South African President Thabo Mbeki Sunday said Zimbabwe's expulsion from the International Monetary Fund for debt arrears would exacerbate the country's dire economic situation and hinted that Pretoria could pay off its neighbour's loans.
"Our own view is that it would be counterproductive to have Zimbabwe's membership terminated from the IMF because of the debt arrears," Mbeki told a news conference in Pretoria after a two-day cabinet meeting.
He said South Africa and its cash-strapped northern neighbour were in talks over the debt issue and other problems, including Zimbabwe's controversial programme billed as an urban renewal operation which has seen slums flattened and scores of thousands rendered homeless.
About the IMF debt, he said: "How should it be settled? Who is going to settle it? It may very well be that South Africa may take whatever portion of Zimbabwe's debt," he said. "We don't want Zimbabwe collapsing here next door because South Africa would inherit all the consequences, and we don't want that," he said.
South African media reports have said that Pretoria would give Harare a billion-dollar credit line to bail out President Robert Mugabe's government, saying a draft agreement had been finalised last week.
But Mbeki said: "Those discussions have not been concluded."
The IMF has warned Harare of expulsion and closed its offices in Zimbabwe late last year as relations worsened with the Mugabe government, which blames Zimbabwe's economic plight on US, British and European Union sanctions.
Zimbabwe has fallen behind in IMF repayments on more than 300 million dollars in debt since 2001. The IMF in February gave the government six months to meet its obligations or face expulsion.
Last month, the IMF slammed a controversial "clean-up" operation launched by Harare which targeted shantytown shacks, shops and buildings deemed illegal. Some 200,000 people have lost their homes, according to UN estimates.
Many families have been dumped in transit camps and are living in makeshift tents and shelters in the middle of the Zimbabwean winter.
The Zimbabwean opposition has denounced the blitz as a campaign of repression and say up to 1.5 million people have lost their homes.
The IMF said the clean-up operation would exacerbate Zimbabwe's dire economic situation with output expected to decline "sharply" this year amid deepening difficulties in agriculture caused by drought and foreign exchange shortages.
It said that under present policies, Zimbabwe's budget deficit will jump this year, "partly due to the cost of higher food imports, interest payments and higher pension costs".