This resource is hosted by the Nelson Mandela Foundation, but was compiled and authored by Padraig O’Malley. It is the product of almost two decades of research and includes analyses, chronologies, historical documents, and interviews from the apartheid and post-apartheid eras.
08 Feb 1999: Keys, Derek
POM. Mr Keys, let me first of all begin this is a matter of clarification on which perhaps you can throw some light or perhaps you can't. This is a series of articles that were written by John Matisonn, he wrote them for the Mail & Guardian about two months ago, seven articles reviewing the ANC out of government and the ANC in government. He makes a reference : -
. "In 1993 Derek Keys, De Klerk's last Finance Minister and soon to be Mandela's first, prepared a budget for De Klerk which he shared with Mandela that indicated the economy was collapsing and that if both the government and the ANC didn't get back to the negotiating table and quickly there would be little of the economy left for a new government, whatever shape it took, to preside over. The deficit which now accounted for 9.3% of GDP was at its highest level and was unsustainable. Keys figures said the government's finances had gone haywire. Salaries, pensions and interest on debt consumed almost everything leaving an empty till for discretionary spending. His message, any additional government spending would be to soaring inflation and spiralling debt. The IMF and World Bank conveyed the same message to Manuel and Mboweni during their learning trips to Washington DC. Manuel, Finance Minister in waiting, took the message to heart. South Africa was living on borrowed money. When the government wanted to borrow money abroad, the ANC stepped in insisting on a bank performing a credit rating on South Africa and negotiating with the international financial community not to close South Africa's credit lines. For their part the banks wanted the ANC's assurance about future policy before approving debt standstill arrangements. In the end the ANC had little choice in the matter: sign on the bank's dotted line or no credit line either now or in the future."
. According to the Mail & Guardian's John Matisonn, ANC negotiators at the World Trade Centre prepared a letter of intent to the IMF, signed by Pravin Gordhan on behalf of all parties, that would unlock an $850 million loan. The letter committed all parties, including ANC leaders, to accept that 'increases in the government deficit would jeopardise the future of the country and set a target ratio of deficit to GDP at 6% for fiscal 1994/95.' It also committed the signatories to maintain a high interest rate policy and to continue to open the country to competition from other countries. Circumstances aside, more than any other consideration the ANC was laying the groundwork to provide the change to prove that its change of heart was real, that it intended to play by the rules that would attract direct foreign investment.
. If this is true, and that's what I'm trying to verify, despite the fact that I had an appointment with Pravin Gordhan this morning but he had to cancel it, to your knowledge is that substantially true that a letter of intent was prepared, signed by all the parties, sent to the IMF, where all parties gave their agreement to follow what would be very strict monetary policies, maintain high interest rates, cut the deficit to GDP?
DK. I'll give you what actually happened and you will see that the drift of it all is all right but it didn't happen that way. First of all as far as the ANC being confronted with the attitude of the banks, in 1986 the country had a run on the rand and had to enter into a standstill arrangement with, I've forgotten the number now, but hundreds of banks because they weren't allowed to remove the credit that they'd given to various South African institutions. It all started with Chase Manhattan withdrawing its facilities from South African customers and other American banks, because of hassle at annual general meetings, then followed. Then in order to replace those facilities the Swiss banks got drawn in more and they didn't like that and this precipitated a crisis and it led to a thing called the Debt Standstill Agreement in terms of which South Africa said, "OK that's what we owe, we will continue to pay the interest on all these amounts, we are very sorry if you didn't count on having an investment but your investment is denominated in dollars, we will pay the interest in dollars and over a period we will gradually pay off the capital." Now because there were so many banks and so on, that then came down to a supervising group of major banks and then it came down to a creditor's committee of four or five bank representatives. They had a regular monitoring process on the SA economy and during that period SA was exporting capital which is one of the reasons why we didn't grow in that period. As a developing country we were exporting capital. That agreement had regular review dates and one of those came up in the beginning of 1993 (because I wasn't Minister of Finance in 1992). One of those dates came up in 1993 and a new arrangement was made which effectively finished the whole matter. Whereas previously the banks had always said we don't want any political involvement, these are commercial arrangements between central banks and banks and one thing and another, please don't involve the politicians, because we were in a state of transition they said, "We want the ANC's signature on it." OK. So there is a new agreement on which the international banks specifically requested ANC signature. That was obtained. So that deals with that side of it. OK? That's that first part.
