SOUTH AFRICA'S RELATIONS WITH MULTILATERAL DEVELOPMENT FINANCE INSTITUTIONS

1. CURRENT INTERNATIONAL ECONOMIC CONDITIONS
INTERNATIONAL ECONOMIC CONDITIONS
- US 2nd quarter growth figures higher than expected at 5.2 percent;
- Economic recovery in Japan is continuing;
- Growth in the EURO area expected to average over 3 percent for the year;
- Growth in the emerging markets of Asia expected to drop to 5 percent (from 10 percent) in the 2nd quarter;
- Growth in the emerging markets of Latin America to slow down in the 2nd quarter after six strong months.
- Performance remains variable with wide divergences in inflation rates.

Current international economic conditions: OECD Projections showing real GDP growth, inflation, and unemployment not available.
Capital market access: map showing countries with access to international capital markets and countries with no access to international capital markets

DEVELOPING COUNTRIES AND THE WORLD ECONOMIC OUTLOOK
- The most recent World Economic outlook reports that overall, the number of very poor has remained roughly unchanged over the past decade;
- Between 1 .2 and 1.3 billion people world-wide live on under $1 a day;
- The level of real per capita income today is lower than it was 30 years ago;
- The divergence between rich and poor has never been so great as it is today

2. THE BRETTON WOODS INSTITUTIONS
BRETTON WOODS CONFERENCE
- BWI’s were set up to finance the rebuilding of war-torn Europe; and
- to stabilise currency exchange rates between the developed nations;
- throughout WWII the world markets were considerably chaotic;
- a need existed for freer international trade, sound external balances and financial stability;
- 44 countries initially met in Bretton Woods (USA) to sign the Articles of Agreement of the BWI’s in 1944;
- South Africa was a founding member of the BWI’s.

THE IMF
- About the Fund
- The IMF's Surveillance Function

ABOUT THE FUND
- Has a membership of 182 countries;
- Established to promote:
- international monetary co-operation;
- exchange rate stability; and
- orderly exchange arrangements.

- Its purpose is to:
- Facilitate the expansion of international trade;
- Promote high levels of employment and real income;
- Promote exchange stability;
- Establish a multilateral system of payments;
- Make available to its members general resources of the Fund under adequate safeguards.

THE IMF'S SURVEILLANCE FUNCTION
The IMF prepares the WEO twice a year:
- To assess global implications of members' policies;
- To review key developments in the international monetary system.

- Article IV Annual Consultations that focus on members':
- Exchange rate policies;
- Fiscal policies;
- Monetary policies;
- Balance of payments;
- External debt developments;
- Capital and financial/banking issues

THE WORLD BANK
- About the World Bank
- The World Bank has a membership of 182 countries;
- lts ultimate goal is to reduce poverty;
- t consists of five affiliate institutions, namely:

- The IBRD: provides loans and development assistance;
- IDA: provides interest-free loans to the poorest countries;
- IFC: finances private sector investment and provides technical assistance;
- MIGA: provides guarantees to foreign investors; and the
- ICSID: provides facilities for the settlement of investment disputes.

3. FINANCING DEVELOPMENT IN AFRICA
CAPITAL MARKET ACCESS
Map on African countries with no access t international capital markets and African countries with access to international capital markets not available

Graph on capital inflow of sub-saharan Africa by type of flow: 1975 – 1998 (percentage of GNP) not available

Graph on sub-saharan Africa capital outflows:1975 – 1998 (percentage of GNP) not available

FOR MANY DEVELOPING AND EMERGING MARKETS ACCESS TO THE CAPITAL MARKETS OF THE WORLD IS LIMITED
- Official development assistance remains the main external source of development finance;
- Only four countries on the African continent, namely South Africa, Egypt, Morocco and Tunisia have access to the Capital markets;
- The remaining 51 African countries, like most other developing countries in the world, rely on development finance from:
- International Financial Institutions (World Bank and IMF)
- Regional Development Banks (AfDB, IADB, EBRD, AsDB)
- Local Development Finance Institutions

MOST DEVELOPING COUNTRIES ARE FURTHER FACED WITH:
Declining official development assistance:
- The UN ODA/GNP target of 0.7 percent has reached a low of 0.22 percent in 1997;
- IDA lending to Africa has declined from 40 percent of IDA 10 resources to 35 percent of IDA 11 resources;
- IDA 12 seems to suggest a continuation of the IDA 10 and IDA 11 trends

- Developing countries are faced with a dramatic debt situation:
- Africa's external debt stood at US$319 billion at the end of 1998;
- Africa's total debt to GDP ratio stood at 57.6 percent;
- Africa’s total debt to exports of goods and services at 215.2 percent
- Debt service payments for most developing countries far exceed ODA
receipts

FUNDING TO AFRICA BY THE WORLD BANK
- The world's largest source of development assistance (US$30 billion in loans to its client countries);
- 78 (of which 39 are African) countries are eligible to borrow from IDA;
- 66 countries (of which 11 are African) are eligible to borrow from the IBRD;
- 16 blend countries (of which 2 are African) can borrow from both the IBRD and IDA.

