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A Diversionary Compliance Hypothesis of Nuclear Renunciation: The Case of South Africa
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Triangle adding on to the resentment roused by the new constitution. However, beneath the precipitating factors, economic decline stood as the underlying cause.
138
South Africa’s economic problems in the mid-1980s were not so fortunate as in
the past. Foreign investors were unwilling to bear South Africa’s liability of political instability and economic lethargy in the 1984 crisis. In the wake of dwindling international bank credit after the Soweto riot in 1976, the soaring gold price had brought in plenty of foreign exchange, and after the post-1980 gold price decline, short-term international credit had provided a shelter to South Africa.
139
In 1983, however, the IMF
for the first time linked apartheid to South Africa’s economic problems and refused to grant loans. The IMF had represented a critical source of funds for offsetting South Africa’s balance of payments deficits since 1970.
140
Behind the IMF loan halt was the
American Congressional Black Caucus leading the anti-apartheid movement. Overall lending by American banks dropped to a disturbing 16 percent to $4.2 billion between September 1984 and March 1985.
141
To make matters worse South Africa’s Reserve
Bank made a bad policy decision of raising prime lending rates to fight high inflation that resulted in financial institutions searching for short-term international loans with lower rates. This led to uncontrolled borrowing. As a result, South Africa’s short-term loans grew substantially, amounting to $14 billion while the long-term debt was $10.3 billion by 1985.
142
The short-term to long-term debt ratio became so high that any drop in the
value of the rand increased the debt burden in dollar terms, and that was exactly what happened as the gold price dropped.
143
With the already failing economy South Africa’s
debt burden increased to an unmanageable degree.
To restore stability, on July 20, 1985, President Botha declared a partial State of
Emergency granting the government powers to detain anyone suspected of provoking violence. Such a repressive measure had worked in the past, but this time it backfired. In the first eleven days gold stocks plunged by 20 percent in value and capital outflows accelerated on the Johannesburg Stock Exchange. When foreign investors had anticipated that Botha would respond to the crisis with a broad reform as with the new constitution, his emergency measure was a shocking disappointment.
144
The crisis
aggravated when Chase Manhattan Bank unexpectedly called in all outstanding loans to South Africa and refused to roll over credit lines to South African banks on July 31.
145
138
Barber and Barratt, South Africa’s Foreign Policy, p. 304; Hull, American Enterprise in South
Africa, p. 324; Barber, South Africa in the Twentieth Century: A Political History—In Search of a Nation State (Oxford: Blackwell, 1999), p. 244.
139
Vishnu Padayachee, “The Politics of South Africa’s International Financial Relations, 1970-
1990,” in Gelb, ed., South Africa’s Economic Crisis, pp. 88-109, esp. 101.
140
As a founding member, South Africa first borrowed from the IMF in 1957. Ibid., pp. 89-90.
Raymond Bonner, “Economic Problems Tied to Apartheid,” New York Times, 17 November 1983.
141
Hull, American Enterprise in South Africa, p. 325.
142
Xavier Carim et al., “The Political Economy of Financial Sanctions,” in Crawford and Klotz,
eds., How Sanctions Work, pp. 159-77, esp. 162-3.
143
A short-term debt of 30 percent of the GDP is generally considered dangerous, and for South
Africa it was 50 percent in 1985. In 1980 it was 20 percent ($16.9 billion) that rose to 46 percent ($24.3 billion) in 1984. Ibid.
144
Hull, American Enterprise in South Africa, p. 327.
145
As to why Chase Manhattan Bank decided to halt rolling over maturing short-term loans,
Waldmeir cites a Chase executive, “it was never the intention to facilitate change in South Africa, the decision was taken purely on account of what was in the interest of Chase and its assets.” Patti Waldmeir,
29
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South Africa’s economic problems in the mid-1980s were not so fortunate as in
the past. Foreign investors were unwilling to bear South Africa’s liability of political
instability and economic lethargy in the 1984 crisis. In the wake of dwindling
international bank credit after the Soweto riot in 1976, the soaring gold price had brought
in plenty of foreign exchange, and after the post-1980 gold price decline, short-term
international credit had provided a shelter to South Africa.
for the first time linked apartheid to South Africa’s economic problems and refused to
grant loans. The IMF had represented a critical source of funds for offsetting South
Africa’s balance of payments deficits since 1970.
American Congressional Black Caucus leading the anti-apartheid movement. Overall
lending by American banks dropped to a disturbing 16 percent to $4.2 billion between
September 1984 and March 1985.
To make matters worse South Africa’s Reserve
Bank made a bad policy decision of raising prime lending rates to fight high inflation that
resulted in financial institutions searching for short-term international loans with lower
rates. This led to uncontrolled borrowing. As a result, South Africa’s short-term loans
grew substantially, amounting to $14 billion while the long-term debt was $10.3 billion
by 1985.
The short-term to long-term debt ratio became so high that any drop in the
With the already failing economy South Africa’s
debt burden increased to an unmanageable degree.
To restore stability, on July 20, 1985, President Botha declared a partial State of
Emergency granting the government powers to detain anyone suspected of provoking
violence. Such a repressive measure had worked in the past, but this time it backfired. In
the first eleven days gold stocks plunged by 20 percent in value and capital outflows
accelerated on the Johannesburg Stock Exchange. When foreign investors had
anticipated that Botha would respond to the crisis with a broad reform as with the new
constitution, his emergency measure was a shocking disappointment.
138
Barber and Barratt, South Africa’s Foreign Policy, p. 304; Hull, American Enterprise in South
Africa, p. 324; Barber, South Africa in the Twentieth Century: A Political History—In Search of a Nation
State (Oxford: Blackwell, 1999), p. 244.
139
Vishnu Padayachee, “The Politics of South Africa’s International Financial Relations, 1970-
1990,” in Gelb, ed., South Africa’s Economic Crisis, pp. 88-109, esp. 101.
140
As a founding member, South Africa first borrowed from the IMF in 1957. Ibid., pp. 89-90.
Raymond Bonner, “Economic Problems Tied to Apartheid,” New York Times, 17 November 1983.
141
Hull, American Enterprise in South Africa, p. 325.
142
Xavier Carim et al., “The Political Economy of Financial Sanctions,” in Crawford and Klotz,
eds., How Sanctions Work, pp. 159-77, esp. 162-3.
143
A short-term debt of 30 percent of the GDP is generally considered dangerous, and for South
Africa it was 50 percent in 1985. In 1980 it was 20 percent ($16.9 billion) that rose to 46 percent ($24.3
billion) in 1984. Ibid.
144
Hull, American Enterprise in South Africa, p. 327.
145
As to why Chase Manhattan Bank decided to halt rolling over maturing short-term loans,
Waldmeir cites a Chase executive, “it was never the intention to facilitate change in South Africa, the
decision was taken purely on account of what was in the interest of Chase and its assets.” Patti Waldmeir,
29
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