. The second part about the undertakings being given was that in 1992, end of 1992 -1993, we had fearsome drought, a real swine. It was the first big El Nino thing. This time it didn't happen here but then it really did happen and as a result our balance of payments was in trouble and there is a light conditionality facility which the UN has for balances of payments that are bothered by acts of God. You don't have to go through the whole procedure, laying everything out in front of them, but you have to give them a letter of comfort, if you like, which says yes you're going to do this, this and this and so on. Whenever I went to the IMF for the IMF meetings in September I treated the ANC people who were there and so on as part of the delegation and that resulted on a certain September morning in an unused school hall in Washington, Trevor Manuel and Alec Erwin sat down together to draft the paragraphs of that letter which related to government/labour relations, etc., etc. They became part of that process and that letter was signed once I was satisfied that they were satisfied with it, that letter was signed by the SA government.
POM. So was the letter signed by Pravin Gordhan?
DK. I don't know about that, but just bear one thing in mind, I had as close to nothing to do with what went on at the World Trade Centre as you can imagine. I would think it's highly unlikely. Weren't there 20 parties? It's highly unlikely that all 20 parties and one never saw anything referred to in the media or anything about this and surely somebody would have mentioned it to me one would have thought.
POM. One would have thought, yes.
DK. So I just know nothing about that but I think the letter he's referring to is this letter to the IMF related to that drought facility.
POM. Done in Washington DC.
DK. At the time of the IMF meeting.
POM. At the time of their meeting in September of 1993, it would have been at that time.
DK. I guess. It may have been 1992.
POM. The point I was getting at, if this were true or if the ANC had in fact become signatories to a letter
DK. They weren't signatories. They helped to draft it and they were satisfied with it.
POM. That in that sense already there was a paradigm shift in their, if one wants to use that awful word, in their thinking, that they were moving in the direction of understanding the necessity for strict monetary policy?
DK. I am given a lot of credit for having brought that about. I'm perfectly happy to say they were already there when I met them for the first time. So I think they had done a lot of thinking about it, they were getting a lot of advice from American banks who had been largely uninvolved and wanted to be very much involved in SA and so made a tremendous play taking people from here, from the ANC and so on and having them spend six months there and all that sort of thing. So I never encountered anything other than a pragmatic attitude on the part of the ANC people right from day one and the same applied to COSATU. The first negotiation that I had with COSATU, they had broken my predecessor on their resistance to doing anything to VAT which was then 10% and the first negotiation that I had with them was to offer them a choice between a VAT of 14% with some more exclusions for certain food items and a VAT of 13% with no exclusions, which they weighed up on its merits and we went from 10% - 14% in the budget without a single demonstration protest or anything else.
POM. The irony for me is that in the pre-negotiation period the economy and what kind of economy there would be, there would a socialist economy or whatever it was, played a large role in the debate and played a large role in NP thinking and ironically in a way economic policy was set before they ever reached a constitutional settlement in Kempton Park.
DK. Absolutely, absolutely.
POM. So the issue over which there was supposed to be most negotiating in a way turned out to be the issue over which there was almost the least negotiating.
DK. We met each other on the same waveband and looked at the problems together and arrived at the solutions that were available to us.
POM. Now looking down the past since then, I just mentioned before we started, the statements that the IMF had made in their report regarding the macro-economic state of Indonesia and Korea and this was the model for other countries to set and they could see nothing but growth and the creation of jobs well into the 21st century and I think within months of the issue of both reports both Korea and Indonesia were on their knees on their doorsteps looking for billions of dollars of bail-out. How could the IMF have gotten it so wrong?
DK. You must bear in mind that the whole globalisation logo, appeal, idea, myth and so on had acquired fantastic strength in the preceding several years. The world economy now with the Uruguay round behind us and the World Trade Organisation in place and tariffs coming down everywhere and so on, the whole world was going to be run as one economic unit, it caused the collapse of Russia and everything else. And this was the I'm missing the right word
POM. The mindset?
