World Bank Loan Has Warning: S. Africa Must Narrow Racial Gap

THE World Bank, poised to grant a $1-billion development loan to South Africa's ailing economy, has warned that the prerequisite for long-term recovery will be the narrowing of economic inequalities between blacks and whites.

"Higher growth without redistribution cannot work in a future South Africa," the bank said in its May Economic Perspective on South Africa. "South Africa must set about reviving the private sector, increasing employment growth, and narrowing income and other inequalities between blacks and whites."

In recent weeks, South Africa has stepped up appeals for international loans and foreign investment as agreement on a multi- racial administration gets closer.

Prospects for increased foreign investment were given a boost last week at the first meeting of the World Economic Forum to be held in South Africa. World Bank officials said the goal of the conference was to help reintegrate South Africa into the region and the global economy.

It also marked the first time that the 10-nation Southern African Development Coordination Conference, a grouping formed to rid neighboring countries of their dependence on South Africa under apartheid, was represented ministerially inside the country.

But negative growth of more than 2 percent, chronic black unemployment, and a lack of investor confidence fueled by political violence and instability provide a bleak backdrop for a multiracial transitional authority to begin tackling the development backlog of the apartheid era.

African National Congress President Nelson Mandela has indicated that the ANC will call for the lifting of all remaining trade and financial sanctions as soon as the proposed Transitional Executive Council is up and running. This could be as early as July.

Negotiators have targeted April 27 next year for the country's first democratic elections. These also will be the signal for the World Bank to approve funding of development projects.

South Africa is also looking to the summit of the G-7 industrialized nations in Tokyo in July for a substantial aid package. United States bilateral aid to South Africa runs at $80 million a year, the highest in sub-Saharan Africa.

In a speech in Washington May 21, US Secretary of State Warren Christopher vowed that the US would work with its G-7 partners to help South Africa re-enter the global market once a date was set for democratic elections and a transitional council was in place.

"We have urged the World Bank and the parties in South Africa to begin planning now the projects that will translate into economic growth," Mr. Christopher said.

The World Bank is likely to play a central role in financing development projects in housing, education, and infrastructure. The backlog in such projects for blacks, estimated to be tens of billions of dollars, is the most pressing problem that will face the transitional authority.

South Africans are divided over the price attached to loans advanced by the World Bank and the International Monetary Fund.

But the World Bank's restructuring formula has won more sympathy from the ANC and its allies than it has from the government, which has criticized it for being a "demand-driven strategy," that could feed inflation and fail to maximize growth.

In March, Finance Minister Derek Keys launched a supply-side economic restructuring program based on drastic cuts in government spending, high interest rates to keep inflation of around 13 percent on a downward spiral, and a negotiated wage freeze. The government hopes this package will stimulate private investment.

But the government has left the door open to negotiate what Mr. Keys calls the "human face" of its program - development and the eradication of poverty.

Despite the bleak picture, the World Bank sees hope. "Although the country is in a deep recession, rapid growth is possible in the early years of a new administration," the bank report said.

The bank also noted that South Africa had an unusually low debt-to-national output ratio and was not caught in the debt trap faced by some countries in Latin America and Eastern Europe.