Our coming train crash

cjm
Talks too much

Posts: 50,179

Our coming train crash Aug 5, 2019 7:14:25 GMT

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Post by cjm on Aug 5, 2019 7:14:25 GMT

Our coming train crash

This is quite brutal.

There have been several advance tremors in the last week. One was the declaration by the National Treasury’s director-general, Dondo Mogajane, that what was really needed was a 10% salary cut for all public servants simply to cover the cost of SOE bailouts thus far. “National Treasury’s box is empty”, he said. “Growth is not coming through and tax revenues are not there. We are in trouble.” He then added that the 10% wage cut scenario was unlikely. “Realistically, it’s not something we can approve and it’s not really possible, but there are no holy cows and we have to make some tough decisions. We need to avoid a situation where everything collapses.” He went on to say that the government needed to be open to borrowing from multilateral institutions: “We should not be afraid to go to the Brics bank (the New Development Bank or NDB), the African Development Bank (the AfDB) and the World Bank and say: “Let us diversify our debt portfolio.””

There are a number of interesting points here. First, the Treasury has clearly begun to think about “a situation where everything collapses”. Secondly – and in line with a lot of other current government rhetoric – he insists that there must be tough action, no holy cows, but then immediately backs away from the tough action he had proposed (the 10% salary cut), declaring it to be a holy cow. Then, warming to his theme, he comes up with the government’s favourite solution: more debt. Because, of course, he’s not really talking about diversifying the national debt – that would mean redeeming some of it and borrowing elsewhere, and no one is even dreaming of redeeming any debt. Really what he means is let’s go off to these other institutions and borrow some more.

Last Edit: Aug 5, 2019 7:18:05 GMT by cjm

White lives do not matter

cjm Talks too much Posts: 50,179	Our coming train crash Aug 6, 2019 7:07:40 GMT Quote Select Post Deselect Post Link to Post Member Give Gift Back to Top Post by cjm on Aug 6, 2019 7:07:40 GMT South Africa facing “bitter medicine”
	White lives do not matter

cjm Talks too much Posts: 50,179	Our coming train crash Aug 7, 2019 6:50:14 GMT Quote Select Post Deselect Post Link to Post Member Give Gift Back to Top Post by cjm on Aug 7, 2019 6:50:14 GMT A dam about to burst
	White lives do not matter

cjm
Talks too much

Posts: 50,179

Our coming train crash Aug 12, 2019 8:45:30 GMT

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Post by cjm on Aug 12, 2019 8:45:30 GMT

The IMF can do what the ANC can't

The first thing to note here is the deliberate and studied vagueness with which both these gentlemen refer to the things that need to be done. This is very much in line with the Presidency and the Treasury, both of whom talk about the need for “tough measures” and “hard choices” but never get round to telling us what these are. Mr Kganyago simply refers to “bitter medicine”, while Bruce mentions cost cuts and labour market reforms but says these “are just the beginning”, without somehow being able to tell us more.

If you think about it, what this means is that the government, both these gentlemen and, indeed, various businessmen who have inveighed about the need for (unspecified) hard decisions, are all somewhat nervous about actually speaking aloud about what needs to be done. If you reflect on this general timidity you realise that all these parties – including the government – are anxious not to have their names associated with the list of reforms which come under the heading of What Is To Be Done. To be fair, the cases are different. Mr Kganyago and a businessman like, say, Mike Brown of Nedbank, are under clear professional constraints not to fully speak their minds. Mr Bruce, on the other hand, is free to speak the unvarnished truth.

However, let me summarise again. We need to get rid of affirmative action, BEE and EWC. We also need to privatize many, probably most, of the SOEs and to liberalise the labour market so as to let the ten million unemployed compete for jobs. Why are wages for textile workers more than ten times higher in South Africa than they are in Ethiopia? The result of that is that the Ethiopian textile industry thrives and employs many thousands of people, while ours is dead. We also need to cut our civil service and public sector wage bill pretty drastically by a mixture of redundancies and wage freezes.

How can one possibly justify the fact that average wages at Eskom are around R800,000 p.a. - including many thousands of unnecessary jobs ? And we need to comprehensively reform our education system. We cannot really pretend that we are preparing to maintain our present state, let alone any fourth industrial revolution, if our schools are worse than they were under Bantu Education and our universities are in general decline. Forget the new cities and the bullet trains. Can we maintain our supply of water and electricity?