DK. Well the mindset, it was a dream, it was paradise. Paradise had arrived in which the whole world would play by American rules and these countries which had shown great determination to raise their own standards and to apply themselves to supplying the wants of the developed world would have a part to play and everybody would make lots of money out of it and everything else. And a component in that was this flow of capital into the emerging market countries. South Africa has never had a net inward flow of more than 2% of its GDP. Malaysia was up at 8% and I think in some years above it. So you have this flood of the world's savings heading into these countries and they were apparently making good use of it.
POM. Making good use of it to make money as distinct from to create wealth?
DK. Well no, they were doing wealth creation as well. There were factories all over the place making goods which were being exported into the States and into Europe and so on. I was in Germany in 1977, that was the time when South Korea was going like the clappers and German industry was investing like mad in South Korea and has made millions as a result. So that's been going for 20 years, and then that tap was not only turned off but demand was on, as happened to SA in 1986 for totally different reasons. The demand was on for that capital to come back. Now if you want to know what changed, that's what changed. The fact that trying to draw that money out, which of course was what happened with American banks in Germany in the 1930s and generated the great depression, the fact that drawing that money out started to show up all sorts of weaknesses in these countries, in their banking systems and one thing and another and so on, that's purely a consequence.
POM. Why was there a need to start pulling the money back out?
DK. People lost their nerve. Markets are human institutions. There started to be some defaults here and there. Of course the whole way in which Russia was behaving was an object lesson that if the economy wasn't right you were likely to do your boots.
POM. So in the middle you have SA
DK. Which has never enjoyed a huge inflow. We were sort of beneficiaries on the fringes of the emerging market idea but there were enough obstacles to investment here for people not to get over-excited about us and most of the capital that came in as far as we were concerned was portfolio capital.
POM. And that can go as quick as
DK. That's right. I'm, so far as I know, the author of the phrase 'there's no bad capital', but that's much less good than people building factories and doing things like that. Our capital was relatively small, the capital coming in was relatively small, and it left, which is the situation which we are completely adjusted to. We have a sound banking system. Our systems here have been tested by withdrawal of capital ten years ago and stood up to it. Can I just say again, you are criticising the fact that the IMF's diagnosis three months before this change took place was wrong and clearly it was deficient in certain respects, it didn't contemplate this possibility. But most of the criticism of the IMF is on how they behaved after the change.
DK. It's not based on their mis-diagnosis, it's based on their re-diagnosis.
POM. It's based on their prescriptions against the same higher interest rates, good government spending, which killed off growth, which is a policy they also recommended or at least followed in SA.
DK. Well you say it's a policy that they followed but of course SA didn't get any IMF help during the 1986 crisis. It was entirely negotiated with the banking system. So we're a good example of what happens if the IMF isn't there. And what happened? Interest rates had to go up because we were losing capital, a lot. A lot of the prescription is what happens naturally.
POM. I suppose what I'm getting around to is you have now a developing post-Washington Consensus which says maybe, in fact a man who has become my favourite economist recently is Joseph Stiglitz -
DK. The developing world's darling as well. He'll be fired soon I think.
DK. I think he's going to be fired soon. He's working for the wrong masters.
POM. But he makes a statement here that I will just refer to and then go back to, he says, this is in a speech he gave in Helsinki last year in January of 1998, and he says, "The success of the Washington Consensus as an intellectual doctrine rested on its simplicity. Its policy recommendations could be administered by economists using little more than simple accounting frameworks. A few economic indicators, inflation, money supply growth, interest rates, budget and trade deficits can serve as the basis for a set of policy recommendations. Indeed, in some cases economists would fly into a country, look at and attempt to verify these data and make macro-economic recommendations for policy reforms all in the space of a couple of weeks and fly out." Which shows a certain degree of hubris, to say the least.
DK. Sure, but after all the biggest shareholder is the prime world superpower. The Romans used to send consuls in to size up the situation across the Rhine and decide to this, that and the other, and they probably weren't there for much longer than two weeks either.
POM. Or render to Caesar what is Caesar's.
DK. To say nothing, business CEOs also sometimes fly in for less than two weeks.
