South Africa will not solve its foreign debt crisis unless it makes significant political reforms and reduces the riot death toll, according to a source close to the Swiss banker mediating the debt dispute between South Africa and the banks holding its $14 billion short-term foreign loan debt.
The unnamed source, purportedly expressing the views of negotiator Fritz Leutwiler, said in an interview published in South Africa's leading financial daily, Business Day, that creditor banks were monitoring the racial unrest on a daily basis and would refuse to sign an agreement on the country's debt freeze unless the internal political situation changed.
If there were no change, the banks would maintain a capital boycott of South Africa, the source said.
This stern warning from South Africa's own mediators came just one week after Leutwiler met with the creditor banks in London, and as the country underwent a test of white attitudes toward reform and the continuing unrest with a series of special legislative elections.
It also came on a day when the bankers' monitors would have reported the highest riot death toll in more than a month, with at least seven blacks killed in the segregated townships.
The next debt meeting is scheduled for Nov. 26. In the meantime, Leutwiler and his mediating team are collecting the views of the creditor banks.
According to the source quoted by Business Day, who was interviewed in Zurich, the attitude of the banks has been stiffened by some of Pretoria's recent hard-line actions. He cited as an example the execution 12 days ago of African National Congress member Benjamin Moloise despite international appeals for clemency.
American banks had taken the lead in insisting on political change as a condition for reaching an agreement because they were under pressure from institutional investors, the source said, but he stressed that others, including at least one prominent Swiss bank, were now also taking this line.
South Africa declared a moratorium on debt repayments Sept. 1 when first U.S. then other international banks refused to roll over the country's short-term loans, causing a slump in the rand currency.
The Pretoria government then engaged Leutwiler, a leading Swiss banker, as a mediator to try to reach an agreement on the loan repayments.