Reserve Bank Can’t Use Magic to Fix Eskom’s Debt Problem
Reserve Bank Can’t Use Magic to Fix Eskom’s Debt Problem
(Bloomberg) -- South Africa’s central bank ruled out lending money to Eskom Holdings SOC Ltd. as it’s not allowed to by law and because it won’t make the embattled utility’s debt magically disappear anyway, Governor Lesetja Kganyago said.
“Let’s suppose some rogue governor was in place and decides to do it and buy Eskom debt, the debt doesn’t disappear,” Kganyago said Friday at the central bank’s annual general meeting in Pretoria. “The only thing that has changed is that instead of Eskom owing some investor, it is owing the Reserve Bank. It must still pay that interest rate. You can’t make debt disappear a la magic, like ‘abracadabra’ and then the debt disappears. You can’t do an abracadabra with debt.”
The government announced this week it would give Eskom an additional 59 billion rand ($4.2 billion) bailout to stay afloat, almost two months after the ruling party’s secretary-general, Ace Magashule, suggested that the state should print more money to eliminate “intergovernmental debts.” Eskom is struggling to meet demand for power and isn’t making enough money to service its $30 billion of debt.
Quantitative easing isn’t an option for South Africa because neither inflation nor the interest rate is close to zero, Kganyago said, adding that by law the central bank can’t lend to anyone without collateral.
“What you will be doing will not be quantitative easing, you will just be bailing out debtors,” he said.
To contact the reporters on this story: Prinesha Naidoo in Johannesburg at pnaidoo7@bloomberg.net;Rene Vollgraaff in Johannesburg at rvollgraaff@bloomberg.net
To contact the editors responsible for this story: Benjamin Harvey at bharvey11@bloomberg.net, Gordon Bell, Alastair Reed
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