Swaziland’s Mystery Bailout

Nov 28, 11 Swaziland’s Mystery Bailout

A few weeks ago, Swaziland was reaching the point of collapse. The country has been firmly heading for collapse for a while, with pensions cancelled, HIV/AIDS medication running out and schools closing due to lack of funds. But a few weeks ago it seemed they were hovering over the edge after the state announced that it could not pay civil service salaries in November. And then, miraculously Swaziland was saved by a bailout.

Swaziland’s attempts to extricate itself from financial crisis have left a trail of failed bailout deals over the past few months. The IMF stopped giving the country money after they failed to make reforms – a large part of which would have involved reducing the size of what the IMF considers to be a bloated civil service. When the IMF announced its decision, other international finance institutions and aid donors followed suite.

The Swazi government turned to neighbouring South Africa. It was a drop in SACU revenues thanks to a contraction of the South African economy, possibly on top of years of economic mismanagement and extravagant spending, that landed Swaziland in economic trouble in the first place. In the face of vocal condemnation from civil society (who the government doesn’t care that much about) and trade unions (who the government normally cares a lot about), South Africa agreed to provide a R2.4 billion loan.

As part of the agreement, South Africa insisted on certain conditions. The conditions were too vague for most activists but would nudge the country towards more open political dialogue and some of the fiscal discipline measures the IMF has been pushing for. Swaziland objected to the conditions, but was not exactly in a strong negotiating position. All seemed to be on track until the King demanded a R400 million commission for brokering the deal. As absolute monarch, King Mswati II is head of his country, its representative. Pretoria, already out on a limb over this loan with alliance partners, civil society and the media, was not going to pay a commission. The bailout did not happen.

This left Swaziland with few options. Rumour has it they sought financing (unsuccessfully) from various middle-eastern countries. Other rumours suggested that a secret Swazi trust fund set up by the former King could be cashed in to support government spending. On the ground, the situation continued to deteriorate. Unprecedented protests sparked concern (and in some quarters hope) that Africa’s last absolute monarchy might be experiencing something akin to North Africa’s Arab Spring.

When the government announced last month that November salaries would not be paid on time – which was interpreted by many as a warning that they would not be paid at all – it looked like things were about to get even worse. The state is the largest employer in Swaziland by quite a long way. The country doesn’t really have much of an economy otherwise. Tourism is important but, as a sector, tends not to be a huge employer. If civil servants don’t get paid, the domestic economy of Swaziland takes a huge hit.

And then, a few weeks ago, earlier warnings about salary delays were retracted and a bailout package announced. The Swaziland government has refused to say where the money comes from, simply saying that they have managed to “borrow domestically”. Activists and opposition groups, both within and outside of the country, have expressed concern over the loan conditions and that central bank shares were used to guarantee the loans. More worrying is the possibility that key government assets may have been sold off, or at least used as collateral, to raise the funds. Possibly from the King.

While there have been calls for months for the King’s personal wealth to be used to keep the country afloat, this is probably not what those making the calls had in mind. The King’s wealth being used by the government to help the people would be a good thing. The King providing loans which make the government and country indebted to him as an individual – to be paid back with interest – simply increases the power of the monarchy. In a country already struggling with the oppressive system of absolute monarchy and where crowds of people are seen protesting on almost a weekly basis now, further entrenching the power of the King may well be the match to the fuse.

Questions of sovereignty and solidarity have allowed Swaziland to continue down this path but someone –SADC, SACU, the South African government – would do well to check out the source of the mystery bailout before rumours of a violent revolution in a small Southern African country become more than the wishful thinking of international journalists looking for a headline.

Image by Salymfayad

  • Hard Rain

    The country isn’t struggling because of absolute monarchy, it’s struggling because of bloated and indebted government. It’s a matter of economics, not political organisation. Take a look at European democracies; they’re in even worse shape!

  • John

    I do think the absolute monarchy is a negative factor though, when you consider the immense self-serving characteristics of Mswati and his retinue. If the government becomes even MORE bloated and indebted to the king himself, is that not a poor reflection on the greed of the monarchy itself?