POM. When you see people like Milton Friedman saying
DK. Milton Friedman believes there shouldn't be an IMF.
POM. No, no, but his policy recommendation for a developing economy would be what you have to have is growth, sacrifice the currency to growth, let the currency float and lower interest rates dramatically and spur economic growth. And my question would be, which intuitively I believe in that, just looking at what's happening in countries where interest rates are up around 20% or whatever
DK. In Brazil of course they've now let the currency go and they've got even higher interest rates.
POM. Yes, this is Brazil. I've been talking about Brazil now for over six months. I've got the world mapped out and the area where it's going to come from. If the rand is being saved, and first of all the country has very limited foreign reserves so it can't sustain any
DK. And the Reserve Bank has said it's not intervening.
POM. So that a speculator knows that if you intervened that's the time to speculate because you've nothing left after a certain point. But stabilising the exchange rate or whatever, or even stabilising the inflow of capital which is portfolio capital, not inward investment as such, at the expense of high interest rates which result in zero economic growth and increasing unemployment, precisely whom is the economy being saved for?
DK. Well it's being saved for the international system, the international investors. Of course they like stable currencies, because they don't want to be exposed to a sudden loss of part of their capital if the currency goes down to half. So if you want to run a global system while you still have international currencies, and I suppose they're with us for a considerable time yet, then from the capital market's point of view it's nice to have stable exchange rates where you can size everything up without having to worry about the currency factor. You know the joke about the chap who is supposed to be a US Treasury official who believed in reincarnation and
POM. I thought that was only the English football coach who
DK. No, no, not Hoddle. No, no, this guy believes in reincarnation and he had a kind of dream wish that he would come back as Genghis Khan or as a future Genghis Khan, some world tyrant, and then he got involved in the negotiations to rescue Mexico, which was the first country I suppose to go through this in our recent experience, but at the end of that he said his beliefs were still exactly the same but he had changed his ideal end result of what he would like to be reincarnated as. He would now like to come back as the capital market. Much stronger.
POM. I'm either missing something there was this survey done just two weeks ago of the one hundred CEOs of the top one hundred quoted companies of the JSE and their outlook for 1999 and the economy was all doom and gloom and if these are the CEOs we again make the erroneous presumption that they know something that the rest of us don't know, but if their morale is so low as they go into the year 1999, I come back and you say the economy is being saved for the capital market, in a way to hell with the people. What would happen in this country - ?
DK. What would happen if you just simply let the rand run and pursued growth stimulating policies? You'd have very high levels of inflation quite quickly and the moment you had the high levels of inflation then you'd start to get very high wage claims which would be very hard to resist and before very long you'd be back where you started.
POM. In this lecture Stiglitz quotes innumerable references, every statement he makes is backed up with ten or twelve different references, and he says too much emphasis is put on controlling inflation. He says: -
. "Controlling inflation, probably the most important policy prescription of the stabilisation package promoted by the Washington Consensus was controlling inflation. The argument for aggressive pre-emptive strikes against inflation is based on three premises: the most fundamental is that inflation is costly and should therefore be averted or lowered; the second premise is that once inflation starts to rise it has a tendency to accelerate out of control - this provides a strong motivation for pre-emptive strikes; the third premise is that increases in inflation are very costly to reverse. This line of thought applies that even if maintaining low unemployment were valued more highly than maintaining low inflation, steps would still be taken to keep inflation from increasing today in order to avoid having to induce large recessions to bring inflation down later on. The evidence has shown that only, only, that high inflation is costly. When countries cross the threshold of 40% annual inflation they fall into a high inflation, low growth trap. Below that level however there is little evidence that inflation is costly."
. Well it's high inflation that is on average deleterious. Now I find that an extraordinary statement. When you find countries with inflation rates of 6% saying our goal is to bring it down to 3% and this is going to be our major
DK. Yes but that's only in the Euro system because they wanted to have a common currency. Once you decide to go for common currency you've got to more or less align your fiscal policy and monetary policy and once you do that in Europe you've got to do what Bundesbank wants to do. So that's where all that comes from.
POM. So if you let the currency float here?
DK. The currency is floating here.
POM. If you let it go and lowered interest rates?
