To understand the obstacles the nascent Republic of South Sudan will face in the coming months and years, we must understand the intense economic distress currently being experienced in north Sudan after more than two decades of mismanagement, cronyism, profligate military expenditure and exorbitant self-enrichment by the National Islamic Front/National Congress party regime. Khartoum’s recent military actions in Abyei and Southern Kordofan (http://www.guardian.co.uk/global-development/2011/jun/30/south-north-sudan-dispute-issues) , its support for destabilising militia groups in the south, as well as its bombing of southern territory (http://www.dissentmagazine.org/atw.php?id=513) can’t be understood outside the context of what has already occurred and what is impending in the economy of the north.
It is insufficiently appreciated how badly this economy is performing, even before enduring what finance ministry officials acknowledge will be a 37% decline in oil revenues ($2bn-$3bn annually) (http://www.sudantribune.com/Sudan-s-Bashir-threatens-to-turn,39299 ) once the full effects of southern secession are felt (most independent economists put the figure lower, but still a huge loss of revenue).
The IMF has warned of a “permanent shock” to the economy. This comes even as inflation is 15% and rising; foreign exchange reserves are extremely low, hindering international trade; subsidies for oil and sugar have been cut, prompting a number of protests; and more painful cuts are coming. At the same time, the regime acknowledges the need for much higher taxes. In a desperate short-term measure, Khartoum has engaged in selling farmland to Arab and Asian investors, a terrible decision from the standpoint of both national economic development and food security (http://www.nytimes.com/2008/08/10/world/africa/10sudan.html?scp=1&sq=gettleman%20darfur&st= ).
Unsurprisingly, the Sudanese pound has experienced a de facto devaluation of about 25%, as the money supply has grown at an unsustainable rate (http://goo.gl/Kh62Y ). Growth in the economy has shrunk dramatically, and gives signs of shrinking further. Gone are the days when foreign journalists marvelled at the cafe bars that were gently misted in various spots in upscale Khartoum and Omdurman.
But lurking behind this disastrous news is the biggest overhang on the economy: $38bn in external debt at the end of 2010 (around $30bn in the form of arrears, accrued largely under the NIF/NCP) (http://af.reuters.com/article/topNews/idAFJOE68R03120100928 ). Even in its best years, the oil-dependent economy of the north could not begin to service, let alone repay, this gigantic debt. It will continue to drag the economy downwards unless the IMF and World Bank structure some form of debt relief.
But this is where the regime’s military behaviour along the border regions collides with its economic prospects. So far the US and Europeans have offered only tepid criticism of Khartoum for its military seizure of the contested Abyei region and its increasingly genocidal military campaign in Southern Kordofan. Even so, it will be politically impossible for the Obama administration to remove Khartoum from the state department list of terrorism-sponsoring nations while ethnically targeted violence escalates in Southern Kordofan.
It was foolish of the Obama administration to make the issue of terrorism one for negotiation: Khartoum either does or does not support terrorism, and there is considerable evidence that it still does, chiefly by funnelling Iranian weapons to Hamas. But the terms of the “deal” do not include countenancing what has occurred in Abyei, Southern Kordofan and other contested border areas (leave aside the relentless suffering and destruction in Darfur).
The US also openly promised to assist Khartoum with debt relief if it fulfills its obligations under the comprehensive peace agreement. But Khartoum is far from fulfilling a range of obligations, leaving even an expedient Obama administration with little wiggle room, given the seriousness with which Sudan is taken by a substantial part of his key political constituency.
But without debt relief, economic problems that are already deeply threatening become insoluble. Some in the regime surely understand this, and so the decision to adopt the current militaristic and threatening posture towards South Sudan just weeks after independence represents a triumph of the worst impulses within the regime: nationalism, Islamism, embarrassment over “losing the south”, contempt for the international community, and a belief that more of the southern oilfields can be brought by force into the north (around 75% of Sudan’s proven oil reserves lie in the south).
It is this attitude that has led to the campaign of economic attrition Khartoum is waging against the south, including a “currency war”, one that may prove extremely costly to both economies as the two new currencies try to establish an international exchange rate (http://www.sudantribune.com/Sudan-says-prepared-to-engage-in,39558 ).
These calculations are disastrous, and in the short run can only diminish oil revenues further: the south will fight with great determination to preserve its territorial integrity, however resolutely it has resisted provocation so far. Khartoum has only one rational economic decision to make under the circumstances, even from a purely survivalist perspective. But though always capable of a vicious low cunning, Khartoum’s serial gnocidaires have never been considered men of reason. The consequences of their worldview are now conspicuously on display, and nowhere more so than in the disaster towards which the northern economy is moving.
[Eric Reeves has published extensively on Sudan, nationally and internationally, for more than a decade. He is author of A Long Day’s Dying: Critical Moments in the Darfur Genocide.]