figures with U.S. Federal Reserve Board statistics, however, indicate that the U.N. is documenting only the tip of the iceberg. The U.N. maintains the U.S. and European banks participated in only $203.1 million in loan transactions in the first six months of 1982. The Federal Reserve Board, however, claims new U.S. lending increased by $933 million during that period.

Federal Reserve Board figures from January 1981 through June 1982 show dramatic increases in loans to the South African government and its publicly owned corporations (a 122% rise in 18 months), and to South African banks (a 387% increase during the same period).

For the first time, the Federal Reserve Board separately tallied lending by 24 U.S. banks with the largest amount of total capital. The top nine money center banks - Bankers Trust, Chase Manhattan, Chemical, Citibank, Manufacturers Hanover, J.P. Morgan, Continental Illinois, First Chicago, and BankAmerica - account for 65% of all outstanding loans to South Africa in June 1982. Another 15 banks - First Boston, Marine Midland, Bank of New York, Irving Trust, Mellon Bank, National Bank of Detroit, InterFirst Bank of Dallas, Republic Bank (Dallas), First City National Bank of Houston, Texas Commerce Bank, Security Pacific, First Interstate Bank of California, Crocker National, Wells Fargo and Seattle First - account for 18070 of all outstanding loans to South Africa in June 1982.

Those 24 banks account for 90% of all U.S. loans to the South African government and 86% of all U.S. lending to South African banks.

Lending to the South African government has been controversial since the early. 1970s, when church groups initiated shareholders' resolutions seeking to end U.S. bank loans to South Africa. Chemical Bank halted such loans to the South African government as early as 1974, though it still makes trade-related loans. This year, church activists for the first time proposed "friendly" shareholders' resolutions praising Chemical and four other financial institutions (Shearson/American Express; Sears Roebuck & Co./Dean Witter Reynolds; and First National Bank of Boston) for adopting such a policy. Local anti-apartheid groups continue to press these banks, however, for an end to all types of loans to South Africa.

As U.S. lending to South Africa has continued to increase, however, more groups have turned to divestment legislation as a more potent means of achieving concrete changes in bank lending policies. Michigan in 1980 became the first state to bar deposit of public funds in banks that continue to lend to South Africa. Last fall conservative Grand Rapids - home to former President Gerald Ford and to many Dutch-Americans with church and ethnic ties to South Africa's ruling Afrikaaners - banned deposit of city funds in U.S. banks lending to South Africa. In January, a bill was introduced in the nation's capitol that would bar deposit of city funds in banks that lend to South Africa.

Most dramatically, First National Bank of Chicago agreed in late March to stop selling krugerrands-a one-ounce South African gold coin-after both Chicago mayoral candidates announced they would seek to bar deposit of city funds in any banks that continued to do so. Together, these developments are testimony to the effectiveness of growing pro-divestment sentiment.

Carole Collins is an associate fellow at the Institute for Policy Studies and the National Coordinator of the Campaign to Oppose Bank Loans to South Africa.

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