Bailouts aren’t just for Wall Street and over-leveraged Mediterranean countries. This week, Swaziland requested a bailout from South Africa. Where to begin?
South Africa may be considered an African success story by some, but is it really in the position to be propping up foreign economies? Its GDP per capita is a quarter of that of the U.S. and over 40% of its population lives on under $2 a day.
There is also the question of providing financial assistance to the last absolute monarchy in Africa, which has banned political parties for decades and recently used tear gas to disperse pro-democracy activists (not to mention the king’s estimated wealth of $200 million). If the aid can be tied to governmental reforms, perhaps it is money well spent but it also risks propping up an undemocratic regime.
South Africa must also consider the effect Swazi financial difficulties will have on the South African economy. Economic and/or political instability in a neighboring country can be troubling, especially if it leads to an influx of immigrants looking for work in South Africa, which has its own unemployment problem to deal with (~23%).
It’s not wholly clear why Swaziland is in need of the cash (though decreasing sugar exports secondary to the global economic slowdown coupled with overspending by the government seem like good candidates) nor how effective a South African bailout will be. Perhaps the question should not be what a bailout can do for Swaziland’s economy, but what it can do for its system of governance.