April 15, 1986 - VOLUME 7 - NUMBER 7
A P A R T H E I D ' S V I C T I M S A N D A L L I E S
by Ellen Hosmer
The mild economic sanctions imposed on South Africa by President Ronald Reagan in September of 1985 have had little effect on the white minority government. "Sanctions are the march of folly," State President P.W. Botha told the Washington Times recently.
But the Botha government is increasingly feeling the heat from another, more powerful source: the more than 300 Western banks which are creditors of the country's $14 billion in short-term external debt.
Following an intense period of negotiations, debt mediator Fritz Leutwiler announced on February 20 that a "broad consensus" had been reached between South Africa and its foreign creditors. Since then, however, both sides have described the nature of the as-yet-unpublished agreement quite differently.
According to South African officials, the agreement amounts to a further extension of the country's debt repayments, albeit on terms more stringent than they had hoped. But U.S. banks downplayed the consensus, and dubbed it a mere "interim agreement" that will ultimately allow them to recoup some of their investments, but will in no way lead to a long-term restructuring of the country's U.S. debt.
The Botha administration unilaterally froze payments on its short-term debt in September 1985, following a refusal by its major creditors to roll over loans. The agreement reached in February in effect renews a total of more than $10 billion in loans that fall due before June 1987. But, South Africa must pay 5 percent of all its short-term debt coming due between September 2, 1985 and April 15, 1986 in one lump sum on the latter date. The government must then pay five percent of all short-term debt as it comes due until June 30, 1987. Over the course of the year, South Africa will pay approximately $500 million in these lump sum payments.
By keeping the South Africans paying installments on its $14 billion short-term debt, U.S. bank officials claim, they will be pressuring South Africa to implement political reforms.
"The banks are not losing any opportunity to let the South African government know that there will be no return to the market and no resumption of external credit flows until the apartheid system is resolved," said a U.S. bank official involved in the February negotiations.
But, where a continued moratorium on the payback of the short-term debt would have kept the country isolated from its creditors, the agreement brings both sides back to the bargaining table in what could be a first step in the South African government's attempts to attract new credit.
The growth of anti-apartheid sentiment in the United States coupled with the gloomy forecast for South Africa's stagnant economy, however, could make U.S. banks reluctant to extend further credit even with this initial agreement.
"I don't think U.S. banks are going to run to put more money in," said Richard Knight of the anti-apartheid group, the American Committee on Africa. But, he added, Citibank and Chase Manhattan "have not said that they're not going to put new money back in."
According to the Corporate Examiner, a newsletter of the Interfaith Center on Corporate Responsibility (ICCR), the Bank of Boston, Bankers Trust, Mellon Bank and Wells Fargo have already "decisively announced they will not renew loans or make new loans until apartheid has ended."
Under the Reagan administration's sanctions, U.S. banks were prohibited from making new loans to the South African government beginning in mid-1985. By that time, however, a large number of U.S. banks had already halted loans to the Botha government. Instrumental in the curtailment of U.S. loans to Pretoria was an anti-apartheid resolution in New York City in the spring of 1985 which required all city investments to be withdrawn from banks that made loans to the South African regime.
In the last 18 months, loans from U.S. banks plummeted from $4.6 billion to $3.4 billion, according to the American Committee on Africa.
Initially, the ban on bank lending to the public sector was offset by an increase in loans to private businesses within the country and, more significantly, to South African banks who then in turn could lend money to the South African government.
According to a report of the World Council of Churches in ICCR's Corporate Examiner, "from mid-1982 through 1984 South African banks had lent $1.382 billion to South African borrowers, up from $182.2 million," a 658 percent increase.
Rev. Carol Somplatsky-Jarman, director of the ICCR's South Africa program called the new emphasis on private loans, "little more than a back door for lending to the South African government," at a House banking subcommittee.
Today, however, a growing number of U.S. banks are halting private sector loans, a move that could cause the South African economy to deteriorate still further. Unemployment in the country hovers around 20 percent and in some homelands exceeds 50 percent.
Adding to South Africa's economic problems has been the growing pressure on Western businesses to pull investments from the country. Last year more than 20 U.S. companies pulled out of the country. For many other U.S. businesses, continued political violence coupled with a three-year recession has made the cost of doing business in South Africa prohibitively high.
Spurred by the growing disenchantment of its allies in both the financial and political worlds, the P.W. Botha government has taken pains in recent months to demonstrate that it is committed to political change, but needs time to implement reforms.
President Botha used his annual state of the nation address January 31 to reveal what was greeted by South Africa's allies-most notably the Reagan administration-as a major reformist speech.
But Washington's initial enthusiasm over the speech has turned to frustration and impatience, as racial violence continues at an unprecedented rate. Although a seven month state of emergency imposed throughout much of the country was lifted March 7, the incidence of state repression and black uprisings continues to rise.
Privately, State Department officials say they are worried by the fact that not one of the major reforms promised by Botha at the end of January is slated to be put into effect this parliamentary session.
With political turmoil at a peak, the South African government embraced the February 20 agreement as a significant step toward the country's re-entry into the international monetary market. But the decision by Barclays Bank, Britain's largest bank and a party to the agreement, to issue a strongly worded statement condemning the South African government and refusing to roll over the country's substantial debt only two weeks after the February agreement undermined Pretoria's claim.
"We shall commit no new money to that country, nor shall we be party to any formal debt rescheduling," Sir Timothy Bevan, chairman of Barclays told the London Telegraph, until "there are changes which confirm an end to the bankrupt policy of institutionalised racial discrimination."
Bevan's statement was especially damaging considering Barclays past involvement with South Africa and its longtime refusal to bow to pressure from anti-apartheid groups to pull funds from the country. Barclays owns 40 percent of Barclays National Bank (Barnat), South Africa's largest bank and has loaned over 800 million pounds to the country through Barnat.
Although the February 20 agreement requires a September review, at which time a real rescheduling could occur, many are skeptical that U.S. banks will be willing to extend credit to the embattled regime.
"Bankers are not going to stop calling in loans while the risk involved with doing business in South Africa is as high as it is," said a U.S. bank official. And, he added, "We don't see the risks abating until the political crisis is solved."