AS CONGRESS PREPARES to return from its recess and take up the question of economic sanctions against South Africa, one fact should be kept in mind: The South African economy is in bad co,horshape and getting worse. Sanctions and a widespread program of disinvestment could mortally weaken the white minority government of South Africa.

Foreign capital is leaving at unprecedented levels, fleeing growing black unrest and the worst recession since the 1930s. The Pretoria government is becoming increasingly nervous about the deteriorating economy as evidenced by its dramatic move to suspend trading in the rand last Monday. As the debate over the issue goes on in the United States, disinvestment already is occurring in South Africa and the sooner it happens -- preferably by American and other foreign government sanctions -- the better for those wanting the hastiest and least bloody end to apartheid.

A crisis of unprecedented proportions has developed. Externally, Pretoria is suffering its worst bout of international isolation in history. The question of economic sanctions against the white minority regime has ceased being one of "if" but rather "when" and "how serious."

Disinvestment should be mandated by foreign governments, including the United States, because Pretoria is very dependent on foreign capital to maintain the system of apartheid. Foreign investment in South Africa is the glue that holds apartheid together. As former South African Prime Minister John Vorster stated: "Each trade agreement, each bank loan, each new investment is another brick in the wall of our continued existence."

The Senate subcommittee on Africa reached the same conclusion in a 1978 report. "The new effect of American investment," the report stated, "has been to strengthen the economy and military self- sufficiency of South Africa's apartheid regime." The South African government has greatly encouraged foreign investment, believing the greater the West's financial stake in South Africa, the greater will be the West's commitment to maintaining apartheid.

South African President P.W. Botha's announcement that apartheid will remain entrenched will exacerbate South Africa's international isolation. Botha's refusal to appease the Reagan administration with even minimal "reforms" puts more pressure on Washington and other foreign governments to impose sanctions. It also sends a signal to international investors that Pretoria's flexibility is very limited when it comes to the fundamentals of apartheid.

Foreign banks and corporations are rethinking their investments in South Africa for several reasons. First, South Africa's economy is in a deep recession, the worst since the 1930s. Inflation is at 16 percent. Gas prices rose 40 percent at one time earlier this year. Interest rates hover at 20 to 25 percent. Last year's drought caused South Africa to import food for the first time in many years. The value of the rand has dropped to 36 cents from its 1984 high of 84 cents, plunging 10 percent overnight twice in the last month. The price of gold is down, causing fewer foreign exchange earnings. Furthermore, the government has consistently overspent its budget, particularly on military expenditures. Return on investment dropped from some 18 percent in 1979 to under 7 percent in 1983.

The continual unrest by South Africa's oppressed black community has also caused serious concern by international investors. There were 470 strikes by the emerging black trade unions in 1984, up from the previous high of 394 strikes in 1982. The South African government's inability to "control" the black uprisings and its unwillingness to abolish apartheid has meant continued instability. "It would be difficult to imagine a worse operating environment for businesses," said Landis McKeller, an economist at the Wharton Econometric Forecasting Associates in Philadelphia.

A New York-based consulting firm agrees. Frost & Sullivan, which advises many U.S. corportions, issued a report in June of this year, saying South Africa's economy is likely to deteriorate markedly over the next 18 months as political and social instability spreads and the economy worsens. South Africa is in a "prerevolutionary" stage, says Richard Hull, the company's senior adviser for sub-Saharan Africa, and "turmoil will clearly escalate."

In its report card, Frost & Sullivan gave South African's investment risk a "Dp" over the next five years. And if South Africa does not recover soon from its recession, "many foreign withdrawals are likely," according to the report.

This lack of investor confidence can be measured in two ways: the decline in average maturity of marketable government debt, and the growing ratio of bank loans to direct investment of total foreign investment. The average maturity of South Africa's marketable government debt dropped from 80 months in 1973 to only 34 months in 1982. This increase in short-term over long-term loans indicates foreign bankers' doubts about Pretoria's ability to repay its loans over an extended period.

According to the Bank for International Settlements, two-thirds of South Africa's outstanding debt today is due within one year. The figure is even more dramatic when looking at debt to U.S. banks alone. According to the U.S. Federal Financial Institutions Examination Council (FFIEC), 84 percent of the $4.9 billion in loans outstanding from U.S. banks, as of September 1984, is under one year maturity. That means South Africa must keep meeting a large debt rollover. Pretoria is desperate to continue obtaining new bank loans.