4. MULTILATERAL DEVELOPMENT FINANCE AND SOUTH AFRICA
SOUTH AFRICA AS IDA DONOR
- IDA resources are provided by donor countries
- IDA resources are replenished every three years
- South Africa has contributed R50 million to IDA 12
- IDA's commitment is to allocate 50 percent of its resources to Africa.

Pie diagram on world band funding to South Africa not available

ARTICLE IV CONSULTATIONS WITH SOUTH AFRICA
Highlights of 1999 Article IV consultations for South Africa:
- SA authorities commended for strong fiscal performance during 1998/1999;
- Agreement with authorities on a cautious approach to liberalise exchange controls;
- Authorities commended for its intention to use privatisation revenue to reduce debt..
- Authorities commended for conduct of monetary policy
- Authorities called to speed up privatisation reform.

TECHNICAL ASSISTANCE FROM THE IMF
The IMF assists its members through:
- Providing courses at the Educational Institute;
- Issuing a wide variety of publications;
- Providing technical assistance in specialised areas of competence;

- National Treasury and SARB officials regularly attend courses at the IMF Institute;

- South Africa has recently requested technical assistance in the area of drafting legislation for capital gains tax.

A CRITIQUE OF THE BWIs
- The representation of developing countries within the BWIs;
- Review of IMF quotas
- Areas where the World Bank is in need of reform
- The need to review IMF facilities

THE REPRESENTATION OF DEVELOPING COUNTRIES WITHIN THE BWIs
- 43 African countries in 2 constituencies share 4.38 percent of the shareholding;
- The G7 countries between them have a 47.69 percent shareholding in the BWl’s;
- In the two sub-Saharan African constituencies, each ED on average, represents 23 countries;
- On average, EDs from developed countries represent 3 countries;
- Constituency office should be restructured to achieve the maximum effectiveness of constituency representation

graph on the constituency representation in the World Bank not available

REVIEW OF IMF QUOTAS
- The Fund has undertaken a review of its quota formula for the following reasons:
- The unequal distribution of IMF quotas, e.g. United States quota allocation equals 17.52 percent; Africa's quota allocation equals 5.57 percent; SADC's quota allocation equals 2.03 percent; and South Africa's quota allocation equals 0.88 percent
- The proposals of the Quota Formula review Group will not benefit developing countries
- The group has refrained from recommending amendments to the Articles of Agreement;
- No variable in formula that would advantage developing countries
- There is a need for an orderly process of reform to allow greater developing country representation

AREAS WHERE THE WORLD BANK IS IN NEED OF REFORM
- Must continue to provide a range of concessionay and nonconcessionary loan facilities
- Must undertake a comprehensive review of its existing nonconcessionary instruments:
- Broaden the pool of currencies beyond the 5 OECD currencies;
- Better risk models need to be developed;
- Consider ways of rewarding good performers;
- Must review the need for government guarantees;
- Must review the nature of cross-conditionality clauses.

- IDA lending to Africa must reach the 50 percent target

THE NEED TO REVIEW IMF FACILITIES
- Facilities that no longer serve member needs must be eliminated;
- The stand-by arrangement is the core facility of the Fund;
-The relevance of the Contingent Credit Lines (CCL) in crisis still to be tested;
- The relevance of the Extended Fund Facility (EFF) in addressing BOB crisis still to be tested;
- Moral hazard must be limited in determining the application of the Supplemental Reserve Fund (SRF) in managing systemic crises.

SOUTH AFRICA'S PARTICIPATION IN THE ACTIVITIES OFTHEG2O
NATIONAL TREASURY
- The Group of 20 brings together G7 countries and thirteen "systemically significant countries"
- Generally the work of the G20 focuses on global economic issues and on issues of financial architecture
- South Africa, as a member, has played a leading role in developing its agenda;
- lssues on its agenda are, amongst others:
- The challenges of globalisation;
- Reducing the vulnerability to financial crisis

AFRICAN DEVELOPMENT BANK
- Established to mobilise resources towards the economic and social progress of all African countries;
- South Africa is able to access nonconcessional funding from the ADB;
- South Africa has indicated a willingness to increase its shareholding in the ADB;
- South Africa contributes towards the ADF, the concessional window of the ADB

pie diagram on the total AfDB funding approved for South Africa not available

5. SOUTH AFRICA’S DEVELOPMENT FINANCE INSTITUTIONS
DBSA
- Mandated to invest in regional infrastructure;

LAND BANK
- lts objective is to provide finance to all sectors of the agricultural economy;
- lts mission is to create housing opportunities for low and moderate-income families;

THE INDUSTRIAL DEVELPOMENT CORPORATION
- lts mission is to generate sustainable economic growth in Southern Africa by promoting entrepreneurship;

KHULA ENTERPRISE FINANCE LIMITED
- Its mission is to increase access to loan and equity capital