DK. We're not borrowing from the IMF to support the currency. We haven't done so. We have no intention of doing so.
POM. Why not slash interest rates? How are you going to create growth?
DK. If we slashed interest rates we would get more spending. This is a high consuming country. The main reason why we aren't growing is that we aren't investing. We can't invest because we aren't saving.
POM. We've gone through this and you're not going to save.
DK. That's right. So lowering interest rates would produce even less saving, we would just gradually eat into our capital.
POM. In the United States they've now got negative saving for the first time.
DK. And how much capital comes from elsewhere in the world into the United States? It is the biggest recipient of capital from savings elsewhere in the world.
POM. That's right, and it's interest rates are at
DK. Lovely. Japan's interest rates are down because they save like mad, America's interest rates are down there because the Japanese save so much that they have to buy a lot of American Treasury obligations as a safe haven for their funds, plus every entrepreneur in the world when he gets to a certain point thinks, I ought to be in the States, the greatest market.
POM. Is there also an element of that as long - and in a way maybe the example I would use is what happened to sterling after World War 2 when it thought that because of its acceptance as an international currency that it could run whatever deficit it liked in its balance of payments as long as there was a demand for sterling as a reserve currency for other people to pay their debts in and they were in no particular danger. That collapsed at a certain point whereas in the US the demand for dollars as the international reserve currency is still at a level that it really doesn't matter what they do once there's a demand.
DK. They don't care what the dollar is worth vis-à-vis other countries. As you know foreign trade is 6% of American GDP.
POM. And other countries need dollars.
DK. They want to sell in that big market, they want to be there, I want to be there. I am there. I have a little business in America, completely legal, authorised, etc., so I'm a typical mini-capitalist.
POM. I would hope you're more than a mini-capitalist.
DK. America has some of my capital. South Africa has more but America has some. The American economy is no kind of example for any developing country.
POM. But then Alan Greenspan is like a one-man, he's like a Genghis Khan.
DK. It's the bond market that is Genghis Khan.
POM. He made a remark some months ago and that's when I thought a lot of people should have started moving their capital if they had any when he said, "I don't really know what's going on any more." It's like the story about the shoe shine boy. I don't know if you ever heard of Joe Kennedy and the shoeshine boy?
DK. Bernard Baruch, it was Bernie Baruch not Joe Kennedy. He asked Baruch what stocks he should buy and he said that that's the signal, we're at the top when the shoeshine boy wants to buy equities. Don't forget this country has exchange control.
POM. Which other countries are considering bringing in, which the IMF and the World Bank, contrary to previous policy, is now saying might not be unlimited.
DK. It was De Klerk's, it's in his book by the way, De Klerk's dearest wish after he appointed me that we would take the risk together and simply free everything. It shows his hearts in the right place doesn't it? But I consulted the IMF and they said you must be mad.
POM. So there went that wish.
DK. So in other words they were at that stage very much in favour of the controls being retained and with the kind of disparities in wealth that we have here and so on, can you imagine what would happen if we all owned flats in Park Lane instead of - ?
POM. Just to go back to the point I raised on inflation, saying that the evidence shows that unless annual inflation begins to exceed the forces
DK. This is just one guy's view.
POM. No, no, not a view because he backs it up with so many references.
DK. It's his view and it's based on what has happened under the Washington Consensus. If you abandon the Washington Consensus or substantially revise it the 40% thing may not be the 40% thing any more, it may now be the 20% thing. Who knows what it would be? I'm actually not too keen to get into a whole lot of hypothetical talk about what would happen if he ran the world.
POM. Well I'm sitting here as State President
DK. The bond market runs the world.
POM. - and I've got my Cabinet in front of me.
DK. State President of which country?
POM. Of SA, and you are Minister for Finance.
DK. And we're telling you that
POM. I'm saying what the hell is happening here? We're going into our third year, no economic growth, interest rates at astronomical levels, they're coming down in dribs and drabs.
