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Sunrise of currency reform - Monetary Policy Review Statement First Half 2006
Dr G. Gono, Governor of the Reserve Bank of Zimbabwe
July 31, 2006

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1. INTRODUCTION AND BACKGROUND
1.1 This Monetary Policy Statement is issued in terms of the Reserve Bank of Zimbabwe Act Chapter 22:15, Section 46, and is also consistent with the position that we stated in January, 2006, that these policy guidelines would now be issued twice a year instead of quarterly as was the case before.

1.2 It is also noteworthy that this Monetary Policy Statement marks the mid point of my term of office as Governor and with 28 months left out of 60, it is clear that the targets this Governor was given upon entry into office in December 2003 have to be achieved within the remaining period and failure to do so is just not a viable OPTION for my team at the bank.

1.3 Through this Monetary Policy Statement, therefore, we seek, as the Central Bank, to bring back light, not just at the end of the tunnel, but right into the tunnel for all Zimbabweans to see their true potential as a people, and to rekindle hope and belief in ourselves.

1.4 We also, through this statement seek to complement all other national policies and initiatives to bring to the people of Zimbabwe, a better second half of the year than the first.

1.5 Later in this Statement I shall talk about Sunrise: A New Beginning / Zuva Rabuda / Ilanga Seliphumile, with the objective of getting ourselves to refocus and get back to work again.

2. CHALLENGES ON THE GROUND . . .
2.1 A review of the past six months shows that on the ground there is tremendous hardship among the majority of people; majority of workers and students alike; majority of women; the elderly and the frail cannot make ends meet on basics, let alone simple luxuries.

2.2 Specifically, this Policy Statement is coming at a time of severe challenges on the inflation front, limited foreign exchange availability, rising unemployment, and company closures, declining productivity, declining company viability, very low industrial capacity utilisation, diminishing economic patriotism, reduced dignity and growing selfishness in our midst among many other negatives.

2.3 Business and consumer confidence, inward investment and most economic performance indicators on the ground have also shown signs of stress during the last six months.

2.4 Such is the multitude of challenges facing us but surrender, capitulation, self-pity, suicide or running away into foreign lands is neither the solution nor an option. We have just got to face these challenges head-on and self-correct where the ball is in our court while deepening and broadening our engagement efforts with the external world where we feel the ball is in their court. The idea is for us to play the game together...its more fun that way than for the home team to play on or against each other.

2.5 As opposed to seeing gloom and doom everywhere, however this Statement is coming at a time when we in the Bank strongly believe that now is the "beginning of the end to the proverbial seven years of famine" and this prophecy is real for some of us.

2.6 On the back of the just ended agricultural season and other positives in the pipeline, we believe that we are now poised to enter an era of food self-sufficiency and are capable of further raising our performance platform on all fronts provided we take the full course of the medicine we are prescribing and not half measures as before.

2.7 We owe it to ourselves, more than to anybody else outside our borders, to get back to work as a country, and to regain our confidence as a people.

2.8 Let us get our politics right for those in politics, our economics of production right for those in business, cement these two into economic patriotism, get our social interactions and behaviors right and, our turnaround will not take us long to accomplish.

2.9 In other words, unless politics appreciates business and business appreciates politics of the day, we will be in this journey for a very long time and arduous one.

2.10 Moving on, I want, at the outset, to congratulate and convey our sense of gratitude to all our farmers for a job well done this past season. We have shown that despite the many impediments faced along the way, we still managed to produce near enough to feed ourselves.

2.11 Yes, we will still need to import more maize for our strategic reserves this year but the deficit is not as huge as in previous years, a positive development which should lessen our food import burden this year compared to last year.

2.12 His Excellency the President, Cde R. G. Mugabe and the Hon. Minister of Finance, Dr H. M. Murerwa have been very clear and inspiring about some of the key action plans and policies that we ought to take when they delivered their respective Statements to the Nation last week. Most importantly, they identified the economic challenges we are facing as a nation, identified indiscipline, corruption, speculation and disruptions on farms as some draw backs in our economic efforts and pledged that Government will be more ruthless this time round in dealing with these ills.

2.13 We pledge as Monetary Authorities to do our part in support of those announced action programs and policies which are aimed at not just fighting and winning the battle against inflation, but the entire war against all forces pulling our economy down.

3. QUASI-FISCAL OPERATIONS . . .
3.1 There has been a lot of discussion in many local and international circles about our quasi-fiscal interventions as a Bank and to what extent they have or have not been justified.

3.2 We have done a full analysis of this interventions and the untold story is now told in the supplement entitled: "A Synopsis of the Impact of the Central Bank's Interventions to the Economy from January 2004 to June 2006".

3.3 We admit that in the short-term, our money supply growth numbers have been and remain unhealthy for short-term inflationary outlook; that the Bank's quasi-fiscal operations would be best handled within the budgetary framework if it can and that the Central Banks should not micro-manage or compete with market institutions in the allocation of resources.

