South Africa: This IMF Loan Has No Stringent Conditions, but the Next One Will

analysis

The $4.3bn loan the IMF is extending to South Africa does not come with typically tough conditions such as cutting state costs to the bone. A Rapid Financing Instrument is far less stringent than the fund's standby arrangements. But if reforms are not taken urgently, the next loan will be a bailout with lots of strings attached.

The Radical Economic Transformation (RET) crowd is probably seeing red after South Africa and the International Monetary Fund (IMF) agreed to a $4.3-billion (R70-billion) loan. On the other hand, some among them may be gleeful about the prospects of extra loot. If you believe money can just be printed, it doesn't matter if the printing press is in Washington or Pretoria.

The African National Congress (ANC) has long been wary of the IMF and for good reason. If a country has to go to the fund for a bailout, it generally means it has failed. One common scenario is a balance of payments crisis, which occurs when a country cannot pay for crucial imports such as oil or service its debt to external lenders.

This was one of the reasons why under Thabo Mbeki's presidency the Treasury kept budget deficits low, and tried...

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