Far-reaching strategic debate is underway about how to respond to the global financial crisis, and indeed how the North’s problems can be tied into a broader critique of capitalism.
The 2008 world financial meltdown has its roots in the neoliberal export-model (dominant in Africa since the Berg Report and onset of structural adjustment during the early 1980s) and even more deeply, in thirty-five years of world capitalist stagnation/volatility.
Africa has always suffered a disproportionate share of pressure from the world economy, especially in the sphere of debt and financial outflows. But for those African countries which made themselves excessively vulnerable to global financial flows during the neoliberal era, the meltdown had a severe, adverse impact.
In Africa’s largest national economy, for example, South African finance minister Trevor Manuel had presided over steady erosion of exchange controls (with 26 consecutive relaxations from 1995-2008, according to the Reserve Bank) and the emergence of a massive current account deficit: -9% in 2008, second worst in the world.
This was in large part due to a steady outflow of profits and dividends to corporations formerly based at the Johannesburg Stock Exchange but which relisted in Britain, the US or Australia during the 1990s (Anglo American, DeBeers, Old Mutual, Didata, Mondi, Liberty Life, BHP Billiton).
In the second week of October, South Africa’s stock market crashed 10 percent (on the worst day, shares worth $35 billion went up in smoke) and the currency declined by 9 percent, while the second week witnessed a further 10 percent crash. Another 10 percent crash occurred this week.
SA’s speculative real estate market had already begun a decline that might yet reach those of other hard-hit property sectors like the US, Denmark and Ireland, because the early 2000s housing price rise far outstripped even these casino markets (200 percent from 1997-2004, compared to 60 percent in the US).
On the other hand, the cost of market failure could at least be offset, somewhat, by ideological advance. The main gains so far were in delegitimating the economic liberalisation philosophy adopted during the 1994-2008 governments of Nelson Mandela and Thabo Mbeki (presided over by Manuel).
Indeed, Mbeki’s dramatic September departure occurred partly because of substantially worsened inequality and unemployment since 1994, which in turn was responsible for thousands of social protests each year.
When a solidarity letter Manuel wrote, resigning from Mbeki’s government on its second-last day, was released to the press (by Mbeki)) on 23 September, the stock and currency markets imposed a $6 billion punishment within an hour. The crash required incoming caretaker president Kgalema Motlanthe to immediately reappoint Manuel with great fanfare.
Nevertheless, as the financial meltdown unfolded in the US and Europe, the merits of South Africa’s residual capital controls became clearer. As SA deputy trade minister Rob Davies wrote approvingly in the main Communist journal, ‘Interestingly, The Business Times of 21 September attributed this [safety from contagion] partly to exchange control which meant "there is a healthy degree of trapped liquidity within the financial system".’
Another factor was that many exotic financial products had been banned. Yet as Riaz Tayob of Third World Network points out, Manuel has been terribly irresponsible in pushing further financial services deregulation through the World Trade Organisation
As for the rest of Africa, similar opportunities to contest financial system orthodoxy now arise. At this stage, it is practically impossible for staff from the most powerful external force in African economic policy, the International Monetary Fund (IMF), to advise elites with any credibility.
The IMF’s October 2006 Global Financial Stability Report, after all, claimed that world finance showed ‘exceptionally low market volatility.’ Moreover, global economic growth ‘continued to become more balanced, providing a broad underpinning for financial markets.’
Because financial markets price risk correctly, according to IMF dogma, investors could relax: ‘[D]efault risk in the financial and insurance sectors remains relatively low, and credit derivatives markets do not indicate any particular financial stability concerns.’
According to the IMF two years ago, the derivatives and in particular mortgage-backed securities ‘have been developed and successfully implemented in U.S. and U.K. markets. They allow global investors to obtain broader credit exposures, while targeting their desired risk-reward trade-off.’
As for the rise of credit default swaps (the $56 trillion house of cards bringing down one bank after the other), the IMF was not worried, because ‘the widening of the credit default swaps spreads [i.e. the pricing in of higher risk] across mature markets was gradual and mild, and spreads remain near historic lows.’
The IMF continued proclaiming the merits of liberalization and rising financial flows to Africa, especially portfolio funding (i.e., short-term hot money in the forms of stocks, shares and securities issued by companies and government in local currencies but readily convertible). Such ‘hot money’ – speculative positions by private-sector investors – flowed especially into South Africa’s stock exchange, and also to a lesser extent into share markets in Ghana, Kenya, Gabon, Togo, and Seychelles.
However, financial outflows continue apace. An updated report on capital flight by Leonce Ndikumana of the Economic Commission for Africa and James Boyce of the University of Massachusetts shows that thanks to corruption and the demise of most African countries’ exchange controls, the estimated capital flight from 40 Sub-Saharan African countries from 1970-2004 was at least $420 billion (in 2004 dollars).
The external debt owed by the same countries in 2004 was $227 billion. Using an imputed interest rate to calculate the real impact of flight capital, the accumulated stock rises to $607 billion.
Where did this leave African debtors in 2008? According to the IMF, the ‘debt sustainability outlook’ of low-income African countries ‘has improved substantially, with 21 out of 34 countries classified on the basis of the Debt Sustainability Framework at a low or moderate risk of debt distress at end-2007.’
Yet the major lesson from the prior quarter-century of debt distress, was not the abstract ratios, but instead, the ability to pay the debt in context of pressing human needs.