3.4 Such is conventional wisdom in orthodox times and we have no quarrels with this line of thought.

3.5 But like we have argued before, we continue to call on Zimbabweans to realise that these are not ordinary times for Zimbabwe to entwine itself with orthodox solutions. That time will come! We are coming out of a serious dislocative land revolution whose consequences we shall endure for a while before we are totally forgiven by the dispossessed of yesterday and normalcy returns, before we realise that taking the land was but only the first step; that it is production that counts at the end of the day.

3.6 Land issues the world over have been emotive battles and one only needs to read the Irish Land history, the history of agriculture, civil wars and land battles in the United States of America, in Australia and many other unresolved cases in Africa and the Middle East to understand that each country has had to deal with the issue in a different way and for a period after, experienced some economic, political and social dislocation. Some countries in Africa should take a leaf from us and take whatever lessons they want and discard what they do not like but face the challenge they will, with consequences that will throw their theoretical nice wishes into the world of reality where pragmatism will be the key word to drive those economies. We will, God willing, all still be here, graciously ready to offer our help from our experience but that day is coming as sure as the sun is going to rise from the east.

3.7 The challenge before us as Zimbabweans is to now move to the second and final phase, that of bringing decisive finality and closure to this first important and dislocative chapter and move on to the orderly phase where we focus on restoring the productivity of these assets to positive levels never seen before. This move, we need not prevaricate for any day longer as Zimbabweans.

3.8 As for the international community, our message is that they should not preoccupy themselves with brooding over what or how this was or was not done properly. The Land Issue is a done deal and begrudging Zimbabweans or its Leadership over this matter for time immemorial is a monumental waste of reflective energy. The international community must accept what is irreversible and engage in politics of economics and pragmatism as opposed to personalising these matters.

3.9 We believe as a Bank that there are more troubled spots in the world which should preoccupy world leaders than continue with sanctions imposed on Zimbabwe over this land issue. Sanctions against Zimbabwe are affecting the unborn as badly as they are affecting the living and those unfortunate to die during this period.

3.10 Fuel challenges affect the ambulances destined for the maternity wards as well as elderly homes, school buses, grinding mills in rural areas in as much as they are affecting the funeral parlours. Lack of adequate drugs affect those who need the greatest care among us, the sick, those with malaria, HIV/AIDS and those with child killer diseases, and yet we claim to be a caring world with targeted sanctions.

3.11 Faced therefore with the circumstances of sanctions and lack of international financial support; Faced... with the drying up of voluntary funding and support to agriculture by our banks from 2002 onwards due to collateral concerns and stability factors; Confronted by the need to sustain operations of certain parastatals while long-term solutions are sought . . . ; and Faced with the choice of providing local currency to the Grain Marketing Board to buy maize from our farmers or let that maize rot on the roadside and yet tomorrow be asked to look for scarce foreign currency to feed the nation, and; Faced with the inability of conventional budget frameworks and failure of these systems to accommodate and timeously respond to some national emergencies and hyper-inflationary pressures, the Central Bank's quasifiscal interventions have served the people of this country as a survival kit against total economic collapse, against the killer punch of sanctions and as an ongoing test against conventionalism. Without such interventions, only God knows where we would be today and we leave you to speculate.

3.12 Therefore, faced with these challenges over the last 32 months, we could not, . . . we cannot . . . and we will not stand-by as your Central Bank, and let this economy crumble simply because our interventionist policies will go against the grain of certain established norms; (established by whom you may care to ask?)!

3.13 We call upon Zimbabweans to be authors of new economic development models for a change instead of following what others penned already.

3.14 Accordingly, I want the Nation to know that urgent dam repairs and construction as well as viably structured irrigation infrastructure projects, with capacity to uplift our economic turnaround, will continue to receive our support for as long as the market is not prepared to take up such challenges.

3.15 Not everyone amongst us has a very clear vision of how beautiful and economically self-sufficient Zimbabwe can be in a very short space of time. We fortunately do have that clear vision and believe that this is possible.

3.16 We want it known that we will not, if confronted with future challenges of market and budgetary failures, sit back and fold our arms in despair and self-pity, letting key economy-wide critical infrastructures collapse with disastrous consequences on human life. Ours is a maintenance job when everyone else who is supposed to do their job(s) have relapsed.

3.17 Shortages of foreign currency for the importation of food, fuel, and drugs; for our international debt service programs and for industrial machines and raw material imports cause sleepless nights to this Governor and his team.

3.18 Where we can eliminate such needs and pressures through import substitution and self help efforts, we will not as your Central Bank, be found wanting in our support of such efforts.

3.19 In the medium to long-term and certainly by the end of 2008, Zimbabweans will be happy that we endured this infrastructure development pain earlier on rather than later.

3.20 We are keen to see the Infrastructure Development Bank and other market players get their act together and start playing their developmental roles much sooner rather than later because, quite frankly, some of these interventions squarely belong more to those institutions than to us as a Central Bank.

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