The Political Economy of Financial Sanctions

Abstract

By the mid-1980s, a seemingly unstoppable tide of strikes, boycotts and other protests threatened to make South Africa ungovernable, while the international community simultaneously increased the campaign for sanctions. Already weakened by anti-apartheid pressures from shareholders, consumers, and governments in the 1970s and 1980s, and a US Congressional amendment blocking International Monetary Fund (IMF) loans since 1983, domestic and foreign investors’ confidence in the economy plunged in the wake of the state of emergency declared in July 1985. Chase Manhattan Bank decided neither to extend (“roll-over”) credit nor to provide new loans to South Africa. Other bankers and investors immediately moved to switch their funds out of the country, leading the Johannesburg Stock Exchange (JSE) to decline rapidly and the rand to plummet on foreign exchange markets. In an attempt to stem capital flight, the South African government quickly imposed a moratorium on debt repayments to public and private creditors, suspended foreign exchange dealings, and temporarily closed the JSE. As this crisis unfolded, the international anti-apartheid movement called for intensified financial sanctions.