DK. I'll tell you exactly what's happening, we aren't saving anything net. Consequently we have no capital to invest in new ventures. That's the first thing that's happened and that's a trend that's been going on and worsening for a very long time. I and Chris Liebenberg produced a slight stoppage in that downward trend but that's about all we did. We also had a plan for reversing that but we haven't gone that way. That's the first thing. The second thing is that this is one of the worst times that you can imagine for a country like SA. We're down, I hope, near the bottom of a commodity slump, but one that looks as though it's going to last for a very long time. We're not only losing prices but we're losing quantities. To give you an exact figure the coking coal price negotiated with the Japanese mills has had to come down by 18%. The price was already low and it's had to come down by 18% and the quantity has been chopped 10%. Now that's just symptomatic of what's happening in every commodity. The Hillside plant which, thank God, has got the lowest cash costs in the world in the aluminium industry was selling aluminium 500,000 tons a year at $1600 a ton. It's now selling at $1230 a ton. That's what's happening to SA. 85% of our exports are commodities and the gold price is down. When this kind of thing happens to the world, SA enters a very quiet period.
POM. So in one sense it makes no difference how 'good' you are, that you're a small player in an global market and you just feel the tail winds of whatever happens from Korea to Brazil.
DK. As I said to the International Council meeting that I was at in New York, the angel of capital flight death just brushed us with her wing as she flew from Indonesia to Brazil.
POM. Take Brazil for a moment, where Patricia told you I've been saying for six months that it's gone, and I must say I take a perverse delight every day in seeing the more trouble they run into. I don't have any capital anywhere.
DK. That's not very nice of you. It's even worse if you don't have any capital.
POM. But if their reform policies, which have run into serious trouble and they've, as you said, floated the exchange rate and all it has resulted in is rather than building confidence it has done the very opposite. They've had to shove up interest rates, I think they're 30% or over that. The second Director of their Reserve Bank, the only good sign being that he worked for George Soros.
DK. Does he work for the old Soros or the new Soros? That's the question.
POM. I think Soros has it really figured out. When he's doing well he makes his money in speculation and if the market slips a bit then he writes books and does well on that so picks up on the other side.
DK. That's right.
POM. The impact of that on the US economy would be pretty immediate in terms of confidence.
DK. They're doing their best to make sure that it doesn't affect trade too much but it's certainly affected some of the thinking of the national groups. I think Proctor & Gamble is about the worst hit. They've got some newish factories -
POM. In Brazil?
DK. So you see if you count in dollars and you make your money in real then you're in trouble. We have aluminium plants there and it doesn't affect us. In fact our local costs go down because we account in dollars and we sell in dollars.
POM. So what if that did happen, not indulging in speculation?
DK. Well they're doing their best to insulate the States from that.
POM. Will it have, if it did happen, and even if their insulation is partially successful but this kind of miss that the American economy can counterpoint every trend in the world and grow at 4% or 5% or 8%, what goes up sometimes has got to start coming down, how would that affect the economy here?
DK. I don't think it will affect us much. It affects us, the direct effect is on things like commodity prices. If Brazil gets into the kind of trouble that means they have to lower the dollar prices of their iron ore exports for instance, then the whole commodity price level goes down yet another notch and of course that affects us.
POM. To come back to the matter of savings, is this a lack of savings here?
DK. Well yes it's the lack of capital. It doesn't matter who saves but you have to have the capital.
POM. It has to come in.
DK. You have to have the capital. You either save yourself or you create an environment that is attractive enough to the bond market so that the capital comes in from outside or you create conditions which are so attractive to global entrepreneurs that they have all their stuff made here, so then they bring capital. That's the capital that doesn't come from the bond market, that comes from corporations. We've had a bit of that but you can't transform an economy based on that.
POM. We began talking some years ago, we had been talking about the phenomenon of growth without job creation and now you have gone one better, you've got no growth and no job creation. What set of policies do you start adopting now? If an Mbeki government comes in how should its policies - he can say this can last for another five or six years and maybe if it does by the year 2004 I might be in a slight bit of trouble, or he can say we have to do something, we have to find a way of jump starting the whole economy. Is there a way of jump starting it? What set of policies would make the country more attractive to entrepreneurs who want to either invest in the bond market or to corporations who want to build plants here and manufacture goods here?
