South Africa Reagan's Abrupt Reversal

By William E. Smith

The rising heat from popular and congressional anger over his Administration's tolerant attitude toward South Africa's policy of apartheid was clearly being felt by President Reagan. On Friday, at a hastily called Washington press conference, he conceded that he had spoken "carelessly" last month when he said that South Africa had eliminated racial segregation. An even more dramatic turnaround is in the offing. According to a senior Administration official, the President this week will announce a series of Executive actions that represent a stunning reversal of his Administration's stalwart rejection of legislated economic sanctions against South Africa. The measures to be announced by Reagan, according to the White House official, largely match line for line the seven essential points of the sanctions bill that the Senate is to begin considering this week, but go a step further by placing an embargo on the importation of arms from South Africa. Reagan's Executive action should pre-empt Congress's almost certain passage of the sanctions bill and may thus prevent an angry clash between the White House and Capitol Hill over the issue. In South Africa, where racial violence last week spread for the first time this year to a white suburb, the President's action threatens to upset State President P.W. Botha's desperate attempts to contain the country's economic crisis.

Reagan's change of heart appears to be a major concession to two political realities: he faced defeat in Congress if he continued to resist sanctions, and the bitter fight that would ensue if he attempted to exercise his veto might poison the atmosphere for the entire legislative session. The senior Administration official insisted, however, that the new presidential sanctions do not represent any change in Reagan's views on South Africa. The President, this official said, has always harbored sympathy for the measures in the congressional bill, which a month ago was hammered out by a joint House-Senate conference committee and passed by the House. But by taking matters into his own hands, the official added, Reagan will be thwarting congressional attempts to make foreign policy as well as giving himself "the ability to remove or alter an action."

The measures, said the official, are consistent with the Administration's policy of "constructive engagement," the quiet diplomacy designed to nudge the South African government toward racial reform. To press that point, it is expected, Reagan will announce that he is sending Ambassador Herman Nickel back to South Africa this week. The Ambassador will carry a letter from Reagan and will be charged with urging reforms on Pretoria. Nickel was recalled to Washington in June after South African troops made an incursion into Botswana in search of antigovernment guerrillas.

The President's eight planned actions against South Africa cover all the measures contained in the bill that the Senate is scheduled to debate this week except for a lesser class of sanctions that would be considered a year from now if the South African government had still failed to make any movement toward easing apartheid. The provisions of Reagan's expected Executive action:

An additional $8 million in scholarships will be awarded to blacks in South Africa, and $1.5 million more will be made available to support human rights efforts.

Americans, both in the U.S. and abroad, will be banned from granting new loans to South African government agencies except those in the areas of housing, education and health care. However, loans that demonstrably assist black South Africans will be permitted.

The export of most nuclear technologies and materials to South Africa will be prohibited.

Computer sales to South African agencies that administer apartheid policies (mainly the police and the military) will be banned.

All American companies operating in South Africa will be required to abide by guidelines requiring that black and white workers be treated equally. Since the U.S. Government cannot enforce the rules, the practical effect will be a withdrawal of any promotional, logistical or financial aid to any companies that do not comply.

As a preliminary step toward instituting a ban on the importation of Krugerrands, consultations will be held with GATT (General Agreement on Tariffs and Trade), the Geneva-based U.N. trade agency. The Treasury Department will be directed to study the feasibility of minting U.S. gold coins as a substitute.

An advisory committee will be formed to monitor the situation in South Africa and make periodic recommendations on actions that might accelerate an end to apartheid.

The final measure, not included in the congressional bill, will order a ban on U.S. importation of South African-manufactured weapons.

Reagan might have been able to continue resisting sanctions had there been signs that Botha was finally addressing himself to his country's political crisis in a decisive manner. But all the signs last week pointed toward continuing intransigence and spreading violence. One evening a crowd of about 60 mixed-race youths, known in the lexicon of South African racism as colored, made their way from the township of Scottsdene on the eastern fringes of Cape Town to the adjoining white suburb of Kraaifontein. There they roamed through the streets throwing rocks and Molotov cocktails at the well-kept homes before being driven away by white residents who fired at them with pistols and shotguns. Later, police arrested two young men who had been wounded in the ^ shooting. The significance of the incident was that for the first time since the country's current racial troubles broke out a year ago, a white neighborhood had been penetrated by the violence, which until then had been largely confined to nonwhite townships. To date, some 675 South Africans have been killed in a year of bloodshed. Of those, only four have been whites. But the fire is getting closer.