Not only has the IMF been saying many of these things for ten years but so have the World Bank, the rating agencies, the OECD and not a few independent commentators. Under both the Zuma and Ramaphosa regimes the ANC and government has stolidly refused to listen, let alone act. And after all, even comparatively simple reforms like splitting up Eskom into three or scrapping our crazy visa system have not actually been carried out. Yet Messrs Bruce, Kganyago et al. apparently believe this will all change completely and very quickly and a whole raft of drastic reforms will be forced through. Really?

After all, as Bruce admits, the government could transform the situation if it invited the business community in to help sort things out. But that would mean appointing some leading white businessmen to run some of the SOEs. If the government lacks the nerve even to do that, how can I believe in the wager that Bruce and Kganyago are making? I am taking bets, gentlemen, and I’d like to see the colour of your money.
After all, what is the evidence? Thus far Ramaphosa has made not the slightest move towards any restructuring and yet he has been happy to support a whole series of damaging initiatives – EWC, a land reform which will threaten food security, and the pure impossibility of NHI. He failed even to choose his own cabinet (which the constitution empowers him to do) or to prevent the appointment of some of the worst elements in the ANC to run the parliamentary committees. He has backed down before the Zulu king, the unions and even Magashule. If Bruce and Kganyago think he believes that “boldness be my friend”, I am puzzled.

Personally I don’t have any 100% certainties about the future. I agree that there is a danger of a populist response. But after all, if Bruce and Kganyago are right and the ANC is about to amaze us by pushing through all these drastic reforms, then they still have nearly another five years before they have to test their parliamentary majority. And the lesson of history is that the parliamentary ANC slavishly follows whoever is President. They voted for whatever Mandela said, they supported Mbeki despite his crazy Aids policy which cost hundreds of thousands of African lives and they supported Zuma despite Nkandla, the Guptas and all the rest. Of course Magashule will pull in another direction but ANC MPs know that it was Ramaphosa, not Magashule, who won the election for them.

There are several other key points. One is that so many African countries are currently either involved in IMF bail-outs or are desperate to get one that it is quite odd that South Africans should have such a holy horror of that eventuality. Pakistan is on its eighteenth IMF bail-out. Even Britain has had one. Second, if we are going to go through the rigours of restructuring would you really prefer that we do it all on our own resources or with the help of (say) an extra $50 billion to tide us over? Thirdly, one of the big points about an IMF bail-out is that it enables local politicians to lay the blame on the IMF for the unpopular reforms that then have to go through. Do you really think our local politicians would prefer to take all the blame themselves? There isn’t exactly much evidence for that, is there?

Now, with the country [ie Zimbabwe] an irrecoverable wreck, the Mnangagwa regime is desperately pleading for an IMF loan – but can’t get one until it pays back the previous IMF loan. As one looks back one can see quite clearly that the crucial moment came when Mugabe did what Bruce is now doing – placing a supposed political “imperative” before economic necessity. Yet Mugabe could and should have faced the war vets down, especially since many of them were bogus war vets to begin with, far too young to have fought before 1980. It is easy now to see that, after Zimbabwe had spent itself into bankruptcy, an IMF loan was the only possible way out. If Mugabe had only seen the reforms through to the end an enormous amount of human suffering might have been spared.

So, would we be better off if we took our advice from Mugabe and Bruce and decided that we must keep the IMF out at all costs? And if we said that, despite having spent ourselves into bankruptcy, we would rather refuse the lender of last resort, even though we have no plan or willingness to force reforms through on our own? Even Mr Kganyago, after all, implicitly accepts that if things carry on as they are now, the situation will spiral out of control. Is that what we want? Or would we rather place all our money on a long odds bet that the government and ANC will suddenly wise up, summon up courage and carry out all the reforms which it has resisted for ten years? Place your bets, gentlemen, place your bets.

White lives do not matter

Post by cjm on Aug 5, 2019 7:14:25 GMT

Post by cjm on Aug 6, 2019 7:07:40 GMT

Post by cjm on Aug 7, 2019 6:50:14 GMT

Post by cjm on Aug 12, 2019 8:45:30 GMT