4 ★ F I N A N C I A L T I M E S Monday 9 March 2020
I N T E R N AT I O N A L
Ramaphosa’s pugnacious finance minis-
ter, risked the ire of organised labour
with a pledge to cut more than $10bn
from bloated public wages.
“[Mr Mboweni] delivered substance
over bluster, something we have been
crying out [for],” said Busi Mavuso, chief
executive of Business Leadership South
Africa, a private sector lobby group.
But while the planned spending cuts
have pleased business, they have antag-
onised the unions, many of which have
been among Mr Ramaphosa’s few allies
in his battles inside the ANC.
Previously, Mr Ramaphosa has
deflected criticism by emphasising his
shock — despite serving as vice-presi-
dent under Jacob Zuma — over the level
of corruption that he found inside state
institutions after taking power. But pub-
lic confidence in that defence has faded
with the absence of prosecutions.
Rumours of imminent arrests of tainted
ANC bosses have come to nothing and
an inquiry into systemic corruption
under Mr Zuma has missed its deadline.
Mr Ramaphosa regularly reminds
voters that the president cannot orderprosecutions. “The day a president acts
as a judge, executioner and everything
else, we must run for the hills,” he has
said. In the meantime, those with the
most to lose from the anti-corruption
battle are free to organise against him.
In July, ANC members will attend
their biggest meeting since Mr Ram-
aphosa became leader, officially to
review the party’s policies midterm.
The meeting has no authority to remove
him as party leader but analysts say his
enemies will use it to burnish their pop-
ulist credentials and attack him for not
enacting more radical policies such as
nationalising the central bank, ideas
that spook investors but fire up the
party faithful.
“The people who don’t want Ram-
aphosa to get a second term as president
of the ANC are mobilising and organis-
ing,” Ms Mbete said, adding the meeting
would reveal who is vying to replace him.
For now, Mr Ramaphosa insists the
ANC will give him a second term,
though his confidence may be fading.
“Stick around,” he said last week. “You
may see this movie again.”C h lo e C o r n i s h — B e i r u t
Lebanon is set to default on its debts for
the first time as its foreign currency
reserves plummet to critical levels.
Hassan Diab, the prime minister, has
said Lebanon will not be able to pay a
$1.2bn Eurobond that matures today, as
the country’s economic crisis deepens.
The government is preparing for
negotiations with its creditors as it grap-
ples with debts of more than $90bn,
equivalent to about 170 per cent of the
country’s gross domestic product.
“How can we pay foreign creditors
when the Lebanese can’t access their
deposits,” Mr Diab said as he announced
the default in an address to the nation
late on Saturday. He added that foreign
reserves had reached “danger level”.
Lebanon’s central bank says it has
$29bn in gross foreign currency
reserves. But a report last month by
Fitch, the rating agency, estimated that
its foreign currency liabilities outweigh
its assets, giving the Banque du Liban “a
net negative foreign currency posi-
tion... close to $40bn, excluding
gold”. Nasser Saidi, a former vice-gover-nor of the central bank, estimated that
usable reserves had fallen to “about
$3bn to $4bn”.
He said this was because the gross
reserves include $18bn to $19bn set
against deposits for commercial banks
which the BdL cannot spend. In addi-
tion, the BdL has lent local institutions
about $6bn-$7bn to help them cover
their commitments to correspondent
banks, Mr Saidi said.
A Lebanese official confirmed the for-
eign reserve numbers, saying there had
been “simply no other option” but to
default and negotiate a restructuring
with Lebanon’s creditors.
The finance ministry said the govern-ment was “prepared to engage in good
faith discussions with its creditors to
explore options to make Lebanon’s pub-
lic debt sustainable”.
Sami Atallah, the director of the Leba-
nese Centre for Policy Studies, said it
would be “suicidal” for Beirut to pay the
bond given the state of the government’s
finances. “This is a really serious crisis
where the banks have been depleted or
bankrupt,” he said.
Lebanon is battling interconnected
fiscal, monetary and economic crises,
which have already cost tens of thou-
sands of jobs and threatened to disrupt
the import of vital goods.
