20 June 2012

South Africa: Presidency Clarifies U.S.$2 Billion IMF Commitment

Photo: Abokoe Sibanda
ANC Youth League members.

Pretoria — The Presidency on Wednesday moved to correct misconceptions about South Africa's $2 billion commitment to the International Monetary Fund's firewall fund.

"This is simply a commitment to support the IMF if needed so it sits in our foreign reserves. If the IMF uses the funds, the money is lent to the IMF and not a gift.

"For all of this time, the money will be earning interest for South Africa. The capital of the loan will ultimately be repaid to South Africa. It's like lending money to a very strong bank. This is not a risky loan," said the Presidency in a statement.

South Africa on Tuesday announced its commitment to invest $2 billion of its reserves to the IMF. This as President Jacob Zuma attended the two-day G20 Summit in Los Cabos, Mexico. The summit concluded yesterday.

There were misconceptions that the funds were a gift to the IMF and that the money could be used for more urgent purposes. The funds, said the Presidency, were part of South Africa's foreign reserves and this did not require additional budgetary allocation.

On the issue that the money could be used for more urgent purposes, the Presidency said the contribution to the IMF was intended to help stave off another global recession.

"There is a real risk of global crisis today. If the global economy falls sharply, there is a serious risk that we will lose more jobs. In the last global recession we lost one million jobs. Our contribution to the IMF is intended to help stave off this kind of crisis happening again.

"The funds contributed will be available for any IMF member that is in trouble - be it in Europe, Africa or anywhere else. If South Africa needs help from the IMF, it could borrow much more than the $2 billion that we have set aside for the IMF resourcing," explained the Presidency.

Additionally, it was not only developed countries that should contribute to the IMF but countries like India (which has contributed $10 billion) and China, which has a lower per capital income than South Africa, has set aside $43 billion for the resourcing exercise.

"Like China and India, South Africa is a responsible global citizen. We are in the G20 to support global stabilisation and growth. We need to continue to do our duty," said the Presidency.

South Africa was the only African country participating in the meeting of the 20 most powerful leaders, where it sought to remind the world about the continent's development agenda. Its participation, among others, was informed by the goal of achieving a better Africa and contributing to a better and just world.

At the G20 Summit in Cannes in November 2011, leaders agreed to increase the resources of the IMF so it could serve as a backstop in the event of further deterioration in the Eurozone area.

Meanwhile, IMF head Christine Lagarde welcomed commitments from countries to provide emergency resources for the IMF designed to prevent the spread of crises as well as to increase the IMF's lending capacity so as to help countries in financial difficulty.

"I am able today to applaud the pledges of 37 countries - including Mexico and 14 other G20 countries - to additional fund resources.

"President Felipe Calderon [of Mexico] was an effective and strong voice in our efforts to create a $456 billion global firewall that puts the IMF in a much better position to help its 188 member countries restore sounder economic and financial conditions worldwide," she said at the conclusion of the summit.


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