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IMF'S strange mouthings hit Bob
Comment from The Financial Mail (SA)
October 01, 2004

http://free.financialmail.co.za/04/1001/currents/bcurrent.htm

Earlier this month, the state media in Zimbabwe quoted an unnamed IMF official as saying that the economic situation in the country had "improved dramatically". But a fortnight later, when the IMF released the report of the mission that visited the country in March, the official line was revised.

Addressing the UN general assembly in New York, President Robert Mugabe insisted that the economy was recovering and accused the IMF of "strange mouthings, lies and fabrications about our situation".

The report of the IMF - which this week closed its Harare office in a sign of frustration with Zimbabwe's political leadership - is remarkably forthright. It notes that the 30% decline in Zimbabwe's GDP over the past five years - with a further forecast 4,5% fall in 2004 - "mainly reflects the inadequacy of economic policies", while the "disorderly implementation" of the land reform programme has "sharply reduced" agricultural production. The economic decline has had "dire social consequences", the IMF says , warning that unemployment is high and increasing, social indicators have deteriorated and the HIV/Aids pandemic remains "largely unchecked", with one person in four HIV-positive. "Severe food shortages" have caused a "vicious cycle of malnourishment and disease".

Concerns over governance, the rule of law, human rights and property rights have "severely damaged confidence, discouraged investment and promoted capital flight and emigration", the report says. Citing the "disruptive effects" of land reform, the IMF quotes an official report that found that actual resettlement of 134 452 families and 6,4m ha fell far short of government's claimed 350 000 families and 11m ha.

Independent reports estimate unemployed farm workers and their families at more than 1m people, or about 9% of the population. Far from praising the "new" monetary policy that Reserve Bank governor Gideon Gono launched in December, the IMF details a long list of essential reforms, including tighter monetary and fiscal policies, the phasing out of concessional loans that government is using to keep firms and exporters afloat, and abolition of the overvalued official exchange rate of Z$824/US$ compared with an auction rate of Z$5 616. It criticises the foreign currency auction launched in January, saying it is "heavily managed" and should be changed "decisively" to reinvigorate exports and contain import demand. It shows that exports, which government says have recovered, fell from US$2,3bn in 2000 to an estimated $1,2bn in 2003, and predicts a further decline to $1,13bn in the current year. Foreign arrears have risen fivefold from $400m in 2000 to $2,1bn last year and will increase to $2,6bn by end-2004.

Little of this is new to Zimbabweans, despite the state media's efforts to present a more favourable picture. The IMF says that though the authorities agree with its medium-term recommendations, "they indicated no intention to ease the excessive regulations and economic distortions" that have occurred. It assumes that government will adopt a "more determined" anti-inflation policy after the parliamentary elections next March and that this will set the tone for a medium term recovery. In the interim, however, it expects heavy pre-election spending to result in further declines in the exchange rate and to revive inflation, forecasting year-end inflation next year of 436%, up from less than 200% at the end of this year.

In his monetary policy review next month, Gono may be forced to devalue the Zimbabwe dollar again, but he is unlikely to take the IMF's advice and tighten monetary and fiscal policy by phasing out cheap loans and special state support schemes for business.

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