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IMF gives Zim space to mend its ways
Hama Saburi, The Financial Gazette
February 24, 2005

http://www.fingaz.co.zw/fingaz/2005/February/February24/7818.shtml

THE International Monetary Fund's (IMF) decision to spare Harare the rod that would have shoved the country out of the 184-member family, has given Zimbabwe breathing space to put its house in order.

The southern African state, wrestling a five-year economic recession, survived compulsory withdrawal from the IMF last week, which could have slammed the brakes on overtures to re-engage the fund.

Compulsory withdrawal, the last step in a series of escalating measures applied by the IMF to members that fail to meet their obligations, would also have put paid to efforts to fuse Harare into the international community.

The IMF, which pulled the plug on Zimbabwe in 1999 when it withdrew balance-of-payments support, threw a major lifeline mid last week after its executive board agreed to give the country another chance.

That the global financial behemoth, whose backing is considered a seal of approval by other international financiers could spare the stick on Zimbabwe, has added verve into Harare's think tanks at the centre of getting the country out of the woods.

"If they (IMF) say things are well in Zimbabwe, others will also come in. That is why Libya and China are also going to the West; and also, as a strategy, it is better to fight with others through such integration such as the African Union," said economist Godfrey Kanyenze.

The IMF postponed a recommendation with respect to compulsory withdrawal in view of the severity of the decision and increases in payments from Zimbabwe since the last review in July 2004, providing it with another chance to strengthen its cooperation with the fund in terms of economic policies and payments.

"The executive board will consider again the managing director's complaint regarding Zimbabwe's compulsory withdrawal from the fund within six months or at the time of the executive board's discussion of the 2005 Article IV consultation with Zimbabwe, whichever is earlier," noted the fund.

Analysts acknowledged the Bretton Woods institution had loosened the noose around Harare's neck, particularly when viewed against the voting pattern seen at the Washington-based fund on Wednesday.

Out of the 184-member countries, four representing 31.33 percent of the votes, voted for Zimbabwe's expulsion, while 19 directors - representing 179 countries - voted in Zimbabwe's favour. These held 65.29 percent of the votes. Only one country, accounting for 2.85 percent of the votes, abstained.

Britain and the United States, accused by President Robert Mugabe of working with the opposition Movement for Democratic Change to topple his government, casts their votes against Zimbabwe, sources say.

The rest of the fund's directors, except one, swung the pendulum in Zimbabwe's favour on the back of increased payments to the IMF and steps taken so far to arrest the economic decline.

Gideon Gono, the Reserve Bank of Zimbabwe (RBZ) governor credited with instituting bold measures to rescue the economy, picked something positive out of last week's voting pattern.

He was quoted saying: "At the end of the day, it is not so much the vote for or against which matters, the bottom line is that we owe it to ourselves to turn around our economy first and foremost; to reduce inflation to sustainable levels; to promote investments and exports; to create more employment for our people; more self reliance and empowerment for ourselves, more than it benefits outsiders."

Economist Kanyenze said the IMF, also accused by President Mugabe of pandering to the whims of his political foes namely Britain and the United States, had adopted a carrot and stick approach to entice Harare into doing better.

He said the country should now develop long-term developmental strategies, saying the macro-economic framework contained in the Finance Ministry's 2005 budget was not enough.

"At the moment we are leaning on one leg, which is the monetary policy and we need to fire from all cylinders," he said. "The March 31 elections are another opportunity for us. Let us have a peaceful election so that we can score on the political front as well," he added.

Relations between the IMF and Harare took a turn for the worst in 1999, as the region's breadbasket then descended into its worst economic and political crisis.
The IMF then gave notice of intent to expel Zimbabwe in December 2003 and last week's meeting was part of the fund's six-month review of that position.

At the core of the fallout was Zimbabwe's arrears with the IMF, poor fiscal and monetary policies and governance issues.

Zimbabwe has been in continuous arrears to the IMF since February 2001. As of February 15 2005, the country's arrears amounted to US306 million or about 57 percent of its quota in the IMF.

The government recently increased its payments from US$1.5 million to US$5 million.

Kanyenze said the fund, which closed its Harare office last year due to the lack of a country assistance programme since 1999, would continue loosening its grip on Zimbabwe should the authorities show consistency in implementing policies that would nurse the recession.

The movement in the exchange rate, according to analysts, presents yet another danger that could ignite inflation, which took a huge thud from a peak of around 623 percent in January 2004 to 133.6 percent last month.

"We need huge dosages of foreign currency to bridge demand because 80 percent of the demand for foreign exchange is not being met by what is flowing in at the moment," he said. "Everyone should have the passion that Gono has including labour and other policy matrixes," added Kanyenze.

Financial Holdings Limited economist Best Doroh, who also welcomed the IMF's stance, said turnaround strategies being implemented by the central bank need "a bit of time" for the results to be felt.
"What is critical is for us to make sure we are consistent with our repayments, even increasing them to extinguish our arrears . . . the IMF will be comfortable with us repaying a large chunk of the debt before they could start re-engaging," said Doroh.

He said Zimbabwe's recovery would be slower without the IMF.

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