NEWS ITEM: Nicolas Sarkozy dismay as Dominique Strauss-Kahn in sex scandal
A “one-night stand” and an angry husband have endangered the career of the French head of the International Monetary Fund and dismayed President Sarkozy as he seeks to put a French stamp on a new world financial order. The news that Dominique Strauss-Kahn, 59, is being investigated in Washington over an alleged fling with a former subordinate has unsettled Mr Sarkozy, who has been working with him to form a new Bretton Woods pact on financial regulation… The President was furious that Mr Strauss-Kahn… had risked a chance to restart his career and to help France internationally, by living up to his old name as un grand séducteur — the term used by Le Journal du Dimanche yesterday. (The Times, October 20 2008, by Charles Bremner)
NOT A NEWS ITEM: Practically no public awareness, and hence no dismay, in financial advice scandal.
A long-term relationship between Dominique Strauss-Kahn’s IMF and subordinates in the Treasury of the South African government have advanced the career of Pretoria’s finance minister, Trevor Manuel. Washington’s stamp on South Africa, so as to promote the old world financial order, could not be more obvious, yet is hardly investigated in South Africa.* The fling should unsettle Nicolas Sarkozy, who says he has been working for “the end of American capitalism”, but it won’t. The French president should have been furious, but apparently is not, that Mr Strauss-Kahn has risked a chance to restart the South African economy and to help France’s image internationally, by allowing the IMF to live up to its old name as un grand séducteur — of the Washington Consensus, i.e. old-style looting of vulnerable Third World economies.
On 22 October, the IMF filed several lengthy reports, which have just become available on the internet (http://www.imf.org/external/country/ZAF/rr/ but hidden way down near the bottom of the page). These reports are pored over regularly by the kinds of people who started the world’s financial catastrophe, to give them more ammunition against the world’s poor and working people, women and environmentalists.
What do they say? Here’s the essential IMF six-pack:
* The SA government should run a budget surplus
* SA government should adopt privatisation for “infrastructure and social needs” including electricity and transport
* SA Reserve Bank should maintain existing inflation-targeting
* SA Reserve Bank should raise interest rates
* SA Treasury and Trade Ministry should remove protections against international economic volatility, especially financial and trade rules
* SA Labour Ministry should remove worker rights in labour markets, including “backward-looking wage indexation” to protect against inflation
Here are excerpts from the main IMF report issued last week, confirming the logic of old Washington, not new Paris:
IMF Executive Board Concludes Article IV Consultation with South Africa: Public Information Notice (PIN) No. 08/137, October 22, 2008
On September 8, 2008 the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with South Africa… Given the importance of sustaining investor confidence and the limited scope for raising private saving, most Directors called for an increase in public saving so as to bring the structural public sector borrowing requirement to zero over the next few years. This should be achieved mainly by containing current expenditure and increasing spending efficiency…
Several Directors suggested that the authorities explore options for addressing infrastructure and social needs that would avoid weakening fiscal policy—for example, by relying more widely on public-private partnerships established within an appropriate transparent regulatory regime. Directors considered that the inflation targeting framework has served South Africa well. They supported the tightening of monetary policy so far in 2008 to contain inflation expectations and the second-round effects of the food and fuel price shocks. They noted the central bank’s current pause in further tightening, but considered that the authorities should stand ready to raise interest rates further if supply shocks resume or domestic demand pressures do not dampen as expected. Some Directors considered that conditions warrant the resumption of monetary tightening…
Directors also encouraged the authorities to persevere with steps to open the economy to greater international competition, strengthen product and labor market competition, and improve education outcomes…
The new leadership, headed by former Deputy President Jacob Zuma, has underscored the party’s commitment to policy continuity in key areas…The Fund has generally supported the authorities’ choices on fiscal policy, inflation targeting, exchange rate policies, international reserves accumulation, and exchange control liberalization. On structural policies, the Fund has supported South Africa’s fiscal and financial sector reforms, and trade liberalization. It has encouraged identifying and revising aspects of labor legislation and institutions that constrain job creation. The Fund has also recommended further liberalization and simplification of the trade regime; the authorities have indicated that actions in this area depend on the outcome of multilateral negotiations…
Staff supported the tightening of monetary policy and suggested that further rate increases are likely to be needed to bring inflation down…