Mr Diab took office two months agoafter weeks of mass demonstrations,
partly fuelled by economic grievances,
forced the resignation of the previous
administration.
The government will need the agree-
ment of enough investors to account for
75 per cent of the Eurobond to restruc-
ture the debt. Ashmore, a London-
based emerging markets investor, has
been buying the bond in recent months
and now holds a blocking stake — 25 per
cent and above — giving it veto power.
Mr Diab’s government is also
expected to come up with a plan to enact
long-promised, but politically unpopu-
lar reforms, including cutting its swollen
public payroll, reforming pensions andoverhauling its expensive and malfunc-
tioning electricity sector. It is taking
advice from the IMF, but has not yet
requested the body’s financial support.
Mr Saidi said it was “urgent” the govern-
ment starts negotiations with the IMF.
Mr Diab also said his government
would restructure Lebanon’s oversized
banking sector. Informal capital con-
trols imposed by the lenders since mid-
October mean depositors are able to
withdraw as little as $200 every two
weeks in some cases and cannot transfer
their funds abroad. Addressing fears
that depositors will end up bailing out
the banks, Mr Diab said the government
would “endeavour to protect” them.Foreign reserves
Lebanon on brink of default over $1.2bn Eurobond
Government prepares for
talks with creditors as
country’s crisis deepens
R o m a n O l e a r c h y k — K y i vA clear-out of Ukraine’s government
barely six months after it took office
has raised fears among investors and
political reformers that President
Volodymyr Zelensky has abandoned
his efforts to overhaul the economy
and tackle corruption.Mr Zelensky last week removed finance
minister Oksana Markarova and chief
prosecutor Ruslan Ryaboshapka, both
respected reformers, and ditched the
prime minister, Oleksiy Honcharuk.
Tymofiy Mylovanov, a US-educated
economist who had been spearheading
a long-awaited land reform as economy
minister, also quit in the shake-up.
Mr Zelensky said he was changing his
government out of frustration at the
slow pace of reform. But investors were
sceptical, particularly over the ousting
of Mr Ryaboshapka, who has been
praised by Kyiv’s western backers and
anti-graft campaigners for trying to
clean up a corrupt prosecutor’s office.
The judicial system has often been
abused by Ukraine’s oligarchs to pursue
business interests and settle scores.
Dragon Capital, a Kyiv-based invest-
ment bank, described the reshuffle as
“dubious”, adding: “The composition of
the new cabinet, which failed to include
the previous government’s key market-
oriented ministers, and little policy
detail offered by the new PM thus far,
are raising questions about the continu-
ation and quality of reforms, despite
Zelensky’s pledge of no reversal.”
“[Mr] Zelensky was supposed to be
serious about addressing the rule of law
issue and reining in oligarchs,” Timothy
Ash, an analyst at BlueBay Asset Man-
agement, said in a note. “Events this
week, and the seeming sop to oligarchic
interests in the cabinet reshuffle, raise
major concerns therein whether [Mr]
Zelensky is serious about actually
changing anything.”
Foreign investors have poured into
Ukraine debt since Mr Zelensky’s elec-
tion, persuaded by his promises to mod-
ernise the country and tackle corrup-
tion and reassured by the calibre of his
ministerial team. The Hryvnia rose 19
per cent against the US dollar last year.
In January, Ukraine sold €1.25bn of
debt at a record-low yield of 4.375 per
cent. One emerging debt portfolio man-
ager said at the time it was “a rare coun-
try where serious reforms are happen-
ing”. But after Thursday’s reshuffle the
yield on Ukrainian dollar bonds due in
2032 rose half a percentage point.
The timing of the reshuffle was all the
more puzzling because the government
had been closing in on a deal with the
IMF for a $5.5bn loan programme. The
loan is regarded by international inves-
tors as an essential financial cushion for
Ukraine, which is in the sixth year of a
war with Russian-backed separatists in
the east and faces hefty foreign debt
payments against the backdrop of a glo-
bal economic slowdown.
“I do not understand the purpose of
replacing the government at this partic-
ular time,” said Oleksandr Danylyuk, a
former finance minister.