DK. Of course the most touted change is this question of labour market flexibility. I personally don't attach that much value to that. I don't think the world has been longing to invest in SA but it's just been scared off by Mbhazima Shilowa, he used to be called Sam. And we can't compete with China as far as that's concerned anyway. So I don't think there is a tremendous thing for us there. Ginsberg in his book, the chap who got fired, he was the economist for Barclays or someone, there was a bit of a fuss in the paper because they fired him but at any rate he's written a book, and he points to Mauritius which has become a kind of entrepo country, no taxes, etc., etc., and conditions which he says we could duplicate in these duty free zones on the coast. And I know the Department of Trade & Industry has been looking at that for a long time but the labour unions don't like it because one of the conditions you have to have in those zones is that national labour agreements as far as wages and so on don't apply, so they're afraid of seeing SA industry shifting into its own export processing zone.
POM. The advice you give?
DK. Oh the advice I give is the same as the advice I gave in 1992 that the only possible way in which this country can generate some capital of its own so that growth can take place is if government spends less.
POM. Government spending less. Now what are corporations doing? Many of SA's largest corporations are multi-national corporations. Where do they shift their money?
DK. There's been no shift of money from corporations that I know of other than the 15% allowances which came in with the loosening of exchange control which allows financial institutions to invest 15% of their portfolio abroad. It's actually an attempt to make this country more attractive in the long term to the international capital market because they do it through a shop arrangement which means people out there have to take SA securities and agree to hold them for a period.
POM. So you don't see on the horizon any obvious solution to this problem other than greater cuts in government expenditure.
DK. Consumption, consumption and expenditure. You can classify a large part of the education budget as investment but we can't afford the kind of health system that we would like to have.
POM. Yet most people, black and white, well particularly whites, are saying the health system has already gone.
DK. That's right. It's not because less money is being spent. You have a bulge thing there. The country's health system was an inverted pyramid. Primary health care was very small, secondary health care was better, tertiary health care, heart transplants and so on, was absolutely fantastic. Now the government vision of what health system we should have is to turn that pyramid around but what do you do with your tertiary hospitals and so on while you're doing that? So you have a bulge, while you make the transition you have a bulge phenomenon which can last decades.
POM. Somebody last night, an area that is of increasing concern to me because it involves, I've been working in the States on it, and that's AIDS. The statistics for this country are not just appalling, this whole region is, you could almost say it's a plague-like situation more than an epidemic. Life expectancy will fall within ten years from 60 to 43, one in seven civil servants, the rate of teenage orphans, no matter where you look, one in twenty, one fifth of the workforce. You've got the same in Zimbabwe, the same in Botswana and Namibia. You can cut a line almost across and take that whole sector. Somebody mentioned yesterday to us at one of these dinner conversations, somebody who worked for Gencor had said that you lost in the mines one person a day, this was years ago, were losing one person a day to AIDS. Again, what can the government do here? In terms of national priorities is finding a way to deal with AIDS more important than finding a way to deal with crime? Which in the long term posits the greater threat in terms of that one will change the demographic structure of the country, will change the whole balance of how expenditure is used, productivity, absenteeism, you name it, it will affect it?
DK. It affects investment attractiveness for people outside. It has a tremendous effect on that.
POM. So the government saying we will place more emphasis on it and there will be an AIDS awareness week, is a weak response to what is is that all it can do?
DK. I don't know. What it certainly can't do is afford treatment on a developed country basis for all sufferers. It doesn't have that money.
POM. Making AZT available to pregnant women?
DK. It costs, it costs.
POM. Will the long term savings not justify that? Has anyone done any work to work out - ?
DK. I've no idea. It's obvious to me that if you take what it costs to keep an HIV positive person in the US going, that there's no way that SA can afford that. No way.
POM. Just two last questions. One is a statement that was made by, I think, Cyril Ramaphosa at the IMF General Meeting last October where he was addressing an audience and he said, "I've been here four days and I know all about Asian contagion and I know everything about South Korea and I'm an expert on Thailand and Indonesia. There's not a figure I can't drop but I haven't heard the word Africa mentioned once."
POM. When he was finished, Michel Camdessus, the IMF President got up and said, which I thought was condescending, his response said, "Well you should consider yourself lucky." His question was, "Do we count?" and Camdessus said, "Well in answer to your question you should consider yourself lucky. If you were on the agenda it meant that you had a problem and the fact that you're not on the agenda means you don't have a problem."