The percentage of total foreign investment that is made up of bank loans as compared to the percentage that is direct corporate investment is also an indication of foreign investor confidence. As bank lending becomes a larger and larger percentage of total foreign investment, the growing reliance on loans signals that international investors believe South Africa is less and less a secure risk over the long term. The ratio of U.S. corporate investment to bank loans in South Africa went from approximately 80:20 in 1960 to 32:68 in 1984. In general, investors do not want to put large sums of money that cannot be retrieved in the short term into a volatile country.

This situation makes what the banks do extremely important, and helps explain why the sanctions legislation passed by the House of Representatives prohibiting new bank loans to the private sector (in addition to the public sector) would have been a meaningful sanction to impose against South Africa. Unfortunately, because it was too strong for the Republican-controlled Senate, it was rejected in the House-Senate conference committee and will not be part of the bill presented to President Reagan if the Senate approves the conference report to be taken up shortly after the recess.

Today's political and economic crisis is not South Africa's first, however. In 1960 and in 1976, Pretoria encountered similar, if less intense, black resistance and international ignominy. But in both those periods, following a severe crisis in confidence by international investors, the Pretoria regime and its apartheid system were bailed out by U.S. and European banks and corporations.

U.S. investment amounted to $15 billion last year. Direct corporate investment came to $2.3 billion, with some 250 to 350 U.S. corporations operating in South Africa. Outstanding U.S. commercial bank loans in September 1984 amounted to $4.943 billion. An additional $8 billion in American money was placed in portfolio investments in the Johannesburg Stock Exchange, mostly in gold shares. The U.S. is also South Africa's largest trading partner. This trade amounted to over $4.7 billion in 1984.

Not only is this a large amount of money, but U.S. investment is placed in the most strategic sectors of the South African economy, such as computers, oil and transport. U.S. firms control 70 percent of the South African computer market. IBM, Control Data, NCR and Burroughs supply computers to the South African government, helping it to monitor its black population of 24 million. U.S. corporations control 44 percent of the South African petroleum products market. Mobil Oil, Caltex and Exxon supply vital oil, a natural resource South Africa does not possess, to Pretoria. Ford and General Motors vehicles are used by the South African military and police. These two corporations alone constitute approximately 24 percent of the South African automotive market.

Foreign corporations invest in South Africa to take advantage of cheap black labor, guaranteed by apartheid, and the white consumer market. The desirability of investing in South Africa was reflected in this 1972 comment by Fortune magazine:

"The Republic of South Africa has always been regarded by foreign investors as a gold mine, one of those rare and refreshing places where profits are great and problems small. Capital is not threatened by political instability or nationalization. Labor is cheap, the market booming, the currency hard and convertible."

According to the latest South African government figures, white mine workers make 530 percent more than their African counterparts and white factory workers make 400 percent more than their African counterparts. Exploitation of cheap black labor means high profits for these corporations. As then-Prime Minister Botha explained in April 1981: "Through the years we have brought about a situation in which the republic is one of the best countries to reside and invest in."

Foreign bank loans have played a critical role in financing apartheid's development. Bank loans have helped finance massive infrastructure projects -- many state-controlled -- aimed at making white-ruled South Africa less vulnerable to international sanctions. For example, the government-owned South African Coal, Oil and Gas Corp.'s coal-to-oil synthetic fuels plant, financed from abroad, has enabled Pretoria to better withstand an international oil embargo.

When revenues from gold sales have declined, foreign bank loans have boosted South Africa's balance of payments and enabled the government to strengthen its military and police forces. The availability of international credit has been crucial to Pretoria's ability to maintain its system of control inside South Africa and its aggressive military policies throughout the region.

Foreign investment has served to entrench apartheid, not loosen it, as the corporations have claimed. U.S. direct corporate investment in South Africa has increased 920 percent since 1960. Yet during that 25 year period, millions of blacks have been forcibly removed from their homes and dumped in the bantustans; thousands have been killed by the regime; tens of thousands more have been detained, many tortured.

The fair-employment codes much heralded by the corporations (which most pay lip service to but do not obey) have done nothing to give blacks the vote, get rid of the hated passbooks (South Africa's internal control document for blacks), or eradicate the bantustans. Why should they have? These institutions of apartheid have all worked toward greater profits for these corporations.

A report issued by the Carnegie Corporation in April 1984 documented that living conditions for the vast majority of blacks in South Africa have gotten worse over this period of increased investment, not better. Black workers have created enormous wealth in South Africa, but have not been allowed to share in it. As Bishop Desmond Tutu, winner of the 1984 Nobel Peace Prize, stated last year: "Foreign companies in South Africa should stop kidding themselves by saying they are there for our benefit. That's baloney. Whether they like it or not, they are buttressing an evil system."