Since the interest rate tightening cycle started in June 2006, mortgage debt repayments have expanded by some 36 percent… a new class of borrowers—middle-income households—is being disproportionately affected by rising interest rates. Recent surveys (Credit Suisse Standard Securities, 2007 and 2008) show that most of the expansion in debt has occurred among the middle class, while higher-income households’ debt exposure has remained constant or even declined…
To help contain the rise in inflation expectations and discourage backward-looking wage indexation, additional efforts could be made—both by the SARB and the government—to educate the public about the nature of the current shocks and the absence of a long-run tradeoff between inflation and growth…
Tighter fiscal policy to avoid exacerbating current account pressures. South Africa’s large current account deficit reflects a somewhat overvalued exchange rate and a rising rate of investment that is funded by foreign saving. External stability therefore depends closely on maintaining foreign investors’ confidence in South Africa’s continued stable macroeconomic policies and good growth prospects. The inflation targeting framework, including the operational independence of the SARB, and prudent fiscal policy are both critical to investor perceptions of stable macroeconomic policies. The steady strengthening of the public finances has been a positive factor in maintaining investor confidence even as the current account deficit has widened. For the second year running, the national government posted a fiscal surplus in 2007/2008…
The authorities stressed their commitment to a prudent budget policy and their expectation that these policies would continue after the political transition next year as well…
Combining the increase in public infrastructure investment with cuts in the corporate income tax could boost growth…
Staff suggested that: opening up the economy to greater international competition is critical for efficiency. The overall level of protection could be further reduced and the MFN import tariff structure simplified, including by reducing the number of tariff bands and lines; lowering administrative and regulatory burdens in product and labor markets could also help foster labor-intensive growth in tradables; involving the private sector in public service provision could improve efficiency, including through greater competition in electricity generation and distribution, port services, and rail transport…
SADC is scheduled to initiate a free trade agreement (FTA) at its annual summit meeting in mid-August, although not all fourteen members of SADC will participate. The FTA was to be a stepping stone towards implementing a SADC customs union in 2010, but South African officials noted that this timetable was no longer achievable. In their view, a realistic plan for a regional customs union would likely have to be based on some form of gradual expansion of the existing Southern Africa Customs Union (SACU)…
The main risks stem from a possible loss in investor confidence and sudden stop in capital inflows; a possible further deterioration in the global economic environment, especially a significant increase in the world oil price; and high levels of household indebtedness, particularly as interest rates are raised to combat inflation and income growth slows…
Further monetary policy tightening may be needed to anchor inflation expectations and contain second-round effects…
What do South Africans say in reply? Because most of the media – especially upper middle-class white financial journalists – apparently intend hiding this scandalous affair, we only ever hear one South African talk about the IMF: finance minister Trevor Manuel. He does not accuse the IMF of stamping the Washington Consensus on South Africa, partly because he has often been suggested as a candidate for a top IMF or World Bank job. When allegedly trying to democratise the IMF at their annual meeting in 2003, for example, Manuel – then head of the second most powerful management committee in the Bretton Woods Institutions – confessed he had made no effort at all: “I don’t think that you can ripen this tomato by squeezing it.” As a result, a series of neoliberal and neoconservative leaders have moved in, such as Paul Wolfowitz (whom Manuel in 2005 called a “wonderful individual… perfectly capable”), Robert Zoellick and Strauss-Kahn.
Similarly, when Manuel was asked by the Financial Times a few days ago about the impact of the financial crisis on South Africa, he told his constituents to tighten their belts: “We need to disabuse people of the notion that we will have a mighty powerful developmental state capable of planning and creating all manner of employment. It may have been on the horizon in 1994 [when the governing African National Congress first came to office] but it could not be delivered now. The next period is likely to see a lot more competitiveness in the global economy. As consumer demand falls off there will be a huge battle between firms and countries to secure access to markets.”
Washington’s seduction has worked, and if a job opens up at the Bretton Woods Institutions, it will be a seamless transition from one seducer to the next.
* The one exception to the lazy, booze-addled SA business-journo corps who bothered to report this story, was Felicity Duncan at Moneyweb
PATRICK BOND is the director of the UKZN Centre for Civil Society: http://www.ukzn.ac.za/ccs. He can be reached at pbond@mail.ngo.za