It was here, according to London-based Jubilee Research, that the Bretton Woods institutions had not accurately assessed the damage done by debt, or the injustice associated with repaying debt inherited from prior undemocratic governments: ‘Current [mid-2008] approaches to debt relief (HIPC and MDRI for poor countries, and Paris and London Club renegotiations for middle income countries) are not solving the problems of Third World indebtedness… Even after the debt relief already granted under HIPC and MDRI, 47 countries need 100% debt cancellation on this basis and a further 34 to 58 need partial cancellation, amounting to $334 to $501 billion in net present value terms, if they are to get to a point where debt service does not seriously affect basic human rights.’
For some African countries, the solution lies in an alternative source of hard currency finance. Not only does China provide condition-free loans to several of Africa’s most authoritarian regimes. More hopefully, Venezuela is considering a proposal to replace and displace the IMF, as happened in Argentina in 2006, in which case repaying the IMF early or even defaulting would be feasible.
In other African countries, progressive social movements have argued for debt repudiation and are concerned about any further financial inflows beyond those required for trade financing of essential inputs. This would also entail inward-oriented light industrialization oriented to basic needs (and not to luxury goods, a major problem that emerged in Africa’s settler colonial economies during the 1960s-70s).
The crucial ingredient for establishing an alternative African financing strategy from the left is pressure from below. This means the strengthening, coordination and increased militancy of two kinds of civil society: those forces devoted to the debt relief cause, which have often come from what might be termed an excessively polite, civilized society based in internationally-linked NGOs which rarely if ever used ‘tree shaking’ in order to do ‘jam making’; and those forces which react via short-term ‘IMF Riots’ against the system, in a manner best understood as uncivilized society.
The IMF Riots that shook African countries during the 1980s-90s often, unfortunately, rose up in fury and even shook loose some governments’ hold on power. When these, however, contributed to the fall of Kenneth Kaunda in Zambia (one of many examples), the man who replaced him as president in 1991, former trade unionist Frederick Chiluba, imposed even more decisive IMF policies. Most anti-IMF protest simply could not be sustained
In contrast, the former organizations are increasingly networked, especially in the wake of 2005 activities associated with the Global Call to Action Against Poverty (GCAP), which generated (failed) strategies to support the Millennium Developmental Goals partly through white-headband consciousness raising, through appealing to national African elites and through joining a naïve appeal to the G8 Gleneagles meeting.
Since then, networks have tightened and became more substantive through two Nairobi events: the January 2007 World Social Forum and August 2008 launch of Jubilee South’s Africa chapters.
These networks could return to the cul-de-sac of GCAP’s ‘reformist reforms’ – i.e., to recall Andre Gorz’s phrase, making demands squarely within the logic of the existing neoliberal system and its geopolitical power relations, in a manner that disempowers activists if they gain slight marginal changes.
Or they could embark upon ‘non-reformist reform’ challenges, by identifying sites where the logic of finance can be turned upside down.
The most striking case might have been the South African ‘bond boycott’ campaign of the early 1990s, wherein activists in dozens of townships offered each other solidarity when collective refusal to repay housing mortgage bonds was the only logical reaction.
This forewarned of the 1995-96 ‘El Barzon’ (‘the yoke’) strategy of more than a million Mexicans who were in debt when interest rates soared from 14 to 120 percent over a few days in early 1995: they simply said, ‘can’t pay, won’t pay’.
That slogan was also heard in Argentina in early 2002, following the evictions of four presidents in a single week due to popular protest. The ongoing pressure from below compelled the government to default on $140 billion in foreign debt so as to maintain some of the social wage, the largest such default in history.
Instead, the global elites aim, next month in New York, to refashion the world’s financial architecture, likely adding to the G8 a few comprador regimes: China, India, Brazil and South Africa for legitimacy (and access to substantial dollar reserves).
Activists should contemplate whether to ‘Seattle’ the event; African social movements and a few patriotic African trade ministers were, after all, not only present but instrumental in preventing the World Trade Organisation’s Seattle summit from proceeding nine years earlier.
A serious danger for civil society would be to settle for a UN-sponsored event full of reformist reforms. Enormous damage to Southern finances was caused by the UN’s 2002 Financing for Development conference in Monterrey, Mexico, which had as key advisors Michel Camdessus (former IMF managing director) and Trevor Manuel.
Moreover, much more forthright national action can be taken against global finance, spurred by far-seeing civil society activists, such as those who demand reparations for apartheid, colonialism, slavery and ‘ecological debt’ owed by the North to the South. Africa needs to reimpose national exchange controls and import controls (especially on luxury goods for the elites), as installed successfully by Malaysia, Chile and Venezuela in recent years.
As commodity prices plunge from their 2002-07 speculation-driven bubble prices (such as a 70% drop in mining shares since May), as trade deals with the North are unveiled as clearly disadvantageous and as trade finance becomes difficult as a result of bank mistrust of counterparty debt, and as hot money portfolio flows dry up and new sources open for hard currency, the argument for what Africa’s greatest political economist, Samir Amin, calls ‘delinking’ becomes all the more compelling.
It is already beginning to happen, in no small part thanks to civil society advocacy.
(Patrick Bond is professor at the University of KwaZulu-Natal School of Development Studies where he directs the Centre for Civil Society: http://www.ukzn.ac.za/ccs.)