New Nation
March 14, 1997

Should the people who were victims of the oppressive machinery of apartheid now be forced to repay those financiers who were immoral enough to finance the machinery?

The second biggest line item in the new budget (after education) is interest on the public debt, which amounts to R40 billion (out of a total budget of R187 billion). The cost of debt servicing has increased by 15% from last year, while many other areas have had to face budget cuts or stagnation.

When confronted by the vast amount of interest that must be paid on the debt, moral questions immediately arise, for most of the debt occurred during the previous regime.

Who funded apartheid? And now, with so many social needs still unmet, must we pay that money back?

The Truth and Reconciliation Commission has, correctly, attempted to achieve harmony within our divided society by examining human rights violations and related acts. This led the TRC to look not only into the roles of security forces and political parties, but in addition, the media, doctors and lawyers who collaborated in one way or another with apartheid.

It is only a matter of time before questions are raised about the financing of apartheid. One reason is that South African society is learning so much about violations of human rights that it is only natural that we wonder who profited, and how. Another reason is that the budget cuts now being painfully inflicted are the direct result of the ballooning interest payments on inherited debt.

Consider how Deputy President Thabo Mbeki explained this issue in his discussion document “The State and Social Transformation”:

“To finance the expenditure associated with the efforts to buy space for the Apartheid regime during its last days, the ruling group went on a borrowing spree to finance a level of spending that could not be sustained on the basis of the extant revenue base…The Apartheid ruling group imposed on the country an unprecedented debt burden whose acquisition had to do exclusively with shifting the balance of force during the period of transition from Apartheid to democracy, so that this anti-democratic group would not be as weakened, politically, as it would otherwise be, in the contradistinction to the democratic movement.”

For these reasons, it is useful to look closely into the debt burden to enquire, how legitimate is repayment of apartheid loans? In short, should the people who were victims of the oppressive machinery of apartheid now be forced to repay those financiers who were immoral enough to finance the machinery?

Many financiers who supported apartheid historically have already long been repaid. But the demand by the liberation forces that foreign banks avoid new loans to government, its agencies or South African businesses was clearest during the early 1990s, as the threat of default on such loans was heard from leading ANC officials. The inherited foreign debt of US$18 billion in late 1993 can easily be questioned on grounds similar to those used in many historical cases by democratic regimes that replaced repressive, illegitimate regimes.

But it is just as important to enquire into the local financing of apartheid, and to question the ethics of debt repayment on commercial terms for loans taken out by a government that, until late in 1993, continued to utilise diabolical methods of oppression.

The end of 1993 is the appropriate snapshot point to consider, for this was the moment when the Transitional Executive Council (Interim Government) was installed to replace the National Party government. At that stage, the government of South Africa owed R185 billion to local and foreign creditors. At year-end 1993, central government’s domestic debt represented the largest fraction of the total (R172 billion), but the apartheid state’s exchange controls meant that any other South African borrower of hard currency (parastatal agencies, banks, private businesses) supported the foreign exchange requirements of the government. This debt amounted in late 1993 to US$18 billion.

Breaking down these figures is important. Most of the apartheid debt was financed through internal government sources such as civil servant pension funds that were invested through the Corporation on Public Deposits and Public Investment Commissioners.

The main category of domestic financing of apartheid is “marketable stock debt,” which is a measure of the securities, bonds and stocks issued into South African financial markets by the government (excluding the TBVC and other bantustan territories, parastatals and social security funds). At the end of 1993, this amounted to R160 billion, of which approximately R60 billion originated from within the state. Of the R100 billion in private sector financing sources, R45 billion came from non-bank lenders, R27 billion from insurance companies, R12 billion from commercial banks and R10 billion from private pension funds. In sum, approximately R50 billion in central government debt was sourced from fewer than two dozen commercial institutions that made an explicit decision to invest in apartheid debt stocks.

In addition, there were other loans to the government by banks (R4 billion) and other holders of marketable and non-marketable debt (R2 billion). In addition, local authorities and homelands borrowed from private sector sources. In 1992, for example, local authorities had short-term loans from the commercial banks and bank overdrafts amounting to about R1 billion; long-terms loans from banks of R340 million; and marketable stock debt held by banks of R745 million.

The same year, the major parastatal corporations * Eskom, Transnet, Telkom, agricultural control boards, and others * owed R2.6 billion to banks in the form of short-term loans, in addition to an unspecified (though significant) amount of long-term loans and other stock. The Reserve Bank held deposits from banks of about R900 million which were `required balance reserves,’ as well as `other balances’ from banks amounting to R100 million. Other public sector borrowers * which include homelands, the Land Bank, the National Housing Fund, National Parks Board, Development Bank of Southern Africa, administration boards, community councils, regional water supply corporations and local water boards * owed banks at least R250 million.

During the early 1990s, commercial banks began unloading their `independent homeland’ debt. As public scrutiny increased, it was evident that the banks granted approximately R4 billion to Transkei, Bophuthatswana, Venda and Ciskei as short-term overdrafts, at an extremely high interest rate. This was profitable * but risky because it was meant only as a short-term bridging mechanism which then evolved into a standard form of financing. The risk was made clear in late 1993, when Standard Bank demanded to be repaid R60 million to cover a loss in Lebowa.

All of these debts should also come under scrutiny.

There is an international “Doctrine of Odious Debt” which governs the manner in which foreign financial relations are mediated during disputes. The Truth and Reconciliation Commission should familiarise itself with this doctrine, since it so explicitly relates to private sector financing of apartheid.

At a time when nutrition, public health, education, welfare and so many other social budgets are at levels far lower than those required to meet human needs, it is crucial that we examine why more than one rand in every five government spends is used to repay apartheid’s financiers.

By asking this question, it will be possible to develop a better understanding of why financial institutions are insistent on receiving repayments on loans used to repress the people of South Africa, to be repaid at the expense of other desperately-needed social programmes which were demanded democratically by those very victims of apartheid.