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Furthermore, South Africa had solidified its status as a pariah and autocratic state. That meant it could not seek relief from multilateral institutions because the country was politically isolated. This compounded its troubles.
Indeed, the IMF was closed to South Africa. But Bank for International Settlements “members ... were prepared to help us technically – and certainly see to it that we didn’t sink,” said Cross, clarifying also that, “ ... it was in nobody’s interest that the country come to any great harm. Otherwise, how were we going to transition to democracy or, what were we going to have when we transitioned to democracy?”
That salvaging assignment was largely left to the Stals-chaired Standstill Co-ordinating Committee, which had the unenviable responsibility of facing the foreign banks.
The crux of the crisis was that “South Africa did not have enough foreign exchange available to pay for essential imports of goods and services, and to finance the outflow of any large amount of capital, albeit for the repayment of foreign debt,” said Stals.
The rand exchange rate also experienced a sharp decline. The combination of the sudden and sustained capital outflows and the volatile exchange rate rendered South Africa’s current account surplus ineffectual while simultaneously draining its foreign reserves. This near-perfect storm explains the drastic, yet unconventional, actions that followed: in the main, the unilateral declaration of a standstill. Understandably, this state of affairs did not win South Africa new friends or garner plaudits for the country.
An urgent resolution was needed, and negotiating with the foreign banks became a necessity in attempts to chart a way back to normalised relations.
According to Stals, “[We] had to negotiate with the foreign lenders to South Africa on what would happen to this money that we ... blocked in South Africa.”
In 1985, information available to the Standstill Co-ordinating Committee showed that an estimated US$14 billion “of the total redeemable foreign debt of some US$24 billion as at the end of August, will become due within the next twelve months.” This projected US$14 billion formed part of the debt standstill net. The sources of the dollar-denominated debt were: the public sector (US$2.7 billion); monetary sector (US$8.8 billion); and the non-monetary sector (US$2.1 billion). (University of Stellenbosch Library).
Trouble began in the 1970s when the private sector increased its short-term foreign borrowings. The immediate consequence
was a deterioration in South Africa’s foreign debt profile. “The ratio of short-term debt (i.e. debt with an unexpired maturity of less than twelve months) to total foreign debt, increased from 471⁄2 per cent at the end of 1977 to 62 per cent at the end of August 1983.” (University of Stellenbosch Library).
“It ... is estimated that approximately 80 per cent of the present outstanding foreign debt is repayable within a period of three years.” “Moreover, the private sector’s short-term debt amounted to almost 80 per cent of its total foreign debt at the end of August 1985, in comparison with less than 55 per cent at the end of 1977.” (University of Stellenbosch Library).
This is a vital distinction for Prof. Rossouw, who said: “It’s important to note that the debt standstill was about the country’s private foreign debt, and not the government or Reserve Bank’s foreign debt. From 1986 to 1989, it was a question of maintaining financial stability in the midst of the debt standstill. It was necessary to square the books at the Bank every day because the country, effectively, had negative foreign reserves.”
This made it all the more important for South Africa to “maintain good relations with the country’s foreign lenders, and with the banking world at large,” Stals said. “I was tasked with the burden of leading these negotiations.”
South Africa was advised against talking to the foreign banks affected directly “as ... [this] could lead to uncomfortable confrontation”. Instead, the appointment of an international expert who would act as an intermediary “between us and the banks” was recommended.
“The retired President of the Swiss National Bank, Dr Fritz Leutwiler, well known to me, was approached and accepted the appointment. Between Leutwiler and myself, we identified 32 bank lenders to South Africa, from a number of countries, and invited them to act as representatives of all the foreign lenders with outstanding, now blocked, claims on South African borrowers,” Stals said.
Leutwiler’s own correspondence reflects that on 26 September 1985 he accepted the invitation to act as mediator between South Africa and the creditor banks. The Swiss banker quickly moved to arrange a meeting, to be held in October of the same year, in London between the two sides.
From the outset, however, Leutwiler let it be known that his role as mediator did not mean he was acting as a ‘spokesman for apartheid’.
Rupert’s letter, dated 26 January 1986, to Botha corroborates this. In that letter, Rupert, who had met with Leutwiler, not only appealed to Botha’s better senses but also enlivened the President to the gravity of the situation at hand.