South Africa's decision to suspend payment of principal on its foreign debt has dealt a serious blow to it efforts to obtain backing from international creditors, American bankers and analysts said yesterday.
They also said the debt moratorium, unilaterally announced in Johannesburg yesterday, would isolate South Africa further in the international community and increase pressure on Pretoria for political change.
At the same time, analysts agreed that the freeze on debt repayments was unlikely to cause any major shock to the international banking system. South Africa said in its announcement yesterday that it is prepared to pay interest on its short-term debts and had held out the prospect of repaying principal after the end of the year.
"The debt moratorium is a major loss of face for the South Africans," said Harald B. Malmgren, a former senior trade negotiator for the Nixon and Ford administrations, "but for the banks it falls into the painful but manageable category."
"The most important factor is that it will make the American banks far more reluctant to put up fresh credit," Malmgren said.
"They are likely to say, 'We want new policies and new people in South Africa' before they sit around a table and negotiate," he added, referring to the political factors widely seen to have provoked South Africa's financial crisis.
Robert Hormats, a former assistant secretary of state for economic and business affairs and now vice president at the brokerage firm of Goldman Sachs, said that the emergency package highlighted the plight of the South African economy. "This is a last-ditch attempt to restore confidence," he said. "The question is: will it be too late?"
Hormats said that the debt moratorium would damage South Africa's credit rating and make life much tougher for the South African business community.
The governor of the central bank, Gerhard de Kock, is currently touring western financial capitals in a bid to secure fresh credit to help the country stave off demands for repayment on its short-term debts. Yesterday's announcement indicates that he has made little, if any, headway, analysts said.
De Kock is expected to meet with Federal Reserve Board Chairman Paul Volcker this week, as well as with senior State Department officials. A Reagan administration official declined any comment on the emergency package. "We want to stay out of this as much as we can," he said.
De Kock is to hold a press conference Tuesday in Washington.
De Kock is seeking relief on payments on about $12 billion in short-term loans falling due in the next 12 months. Yesterday's announcement appeared to indicate that he will concentrate on the more limited objective of persuading major U.S. banks to maintain credit lines, analysts said, rather than on his earlier hopes for an internationally coordinated rescue package.
A more technical point raised by analysts yesterday was how the American creditor banks and the financial authorities intend to classify the outstanding loans to South Africa. According to Edward M. Bernstein, a former director of research at the International Monetary Fund, monetary authorities including the Federal Reserve will have to advise banks whether to make extra provisions in their accounts for these loans within the next 90 days. In banking jargon, these are known as "nonperforming loans." Any that are so classified could put pressure on many banks' balance sheets.
"Whatever they decide," Bernstein said, "this decision by the South Africans will ruin their credit standing."
Other economists took a more accommodating view. According to Alan Greenspan, former chairman of the Council of Economic Advisers and a special adviser to President Reagan, the South African declaration of a debt moratorium was inevitable but is not disastrous.
Greenspan said that the crucial question now facing the South African economy is whether raw materials and gold prices can recover. "If they do improve, then that transforms their ability to repay their creditors."
Greenspan warned, however, that economic sanctions, as threatened by Congress, now pose a far greater danger to the country. "If they sanctions were to affect the credit sustainability of the South African system, that could have a very big negative effect," he said, referring to the possibility of long-term damage to the country's ability to borrow internationally.