The only good news last week for the government of State President P.W. Botha was a lessening, at least for the time being, of the country's economic crisis. A strike called by the National Union of Mineworkers fizzled out quickly in a defeat for the black union. Desperate government action appeared to have staved off the credit crisis sparked by the decision of U.S. and other Western banks not to renew short-term loans to South Africa. The government announced a package of emergency measures designed to protect the country's reserves temporarily and to make it cheaper for foreigners to invest in South Africa. While the economic crisis burst into the open two weeks ago, the problems had actually developed over several months. Despite South Africa's mineral wealth and traditionally sound economy, the yearlong political turmoil persuaded foreign investors to sell their shares in South African gold-mining companies. This caused the South African rand to drop sharply in value against the U.S. dollar, from $1.29 in 1980 to a low of 35 cents two weeks ago. Foreign investors and South Africans moved as much money out of the country in the first three months of 1985 as they did in all of 1984. In July, the French government announced that it would permit no new investment in South Africa. In late July, Chase Manhattan became the first large U.S. bank to refuse to renew its short-term loans. Bank of America quickly followed. This in turn led other U.S. banks to conclude that South Africa was becoming an increasingly risky investment and a tricky political issue at home.

Had the South African government moved briskly with a program of political and racial reform, the banks' actions could probably have been forestalled. But international confidence plummeted when President Botha's Aug. 15 speech defied expectations and turned out to be a hard-line restatement of existing policy, making only vague references to future reform. In the ensuing liquidity squeeze, South Africa began to lose an estimated $1 billion a month in short-term credit. As the situation worsened, private borrowers had to get ( the dollars they needed from their own central bank, whose reserves are limited. What surprised veteran bankers was the speed with which the squeeze developed. Says an international banker in New York: "Not since the demise of (the Shah's) Iran has a country fallen out of favor with the international banking community so quickly."

Having closed the exchange and stock markets, the South African government announced early last week what Finance Minister Barend du Plessis called a "comprehensive policy strategy"--a unilateral moratorium on the repayment of principal on foreign loans. Such action, without consultation with the creditor states, is virtually unprecedented for a major trading nation. Interest payments will still be made, Du Plessis said, but principal payments will be held in a special account in the central bank until after Jan. 1 and will be transmitted only after payments have been rescheduled with creditors.

In addition, Du Plessis announced the reintroduction of the two-tier rand, which was in effect until 1983. Under this system, the U.S. dollar price of the "financial" rand will be set by the central bank and pegged lower than the "commercial" rand. Foreign investors will be able to buy South African stocks at the lower financial rate, but will be required to sell at that rate. The financial rands will not be allowed to leave South Africa, although nonresidents will be free to buy and sell title to them in other countries.

Last week the governor of South Africa's central bank, Gerhard de Kock, flew to European and American banking centers to discuss what he called South Africa's "standstill" on repayment and to sound out banks on their willingness to renegotiate their loans. De Kock was told by at least two major New York banks that for the time being they were not in a position to increase their credit lines.

As it struggled to find a way out of its financial problems, the government was relieved by the failure of the miners' strike. The union's basic problem was one of strategy: it had signed a new agreement with Anglo American Corp. of South Africa, the country's largest mine operator, and had called a strike in the mines where union strength was weak, ranging between one-half of 1% and 12% of the total work force. It thus failed to get the support of large numbers of nonunion miners. After three days of confusion and clashes, the union gave up the strike in order to stop the mine operators from mass firings.

Any consolation that Botha may have felt from the strike's defeat was certain to be overshadowed by Reagan's planned Executive actions. In addition, there were reports in Johannesburg that a group of leading South African businessmen are planning to go to Zambia within the next few weeks to meet with the exiled leaders of the African National Congress and that the businessmen have informed the Botha government of their intentions. In the face of such moves, Botha may well be wondering who his friends really are.

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With reporting by Bruce W. Nelan/Johannesburg and Barrett Seaman/Washington