DK. But that's the western view.
POM. That's right, so that more or less said
DK. I said at the same Council meeting in New York that it seemed to me that the world had two problems at the moment that it not only was making no progress on but in fact was going backwards on. One was the north/south gap was getting bigger than ever and the second one was that we didn't seem to know the way in which a command economy could convert to a market economy, whether you look at East Germany which ought to be the easiest example or you go all the way to Russia. And Lord Howe said that he thought I was wrong on both counts and that the north/south problem would be solved with globalisation, etc., and all that. That's the western view.
POM. What I read and what Camdessus said was that in another way he was saying that if all of Africa disappeared under one great big wave it wouldn't make a damn difference to the way the markets moved in Hong Kong or Washington or Frankfurt or London and you count when you move markets and when you don't move markets you don't count. Is that an ethic that needs to be revised, not revised but needs to be rethought?
DK. Have you read, for fun, O'Rourke, Eat the Rich?
DK. Oh do.
POM. Which one is that?
DK. P J O'Rourke.
POM. Oh yes.
DK. Have you read Eat the Rich?
DK. He talks about the bond market there and, pardon the language but this is a direct quote, and he says to the chap looking at the dealings in the bond market in Wall Street, he says to the chap, "Do these guys have any conception about what the effects of their actions might be on other parts of the world?" And this chap says to him, "They don't give two shits about that."
POM. So where do we stand as we approach the millennium, so to speak?
DK. Where we stand is that the super power is revising its doctrines in order to meet changed circumstances and doing everything it can to protect its own standard of living, in fact not only to protect it but to substantially enhance it. And that's the driving force.
POM. So America comes first.
POM. Two last quick ones are: what is this doing to black empowerment since black empowerment was structured so much on borrowed finance that was predicated on shares rising?
DK. The capitalist system is working marvellously. The good chaps are surviving and the bad chaps are going to the wall. Don Ncube is doing marvellously at African Life. The NAIL thing is extremely successful based on Metropolitan Life and a lot of the fly-by-nights are having a very tough time.
POM. So the outlook, as you see it, into the next century for SA?
DK. We have a major struggle to preserve social balance faced with the kind of economic difficulties that we have and it's not just economic difficulties. I think we've been over this ground before so I'll just sketch it very quickly. We made our revolution at the top. What we achieved wasn't that far away from Mandela replacing De Klerk and then it filtered down to a whole set of new provinces to whom we bequeathed the mess that was there, the homelands, and so they didn't start from scratch, they started from way behind and are struggling manfully to get right and being laughed to scorn by outside observers for all the messes that they haven't fixed up. And now we're getting down to the local authorities. How should Johannesburg be run? It's only happening now. So now we are in people's backyards finally. That's when the social change is built to a peak. This is not just an exercise in economics, this is an exercise in sociology and in that sense Mbeki has a far more (and I'm a great admirer of Mandela, wonderful chap) but Mbeki's five years is going to be four times as difficult as Mandela's.
POM. When he talks about the African renaissance what do you understand that to mean?
DK. Black people doing things for themselves.
POM. So it's a kind of a grassroots black empowerment?
DK. Well it's a call to people to accept responsibility for their own destiny.
POM. We were at the Renaissance Conference last October at which Mbeki spent two days and I think both of us found it troubling that the anti this whole emphasis, there was an air of anti-white, anti-European values, we've got to get rid of European values, the things that are run by Eurocentric people we've got to get rid of them and put people in there who are true Africans and know how to do things the African way.
PAT. .. what happened 30 years ago in the US with black empowerment, the Civil Rights Movement, but nothing ever emerged in terms of economic
DK. The western culture is so powerful and even in its deviant form here it is so pervasive that attempts to extract that virus from the body politic I think are absolutely doomed. But he needs a rallying cry, he likes black, he likes things to be done by black people, and I don't mean Indians and coloureds. He wants to see black people perform. That's what he wants. Now what's your rallying cry for that in a mixed western virus riddled group like us? It's hard to find. African renaissance isn't bad.
POM. OK, on that note, thank you, as always.