Challenging Apartheid's Foreign Debt¶
Jeff Rubin (1997). Challenging Apartheid's Foreign Debt. Report for the Alternative Information & Development Centre (AIDC), Cape Town. Alternative Information & Development Centre.
| Type | report |
| Scope | Economics and economic history of apartheid |
| Method | policy analysis |
| Period studied | 1946–1997 |
| Regions | South Africa, Southern Africa, Namibia |
| Themes | sanctions divestment, macro fiscal finance debt, transition post apartheid, business and state, politics ideology elections |
| Citation key | rubin1997a |
Argument¶
Rubin argues that the foreign debt inherited from apartheid (about $18.7-20 billion, roughly R90 billion) is 'odious' under the Doctrine of Odious Debt and should be cancelled by negotiation with creditors. Apartheid was illegitimate, so no loan could serve a legitimate purpose, and the IMF/World Bank, commercial banks and high-risk speculators all knowingly propped the regime up. The banks' rescheduling deals after the 1985 standstill, short-term interbank loans, correspondent banking and trade credits are used as evidence of their complicity. If negotiation fails, the government should repudiate unilaterally, backed by a civil-society campaign and international anti-apartheid solidarity. The report also criticises GEAR and 'investor-friendly' neo-liberal policy, arguing that the economy survived the 1985 freeze.
Evidence and method¶
Entirely secondary sources from the South African Library and UCT library: Adams (1991) on the doctrine, Padayachee on the IMF/World Bank, Hirsch, Leape/Leap and Harris on the debt crisis and standstill, the US GAO (1990) briefing report, and press items (Cape Times, Cape Argus, Finance Week, Financial Times, Guardian). Legal sources include the Taft arbitration, ICJ opinions and UN resolutions. Also a personal interview with Crawford-Browne and budget/RDP cost figures.
Place in the debates¶
- Whether apartheid-era foreign debt is a problem for post-apartheid South Africa / sustainability of the debt (see Finance, capital flight, the 1985 debt crisis and banking). Rejects the mainstream view that debt-to-GDP and debt-to-export ratios make the debt unproblematic; stresses opportunity cost for the poor and balance-of-payments risk.
- Financial sanctions and the role of banks, IMF and World Bank in sustaining apartheid (see Finance, capital flight, the 1985 debt crisis and banking). Holds that the banks and the IMF/World Bank actively sustained apartheid and undermined sanctions, and that the three interim rescheduling agreements rescued the regime.
- Debt repudiation vs renegotiation, and GEAR/neo-liberal economic policy (see Finance, capital flight, the 1985 debt crisis and banking). Argues for negotiated cancellation under the odious debt doctrine, with unilateral repudiation as a fallback. Rejects 'there is no alternative' to GEAR and foreign-investor-friendly policy.
Findings¶
-
Post-apartheid South Africa inherited a large foreign debt, which most economists regard as unproblematic (p. 1)
Post-apartheid South Africa has inherited a foreign debt of $18.7 billion (some R90 billion). The dominant view amongst economists and politicians is that this sum presents no special problem.}
-
Debt service is a balance-of-payments risk given thin reserves (p. 5)
Current gold and foreign exchange reserves provide cover for only about 1 month's imports. Yet economist (including those who are happy with our debt ratios) accept that reserves should cover at least 3 month's worth of imports.}
-
Sack's formulation of odious debt, in which a despot's debts contracted to repress the population are not binding on the nation (p. 7)
If a despotic power incurs a debt not for the needs or in the interest of the State, but to strengthen its despotic regime, to repress the population that fights against it, etc., this debt is odious to the population of the State.}
-
The IMF was an unusually favourable supporter of apartheid South Africa in the 1970s (p. 11)
IMF assistance to South Africa in the two years 1976-77 was in fact greater than the combined assistance to all other African countries for the same period.}
-
Foreign bank lending to South Africa doubled in the early 1980s following the IMF seal of approval (p. 11)
Between December 1981 and September 1984, transnational loans to South Africa doubled from $9.9 billion to $19 bn.}
-
The Third Interim Arrangement was generous to the regime, running longer than the pressure groups demanded and requiring only a small share of repayments (p. 15)
Instead of being restricted to the called for maximum of one year it was to run for three and a half years, thus making it the longest of the three arrangements. Only 19% of the outstanding debt was required to be paid during this extended period.}
-
Debt shifted to short-term interbank loans, which were anonymous and useful for sanctions-busting (p. 15)
