A cry for help from the IMF sends the wrong signal
Andrew Donaldson says IMF advice is welcome, but we don't need bailouts
Andrew Donaldson, who recently resigned as deputy director-general of the National Treasury, says that going to the International Monetary Fund for a bailout would be a betrayal of the legacy of Trevor Manuel.
Donaldson, who joined the Treasury in 1993, served under Manuel when he was finance minister from 1996 to 2009.
"It was such a central part of Manuel's legacy in the Treasury that we need to be responsible for our own future, and make our own choices," says Donaldson.
Speculation about an approach to the IMF was fuelled by Finance Minister Malusi Gigaba's recent comment that South Africa might have to "seek assistance from quarters we have thus far avoided" if the economy did not improve.
According to recent forecasts, economic growth is going to be negligible for the foreseeable future.
Donaldson says South Africa knows what has to be done to dig itself out of the hole and has the capacity to do it without resorting to the IMF.
The government, business, labour and civil society need to come together, he says.
They did this, of course, and managed to stave off a credit-rating downgrade until President Jacob Zuma sabotaged their efforts and precipitated the current downward spiral.
It's about whether we surrender our sovereignty or engage, ourselves, with the issues we face, and make choices for ourselves.
Key ministers in his cabinet seem determined to accelerate the process.
"Clearly we need to build a political consensus around implementing a coherent economic development strategy," says Donaldson, 59, a Stellenbosch University-, Unisa- and Cambridge-trained economist.
"To call on the IMF to come and impose it on us is an incredibly cynical approach."
He disputes the argument that bringing in the IMF would help to restore investor confidence.
It would only confirm the worst fears of investors about how bad the situation is, and make them more determined than ever to wait and see how things work out before investing, he says.
"The history of IMF-type structural adjustment programmes shows that the reforms take a long time to deliver because investors read the IMF coming in as evidence that things are really in trouble, and as a result pause longer before coming in."
Donaldson concedes that the IMF does have "some really useful advice". He says he found its recent report on South Africa, with comments about what needed to be done, "really interesting".
The IMF is "a useful participant in the discussions around policy, and more could be made of that", he says.
"But that's different from saying: 'We're in a mess, we can't solve our problems ourselves, we need to bring in the IMF to solve our problems.'
"The idea that you solve your problems by bringing in the IMF is naive."
Zimbabwe called on the IMF and it backfired horribly, he says.
"There was a failure to reach understanding, and political leadership there just became angrier and more aggressive in their attitude to the West and its financial institutions."
He concedes that IMF interventions are not as arrogant, insensitive and destructive as they used to be.
"The IMF has learnt a lot. There's a lot more appreciation of the diversity of countries' experiences and the need to adapt strategies to local circumstances. There's a lot of good, intelligent analysis."
But the macroeconomic and fiscal expertise it offers wouldn't address the technical difficulties involved in sorting out challenges like Eskom, he says.
It has been argued that having the IMF hold a gun to the government's head would force it to act with appropriate urgency.
There's no need for such a panic-stricken approach just yet, he says.
"I don't think we're about to fall off the cliff. Our fiscal management remains sound, our financial institutions are strong, we still have capital markets that are liquid and active.
"And although we've had these downgrades, which are very important warning bells, we have not yet seen a substantial increase in borrowing costs associated with that. We still have access to capital markets at prices below what it would cost us to borrow from multilateral institutions such as the IMF.
"So we're not there yet."
He concedes, however, that if the problems at state-owned enterprises, above all Eskom, are not addressed "very soon, then we will be in the position of having to go cap in hand to the IMF".
"We will find ourselves having these engagements forced upon us.
"It's about whether we surrender our sovereignty or engage, ourselves, with the issues we face, and make choices for ourselves."
The toughest choices involve the SOEs, he says. Eskom needs to be unbundled and the electricity industry restructured "very substantially".
SAA needs to be sold, he says; no two ways about it.
This is the opposite of what his former boss, Nhlanhla Nene, told Business Times several weeks ago, which illustrates how difficult it is going to be to reach the "consensus" Donaldson talks about so easily.
"Not only would we be better off in terms of not having this liability on our hands, a properly competitive airline industry would be good for tourism and the economy," says Donaldson.
Was the Treasury too supportive of the situation at SAA for too long?
"In the context of the politics, it did what it could," he says.
"You can't expect Treasury to do everything." Its most notable achievements have been to allocate more of the budget to social spending and municipalities, while making public-finance management systems more "resilient and transparent", he says.
He concedes that in spite of this, corruption has got out of hand.
"We did not achieve as much as we ought to have in financial management and improving the efficiency of public spending."
The Public Finance Management Act, which was meant to give managers the tools to manage while holding them accountable, is too complicated and "a bit of a muddle", he says.
Donaldson says he believes the resilience of systems built up over many years at the Treasury has protected it against state capture "and will continue to do so".
"But in the end it is not a substitute for leadership and wisdom and integrity in government."