On Wednesday it became clear why Swaziland has been treating South Africa as a lender of last resort, skirting the very edge of bankruptcy and massive social unrest as it searched for alternative financing. However, South Africa's R2.4 billion loan comes with some strong strings attached - it demands a move away from absolute monarchy (in Swazi terms, a swift one too). By PHILLIP DE WET.

Without a significant injection of cash, Swaziland would have fallen apart in a matter of months, exhausting both its reserves and the patience of those it already owes well over R1 billion in unpaid bills, at best estimation. South Africa, with some experience in what happens when a neighbouring economy implodes, can ill afford that, so it was always clear a deal had to be reached. What we didn’t fully anticipate, though, was just how poorly King Mswati III negotiates off the back foot.

The broad terms of the loan agreement announced on Wednesday (the details are still being pinned down for signature) are hardly favourable for Swaziland, at least not politically. Assuming the documents are signed in time, the SA Reserve Bank will pay the Swazi Reserve Bank R800 million this month, with two more equal payments due in October and February to make up the remaining R1.6 billion.

The Reserve Bank doesn’t shoulder the risk, that is borne by the SA government, and it isn’t taking too much of a gamble either. The loan will be repaid from Swaziland’s income via the Southern African Customs Union, an account held by SA Reserve Bank, before payments are made to Swaziland. The SACU account is Swaziland’s major source of income. Think of the country as an individual and a bank with first dibs on that individual’s salary, straight from the employer. It does rather strain the analogy that this employee has seen his salary slashed by more than half recently and it may take a little while to claw back the full loan. Also, we’re not talking about a model employee.

To secure this advance on its own income, the Swazi government (in other words, Mswati) has agreed to some important reforms. Not necessarily new reforms; some of the political changes have been on the cards for more than half a decade and the need for fiscal reform has also been acknowledged for some time. Mswati simply hasn’t come around to implementing any of them, somehow. Just a busy six years at the office, you know?

Now, however, Swaziland will have to agree on milestones and time-frames for things like allowing opposition parties to have a real voice – in a way that looks legitimate to “the region” (in other words, South Africa). It will be required to respect human rights and the rule of law, and try its hand at good governance for once.

On the financial side, Swaziland will have to learn to live within its means, which implies not only spending cuts, but also new rules for the management of public money and subsequent reporting. Though officials from the World Bank and International Monetary Fund, who have been looking into what reforms are needed, don’t say as much aloud, their suggestions, now contained in a loan contract, speak for themselves. They say spending at least R400 million a year on maintaining the monarchy in style is insane when you are utterly bankrupt and has to stop. Pronto.

The deal has its shortcomings, not least of all the possibility that the Swazi government (in other words, Mswati) will simply smile and nod while taking the money, then fail to act. But at around R2,000 a head, this loan really is just interim financing that will allow Swaziland to access further loans from those international organisations that traditionally keep countries afloat. With those organisations and South Africa watching over Mswati’s shoulder by way of a “task team” intent on “assisting” in implementation, failure to play nice will see the coffers remain closed.

This is not the solution that many of Swaziland’s pro-democracy activists wanted to see. Some of them, inspired by the Arab Spring, agitated for all loans to be denied until Mswati capitulated so that a glorious democracy could spring fully formed from the ashes. That was always politically naïve. Instead of guiding that rebirth they’ll now have a more traditional civil society role watching their government for over-spending, corruption and anti-democratic actions. The crucial difference is that from here on they’ll have a big brother to call on. DM

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Read more:

SA National Treasure Statement on the loan (PDF)

Zimbabwe’s President Robert Mugabe (L) chats with Swaziland’s King Mswati III during the annual Reed Dance at Ludzidzini in Swaziland August 30, 2010. During the eight day ceremony, virgin girls cut reeds and present them to the queen mother. The Reed Dance also allows Mswati to choose a wife if he wishes. Mswati currently has 13 wives. REUTERS/Siphiwe Sibeko.