The new prime minister is Denys
Shmygal, a little-known 44-year old
regional official from western Ukraine.Investor concerns
Ukraine
shake-up
casts doubt
on reforms
South Africa. Presidential pressure
Ramaphosa under fire as outlook worsens
J o s e p h C ot t e r i l l — J o h a n n e s b u r g
“These are trying and testing times,”
South African president Cyril Ram-
aphosa said last week as he surveyed the
dire state of the economy.
South Africa is officially in a recession
for the second time in two years, rolling
blackouts are disrupting daily life and
the treasury is forecasting the biggest
fiscal deficit in the post-apartheid era.
The economic outlook is worse than
at any point since Mr Ramaphosa took
control of the ruling African National
Congress in 2018 promising to overturn
a decade of misrule. There is a growing
sense that he may have lost the battle.
A former union leader and then busi-
ness titan, Mr Ramaphosa promised to
be a president capable of reviving the
economy while managing the compet-
ing interests of business, organised
labour and the ruling party. But after
winning the leadership of the ANC by
the narrowest of margins he has been
unable to build the authority necessary
to force through change, analysts say.
“It doesn’t seem as if he’s bought any
loyalty. The biggest theme of the last
two years is that he hasn’t been able to
stamp his authority over the operations
of government,” Sithembile Mbete, a
political scientist at the University of
Pretoria, said.
Mr Ramaphosa says he prefers to
reach negotiated solutions rather than
force through directives. “I build con-
sensus... not give in to shouting and
screaming,” he told journalists in parlia-
ment. He helped to negotiate a peaceful
end to white minority rule and, in the
post-apartheid business world, he was
in demand as a chairman and director.
But his critics say the time of consen-
sus-building is over and that decisive
action is needed. Income per capita fell
for a fifth consecutive year in 2019.
“[Mr Ramaphosa] is hugely cautious;
he is quite tied often to the process of
doing things far more than the out-
come,” Ms Mbete said. “There is obvi-
ously room for social compacting, and a
necessity for it. But at some point you
have got to make some decisions.”
Too often his initiatives, including
plans to open up Eskom’s ageing coal
plants to greater competition by licens-
ing more independent power suppliers
and a risky effort to save South African
Airways, the near-bankrupt flag carrier,
Critics call for decisive action
and say time for consensus
building has passed
Growing anger:
activists protest
in Johannesburg
against frequent
power cuts.
Below, Cyril
Ramaphosa
Luca Sola/AFP/Getty Images;
Sumaya Hisham/Reuters‘The biggest
theme ofthe last two
years is thathe hasn’t
been able tostamp his
authorityover
operations’have been held up by political bickering.
Mr Ramaphosa said he hoped the
acuteness of the economic crisis would
finally encourage his critics to desist.
“I like to believe we have entered an
era where there is no longer any objec-
tion to reforms and transformation... we will be repositioning our econ-
omy for further investments,” he said.
And there are some signs that a
tougher government line is starting to
emerge. Last month Tito Mboweni, Mr
Volodymyr Zelensky: says he is
frustrated at slow pace of reformL au r a P i t e l — A n k a r a
H e n ry F oy — M o s c o w
C h lo e C o r n i s h — B e i r u t
After weeks of clashes that killed
scores of Turkish and Syrian soldiers, a
truce hammered out by Ankara and
Moscow has brought some days of
much-needed calm to the province of
Idlib. But in the rubble-filled towns and
villages of the country’s last rebel-held
enclave, few Syrians believe it will last.
“We call it the killer ceasefire,” said
Abdulkafi, an activist and teacher who
has remained in Syria throughout its
nine-year civil war. “Because what is
coming after it is destruction.”
The ceasefire was reached after six
hours of talks between Vladimir Putin,
the Russian president, who backs Syrian
leader Bashar al-Assad, and Recep
Tayyip Erdogan, his Turkish counter-
part, who backs the country’s rebels, in
Moscow on Thursday.