the proportion of the country's foreign debt with an unexpired maturity of less than one year rose from 49% at the end of 1980 to 68% in 1984 and to 72% by the end of 1985.}
-
Trade credits kept the regime supplied even as banks claimed to restrict lending, and Reserve Bank officials acknowledged the leverage of banking exclusion (p. 16)
If the world banking community should effectively exclude South Africa from international trade and payments systems, it would be a much more effective sanctions measure than trade sanctions applied by governments.}
-
Foreign debt was concentrated among banks of five countries (p. 18)
At the end of 1990, 87% of South Africa's outstanding debt was owed to the banks of 5 countries in descending order, they were Britain, Germany, France, the US and Switzerland.}
-
Capital flight surged on the eve of the transition (p. 22)
the hardly insignificant R3.7bn that left the country in 1992 increased 440% in 1993, when it totaled R16.3bn.}
Evidence ledger¶
Sources used¶
| Source | Kind | Period | How used |
|---|---|---|---|
| Padayachee (1992) on World Bank and IMF lending to South Africa | secondary literature compilation | 1946-1993 | Supplies the figures on World Bank loans (11 loans, 1946-67), IMF lending in 1976-77 and 1982, and the 1983 US veto. |
| Adams (1991) Odious Debts: Loose Lending, Corruption, and the Third World's Environmental Legacy | secondary literature compilation | 1898-1991 | Source for the Doctrine of Odious Debt, including the US-Cuba case, Sack's formulation, the Taft arbitration in Great Britain v. Costa Rica, and the 1982 First National Bank of Chicago advice. |
| Hirsch (1989) 'The Origins & Implications of South Africa's Continuing Financial Crisis', Transformation 9 | secondary literature compilation | 1985-1989 | Underpins the account of the 1985 debt crisis, the short-term loan share, trade credits and high-risk private money. |
| Leap(e) (1991, 1992) LSE research papers on South African foreign debt and the standstill, 1985-1990 | secondary literature compilation | 1985-1991 | Provides the short-term debt maturity shares and the creditor-country shares of South Africa's debt at end-1990. |
| United States General Accounting Office (1990) South Africa — Debt Rescheduling & Potential for Financial Sanctions | commission or official report | 1985-1990 | Source for the CHIPS and SWIFT information and for the rescheduling terms, and for the US view of the Third Arrangement. |
| Goldin (1992) External Financial Assistance & Post-Apartheid South Africa, UWC Economic Policy Series No. 9 | secondary literature compilation | 1980s-1992 | Source for the IMF role in advising on VAT and abolishing the financial rand, the 1990 share of short-term debt, and 1988-91 private placements. |
| Harris (1987) 'South Africa's External Debt Crisis' | secondary literature compilation | 1985-1987 | Source for Leutwiler's background, the Tutu/Boesak/Naude asset-freeze proposal and the short-term loan ratio. |
| Fergusson-Brown (198?) 'The Legality of Economic Sanctions against South Africa in Contemporary International Law' | secondary literature compilation | 1988-89 | Source for South Africa's violations of international obligations (self-determination, human rights, destabilization, non-intervention). |
| UN General Assembly Resolution 2625 (1970), UN Charter, and ICJ Advisory Opinion on Namibia (1971) | legislation gazette | 1945-1971 | Establishes the legal illegitimacy of apartheid (self-determination, human rights, non-intervention) as a ground for the odious debt claim. |
| Newspaper reports (The Star, Financial Times, Guardian, Cape Times, Cape Argus, Finance Week, Business Day, Sunday Times, Financial Mail, Euromoney, Daily Telegraph) | newspapers periodicals | 1985-1997 | Document events in the 1985 crisis, the rescheduling negotiations, the Third Interim Arrangement, bank and ANC statements, capital flows and GEAR policy. |
| South African Reserve Bank Quarterly Bulletin, December 1996 | official statistical series | to 1996 | Supports the figures on scheduled foreign debt repayments of $1.5bn-$2.6bn a year to 2001. |
| Interview with Terry Crawford-Browne, Cape Town, January 1997 | interviews oral history | January 1997 | Supports the claim that seemingly innocuous loans, such as home financing, were recycled in sanctions-busting. |
| National Budget 1997-98 and RDP cost estimates | official statistical series | 1997-1998 | Provides the comparison between the R90bn debt and budget items and RDP costs, with no source cited. |
| Mabirizi (1989) 'Impact of IMF-World Bank on Lesotho', in Onimode (ed.) | secondary literature compilation | 1981-1984 | Cited for the claim that 20% of transnational bank loans to Africa went to South Africa and that these loans doubled in 1981-84. |
Inference¶
Quantification: Illustrative figures.
