South Africa yesterday offered to repay early its loan from the International Monetary Fund that sparked criticism in Congress, sources said.
At a meeting of the IMF Executive Board yesterday, the South African representative said that the country's improved balance of payments will enable it to repay the loan ahead of schedule, according to a memo by the Center for International Policy, obtained by the Washington Post. The center is a nonprofit research institution which has publicized the issue. Other sources confirmed that South Africa said it would pay off the loan early if its balance of payments continues to improve.
The IMF recently asked South Africa to consider doing this, the center's memo said.
The loan, totalling $1.1 billion under two separate accounts, has been criticized by anti-apartheid groups, who said that the IMF should not lend money to a nation that practices apartheid, or strict racial segregation.
Last month a House subcommittee voted to bar U.S. support for IMF loans to South Africa because of its apartheid policies. The vote came during consideration of an administration request for an $8.4 billion increase in funding for the international lending agency. The Senate has since approved the funding increase, but the House has not yet voted.
Richard Erb, U.S. executive director to the IMF, said that the original IMF loan to South Africa was justified on economic grounds. However, he is on record as suggesting that the South Africans should repay the money early if their balance of payments improves.
Erb welcomed the South African move yesterday, a source at the board meeting said.
The representatives of the two African groups in the IMF both spoke out strongly yesterday against the original decision to grant the loan, the Center for International Policy memo said.
Another source said that one of the African executive directors was more openly critical of South Africa's internal social policies than the other, who mainly couched his opposition in economic terms. At the original Nov. 3 meeting of the executive board, the African directors abstained, according to privately obtained minutes of the meeting.
The IMF has economic and technical criteria for granting loans and is not supposed to take into account the political or social conditions in borrowing countries.
However, Erb and some other IMF board members have stressed the importance of examining the economic inefficiencies caused by the "labor market rigidities" created by racial separation in South Africa. An IMF staff paper discussed at yesterday's meeting dealt extensively with these labor market bottlenecks, although without using the term "apartheid," according to one of the executive directors at the meeting.
All the executive directors at the meeting used the report to refer to the economic costs of labor market rigidities, the CIP memo said.
Previously, the IMF staff has been wary of dealing with apartheid, even in this guarded form. But the Board "encouraged the staff to focus more on that" in a recent visit by an IMF team to South Africa, one executive director said yesterday.
Under IMF rules, structural problems, such as those caused by apartheid, are not technically relevant to the kind of standby loan that South Africa was granted from the international agency. But yesterday's board meeting was due to cover the regular review of the nation's economy, as well as a midterm report on the standby loan, the executive director explained.
"We the Board said to the staff, take the opportunity of the standby review to review their labor market practices and to keep the government under pressure to deal with these," he said.
South Africa did not specify whether it will repay all of the money that it has so far drawn from the IMF early, a source at the meeting said. "That's the question," commented the executive director. The nation said that it will repay the money in the next few weeks provided that its balance of payments continues to improve, he said. It has drawn only about half of the one-year standby credit worth nearly $400 million.
Under normal practice, the nation would have a four-year grace period for repayment of the loan.
Erb had told congress that he raised the issue of labor market rigidities in the original November meeting and asked the IMF staff to look at the matter.
In addition to the standby loan, South Africa borrowed $680 million under a special borrowing fund, known as the compensatory financing facility, set up to help countries whose export earnings drop suddenly and temporarily. The nation indicated that it will repay both of the loans early, the executive director said.
The IMF loans have been criticized on economic as well as political grounds, with some of the IMF board members and some anti-apartheid groups saying that South Africa was not in severe balance of payments need and that the economic conditions laid down by the IMF in return for the standby loan were not as severe as they should be.
An IMF spokesman said that there would be no comment on yesterday's board meeting.
South Africa's balance of payments is heavily influenced by the price of gold, which fluctuates to extremes. Since the original loan was made, the price of gold has risen, although it has dropped in recent weeks from the level when the IMF team visited the nation.