Rate cut not enough

A growing number of organisations and consumer activists are calling on the government to follow international trends and impose a moratorium on debt repayment obligations due to the devastating impact of the coronavirus.

Consumer defence group Lungelo Lethu Human Rights Foundation is calling for a moratorium on debt repayments for six months, and a freeze on any debt-related legal proceedings.

The National African Congress of Trade Unions (Nactu) has likewise called for a freeze on debt repayments, as is happening in many other parts of the world.

“Potentially hundreds of thousands of South Africans stand to lose their jobs as a result of the economic downturn,” says Nactu secretary-general Narius Moloto. “We are looking at social disaster unless we provide immediate relief to those in financial distress.

“Already thousands of workers in restaurant and hospitality trade, and those involved in contract work, have lost most or all of their income,” says Moloto.

Nactu is calling on government to use its emergency powers to kick-start a massive infrastructure programme to get the country back to work as fast as possible.

This week, US President Donald Trump announced a freeze on foreclosures and evictions until the end of April. Several other countries have announced or are planning to introduce debt repayment holidays for consumers in distress.

Debt counsellor Michelle Barnardt says government will have to provide relief given the dire level of overindebtedness in the country, with nearly four out of 10 people already in arrears on one or more accounts. “If people cannot work and earn income they will not be able to make monthly debt payments. This will include groups like attorneys, advocates, and those in entertainment and hospitality.

“Drastic times calls for drastic measures,” says Barnardt. “In Afrikaans we say ‘Jy kan nie bloed uit ‘n klip tap nie’ [You can’t draw blood from a stone].”

“This situation is definitely affecting everything and everybody, and government must step up to the plate and prevent anyone being victimised as a result of this terrible economic downturn.”

Read: SA to regulate price increases linked to coronavirus – trade minister

Consumer lawyer Leonard Benjamin advises anyone facing legal action as a result of their deteriorating financial position to mount a legal defence. “It would be shameful if any court issued a judgment against a debtor in these circumstances, and almost certainly unconstitutional.

“No court can issue a judgment without considering all the circumstances of the debtor, and the economic impact of the Covid-19 virus is certainly sufficient grounds to defend against a monetary claim.”

Lungelo Lethu president King Sibiya says he is inundated with calls from people who have been unable to earn an income these last few weeks as a result of the virus. “These include people who earn commissions, part-time workers and informal sector workers. The impact of the virus could be catastrophic for the economy. We cannot expect people who have suffered a serious loss of income to be able to repay debts until the economic impact has stabilised.

“We are therefore calling on the government and the banks to be sensitive to the dire situation people find themselves in, and to allow a debt repayment moratorium. Many people, through no fault of their own, are going to find themselves seriously in arrears as a result of the economic disruption caused by the Covid-19 virus,” says Sibaya.

Freeze on evictions

“In addition to a moratorium on debt repayments, we are calling on the government to impose a freeze on any debt-related judgments and on evictions. These must cease immediately.

“This is not business as usual. If we do not address this matter urgently, we face massive social chaos, far worse than anything we have seen up to now,” says Sibiya.

He adds that the moratorium should be long enough for people to recover from the economic disruption caused by the virus. “Many banks overseas have introduced waivers to allow customers time to recover from the economic effects of the virus. We believe we should follow the example of Malaysia and impost a six-month freeze on loan repayments.”

Read: How much could Covid-19 impact the SA economy?

In Malaysia, Public Bank is offering an immediate moratorium of up to six months for the monthly instalment payments on loans and financing for individual and business customers affected by the outbreak. Last week Italy announced plans to introduce a moratorium on debt repayments, including mortgages, to help families and businesses cope, according to the Wall Street Journal.

In the UK, the government is backing mortgage holidays of up to three months. There are also calls in Ireland for mortgage holidays of up to six months.

All countries around the world are looking at imposing similar measures.

“We must follow the international example and impose a freeze on debt repayments for a reasonable period of time,” says Sibiya.

No time to waste

Moloto says there is no time to waste in getting the economy moving as fast as possible. “The construction sector is in terrible shape, in large part due to crony capitalism and state capture, but we cannot assume that conditions will turn around on their own. They won’t.

“These are virtual war-time conditions requiring emergency action.

“We have a chance here to create hundreds of thousands of jobs in the next few months,” he adds. “As a first step, government must place a freeze on debt-related legal action and impose a six to 12-month freeze on debt repayment obligations.

“We understand this will come at a cost to the banks, but we cannot put the interests of the banks above that of the people.”

Read: The reality virus bites deep