Policy advocacy applying the legal doctrine of odious debt to apartheid-era foreign debt. The author uses a narrative of IMF, World Bank, bank and speculator support drawn entirely from secondary sources and press reports. The study does not build or analyse a dataset; the argument rests on legal analogy and selective citation.
Key claims¶
| Claim | Basis | Strength |
|---|---|---|
| Apartheid-era loans from the IMF/World Bank, commercial banks and speculators were all odious and unenforceable because apartheid was illegitimate and creditors knew it. (p. 10) | International law sources (UN, ICJ), Adams on the doctrine and Padayachee, Hirsch and Leape for lending, applied by legal analogy. | Asserted |
| The banks rescued the apartheid regime through three lenient interim rescheduling arrangements despite political pressure. (p. 15) | Press reports (Guardian, Finance Week, Cape Times), Hirsch, Harris, Leape and the US GAO report, used in narrative. | Partial data |
| South Africa's foreign debt shifted sharply to short-term interbank loans and trade credits, which enabled sanctions-busting. (p. 15) | Leape (1991) maturity shares, Hirsch, Goldin and the US GAO, giving percentages and trade volumes. | Partial data |
| The IMF and World Bank gave apartheid South Africa favourable support before the 1983 US veto. (p. 11) | Padayachee (1992) on loan counts, IMF shares in 1976-77 and the 1982 loan vote. | Partial data |
| Debt of about R90bn is a large burden relative to social spending and threatens a balance of payments crisis. (p. 5) | 1997-98 budget items, RDP cost estimates and Reserve Bank/Finance Week repayment schedules; the author concedes the comparisons are not strictly comparable. | Illustrative or anecdotal |
| The South African economy survived the 1985 unilateral debt freeze, so repudiation need not cause collapse. (p. 20) | Asserted historical inference, with one footnote to Gidlow (1989) on hardship and no data on post-1985 performance. | Asserted |
| Post-apartheid policy (GEAR) was shaped by the World Bank and IMF and has failed to attract foreign capital. (p. 21) | Business Day, Cape Argus and Financial Mail reports and Padayachee, with capital outflow figures from the Sunday Times. | Illustrative or anecdotal |
The author's caveats¶
The author states the study rests entirely on a trawl through secondary sources from the South African Library and the UCT library, and that time constraints ruled out original research. References are kept to a minimum. He says disaggregating the debt by lender, borrower and purpose requires far more research than was possible.
Gaps in the evidence¶
The argument needs a disaggregated creditor-by-creditor, loan-by-loan dataset showing purposes and end uses of funds, which the author admits is missing. Reserve Bank and BIS/IMF debt statistics, bank loan agreements and archival records of the Leutwiler negotiations would test the claims; some of these were published at the time and others now exist in archives. Counterfactual evidence on the macroeconomic effects of repudiation, beyond the 1985 freeze, is also lacking.
Replicability: Data poorly documented.