Foreign corporate withdrawal will have the most devastating impact on the white minority population, not the black majority at the bottom of the socio-economic ladder. U.S. corporations employ only 70,000 blacks (including Asians and "coloreds") -- less than 1 percent of the total black workforce. U.S. corporate investment provides absolutely nothing to the 10 million blacks starving in the "bantustans." Furthermore, foreign corporate investment has increasingly been capital-intensive, actually eliminating jobs instead of creating them.

Despite this foreign financial support, today's political and economic crisis is unprecedented in its severity. South Africa is facing a serious crisis in investor confidence and capital outflow:

The South African Reserve Bank announced that capital outflow during the first quarter of 1985 amounted to 2.8 billion rands against an inflow of 1.3 billion rands, making a 1.5 billion rand net capital outflow.

For all of 1984, South Africa experienced an outflow of only 3.059 billion rands, against an inflow of 2.67 billion rands, resulting in 388 million rands net leaving the country.

Second quarter 1985 figures were reportedly better, but have been offset by rapid capital export in July and August. Gerard de Kock, governor of the South African Reserve Bank announced on August 27 that 5.6 billion (approximately $2 billion) more rands left South Africa in the last 18 months than entered it.

Foreign investors (many of them Americans), who hold 40 to 60 percent of gold shares on the Johannesburg Stock Exchange, sold 200 million to 250 million rands ($101 million to $216 million) worth of South African shares, mostly gold shares, in May and June of this year.

Stockbrokers in Johannesburg estimate that an additional 200 to 250 million rands worth of gold mining stocks have been sold since then, in what has been called a "bloodbath" on the stock exchange.

Since the South African government declared the state of emergency in July, gold stocks have declined in value by one-fifth.

"The more the situation deteriorates, the closer one is to precipitating a market panic, with people selling at any price," Michael Coulson of the London-based Phillips and Drew brokerage firm told The New York Times recently. "My view is that these shares have to be sold and have further to fall, maybe a quarter or a third of their value," he said.

It was this situation that led Pretoria to suspend trading on the rand last Tuesday, as the rand plunged another 10 percent. The suspension is in effect until Monday, unless it is extended. The South African is confronting a debt crisis as foreign banks are callin in their loans.

Indirect portfolio investment is not all that's suffering, however. Several U.S. corporations have announced their withdrawal from South Africa in recent months. These companies include Phibro-Solomon, General Foods, ITT, Pan American Airways, International Harvester, PepsiCo, Tidwell Industries and Singer Co. Ford Motor Company and Coca-Cola have moved to reduce their ownership of operations in South Africa to minority holdings.

Some banks have also decided against making new loans to South Africa. According to the Investor Responsibility Research Center, 26 U.S. banks now prohibit lending to South Africa's public sector. U.S. bank lending to the South African government declined from $623 million in 1982 to $302.2 million in March 1985, according to the FFIEC. This figure does not include, however, the $1.1 billion International Monetary Fund loan to South Africa, supported by the Reagan administration, in 1982.

Several influential U.S. banks have also moved to stop loaning to private borrowers in South Africa following a period of massive lending. According to the FFIEC, U.S. bank loans to South African banks and private businesses increased over 330 percent from June 1980 to June 1984 to a level of $4.545 billion. Recently, however, Chase Manhattan, First Bank System, Inc., First Bank of Boston, Wells Fargo, Norwest Corp. and Harris Bankcorp have announced they will make no new loans to South Africa's private sector. Security Pacific Corp. has announced it is considering also making this move.

These moves are particularly significant because they will constrain corporate expansion in South Africa and will limit funds to South African banks which the South African government uses as conduits to obtain foreign bank loans. As one London banker with loans to South Africa told Business Week: "Because of the economics and politics, we don't really want to lend at any price."

If more banks follow Chase Manhattan's lead in refusing to extend loans to the private sector, South Africa is going to have a difficult time finding funds to run its economy. It cannot run on its gold and foreign exchange earnings forever.

Much will depend on Pretoria itself. If once again the regime is able to successfully crack down on the escalating black insurrection, international lenders may look more favorably on making new loans. However, if the current unrest is a portent of worse things to come, as is likely, then fewer and fewer lenders or investors are going to want to risk their money.

Time is running out for the white minority government. The fact of the matter is for foreign investors, South Africa is no longer the "rare and refreshing" place where "profits are great and problems are small." Apartheid is inherently unstable. The sooner the West withdraws its economic and political support for apartheid, the sooner the white minority government will be forced to go to the conference table with the legitimate leaders of the black community. As Bishop Tutu stated in October 1984:

"It is up to the international community to exert pressure on the South African government . . . especially economic pressure, to go to the conference table . . . . This is our very last chance for change because if that doesn't happen . . . it seems the bloodbath will be inevitable."