Turkish forces had been battling to
fend off an assault on Idlib by Syrian
regime forces, dragging Ankara deeper
into the conflict and risking a direct
clash with Russia. The agreement
averted that danger. Yet most analysts
share the doubt of Idlib’s weary 3m
inhabitants that the deal will provide a
long-term solution given Mr Assad’s
resolve to reclaim “every inch” of Syria.
“Obviously, the agreement that was
reached is temporary,” said Vladimir
Evseev, the deputy director of Russia’s
CIS Institute. “Most likely, we will [in the
months ahead] approach a new crisis
with Turkey.”
Mr Assad’s troops, backed by Russian
jets, had pushed deep into Idlib in recent
months, forcing about 900,000 people
to flee north towards the Turkish bor-
der where they are crammed into
muddy camps.
The ceasefire freezes the fighting on
existing front lines and creates a buffer
zone, to be policed by joint Turkish-
Russian patrols, along the strategic M
highway that dissects Idlib.
The deal achieves Mr Erdogan’s aim of
halting the fighting but represents a
concession on his previous demand for
Syrian troops to withdraw from newly
captured territory.“The Turkish media is presenting the
deal as a victory but, on the ground, for
Erdogan, it is the opposite,” said Kerim
Has, a Moscow-based analyst of Turk-
ish-Russian relations.
The joint memorandum signed in
Moscow contains just three agreed out-
comes. Russia and Turkey committed to
more talks to thrash out details.Analysts said a sticking point would
be the contentious issue of dealing with
Islamist groups in Idlib. In previous
agreements, Turkey had agreed to sepa-
rate the jihadist group Hayat Tahrir al-
Sham (HTS) from other armed factions
in the province — a commitment
Ankara has been unable to fulfil.
While there were no specifics in the
text of the deal, Aydin Sezer, a former
Turkish diplomat, said Ankara wouldbe expected to control HTS. “If not,
unfortunately, I am afraid that Russia
will do it itself,” he said.
The memorandum did, however, con-
tain a commitment to “eliminate all ter-
rorist groups” in Syria. Mr Has said it
would give Mr Assad and Mr Putin a
ready-made excuse for renewed attacks,
even if it meant civilian deaths.
“The pretext is already written and
announced in the deal,” he said. “After a
period of time, we will see rising clashes
between opposing groups.”
Idlib’s civilians were disappointed
that regime forces would retain control
of recently captured towns and villages,
dashing their hopes of returning home.
“If you want the opinion of people in the
north, no one is pleased with the state-
ments,” said Obaida Abu al Bara, an
activist.
Mr Erdogan has faced a difficult bal-
ancing act in recent weeks as he poured
troops and equipment into Idlib to
counter the regime assault. With rising
domestic anger in Turkey over the host-
ing of 3.6m Syrian refugees, he was des-
perate to prevent a fresh influx.Turkish drone and artillery attacks
inflicted significant damage on Mr
Assad’s forces. But 59 Turkish soldiers
have also been killed since the start of
February — 34 in a single attack.
Further fighting would have risked a
public backlash, as well as Turkey’s rela-
tionship with Russia, which extends to
energy, trade, tourism and defence.
“Turkey is stuck in this asymmetrical
relationship with Russia where Erdogan
doesn’t call the shots, Putin does,” said
Soner Cagaptay, author of Erdogan's
Empire: Turkey and the Politics of the Mid-
dle East.
A poll last month by Istanbul Eco-
nomics Research found that the Turkish
public’s biggest concern was the loss of
more soldiers.
Can Selcuki, the consultancy’s direc-
tor, said the “enemy” in Idlib was less
clear in the eyes of the Turkish public
than it had been in previous operations,
which targeted Kurdish militants.
“Therefore the reasoning, the justifica-
tion was not there,” he said.
Additional reporting by Asmaa al-Omar in
ErbilSyria
Idlib residents fear ceasefire will offer temporary calm before renewed storm
‘We call it the killer
ceasefire. Because what
is coming after it isdestruction’
MARCH 9 2020 Section:World Time: 8/3/2020 - 17:14 User: adam.james Page Name: WORLD3 USA, Part,Page,Edition: USA, 4, 1