DEBT, DEMOCRACY AND REPRESENTATION IN SOUTH AFRICA

Abstract

Contrary to most newly independent colonies which borrowed extensively in order to fuel economic growth and development, the post‐apartheid South African government pursued a different path. With the advent of democracy in 1994 they chose to stabilize the economy and reduce public debt via the adoption of an austere fiscal programme. We argue that the choice was made in order to gain greater policy independence from creditors and portray an image of sound fiscal management to potential international investors. The consequences of the decision were, however, quite the opposite. The South African government’s austere and prudent response to debt made its bonds more attractive. It has therefore become more, not less, dependent on the constraints of creditors, albeit international creditors, and so more subject to investor scrutiny and sentiment. And, yet, as a result of the fact that in South Africa the interests of domestic creditors do not enjoy formal, political representation, South Africa still lacks creditworthiness and remains a relatively risky place in which to invest.

ACKNOWLEDGEMENT

The authors would like to thank Laurence Piper, an anonymous reviewer for Representation and the participants of the Cambridge Mellon Sawyer Conference on Public Debt, Corpus Christi College, Cambridge, September 2007, and the University of KwaZulu‐Natal Politics Seminar, August 2008, for helpful suggestions on earlier versions of this paper. None of them, however, are responsible for any of the errors that may remain. Lawrence Hamilton would also like to thank Ayesha Omar for research assistance and the South African National Research Foundation, the Universities of Johannesburg and Cambridge and Clare Hall at Cambridge for their institutional and financial support.

Notes

1. A ‘veto point’ is a political institution, the holder of which, as specified by a country’s constitution, has the power to block a proposed change in policy. For more on ‘veto points’ and ‘veto players’, see Tsebelis (2002) and Stasavage (2003).

2. See Siéyès (2003), Manin (1997: 3, fn 3). Also the kind of constitution that Siéyès thought suitable for a free state was quite similar to the kind of ‘not‐quite republican, but not‐quite royal constitution’ that the Federalists advocated for the United States of America (Sonenscher 2003: xv).

3. For a discussion on ‘representation’ see Vieira and Runciman (2008).

4. For more on the motivations behind the shift in economic policy of the ANC towards an orthodox fiscal and monetary management, see Habib and Padayachee (2000).

5. Budget Review 2000, at www.treasury.gov.za.

6. See Minister Manuel’s 2007 budget speech at www.treasury.gov.za.

7. For more on these matters, see Du Plessis (1994), van der Walt (1996), Spitz and Chaskalson (2000) and Hamilton (2003).

8. For more on how this has affected delivery on land reform see Hamilton (2003: 173–84) and Hamilton (2006).

9. See Fedderke and Pillay (2007) for technical details. Essentially the measure extracts a risk measure from the co‐integrating relationship between yields at different maturity. The time varying risk premium is chosen for its ability to match historical events as in Figure 4.

10. Laurence Piper (2005) Theorizing democracy in local government in South Africa. Unpublished paper presented at Politics Seminar, University of Kwa‐Zulu Natal, Durban, November 2005.

11. Official website of COPE, http://www.congressofthepeople.org.za/page.php?8 (accessed 11 December 2008).

12. We thank Laurence Piper for this idea.

13. It is well known that the nickname ‘Terror’ was given to Mr. Lekota for his football skills and not for his political inclinations.