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ZIMBABWE: Cash crunch fuels petrol shortage
IRIN News
August 22, 2006

http://www.irinnews.org/report.asp?ReportID=55232

HARARE - Soldiers and policemen occupied petrol stations in the capital, Harare, on Tuesday to force operators to comply with a government directive to sell cut-price fuel, after they had closed in protest because it did not "make economic sense".

The petrol stations closed after the government set a fuel price of Z$335 (US$1.34 at the new exchange rate of Z$250 to US$1). Operators said the petrol price should be Z$800 (US$3,20) a litre. With fuel in short supply, taxi operators grounded their vehicles and thousands of commuters were forced to walk to work.

Energy minister Mike Nyambuya announced the fuel price reductions last week. One dealer said petrol was being sold for Z$1,200 (US$4,80) on the parallel market; another said actions by soldiers and police were contributing to the steep rise in the price of fuel, as dealers were recovering costs by selling directly to the parallel market.

An IRIN correspondent witnessed soldiers breaking into a service station to force staff to sell fuel at the reduced price, to the cheers of a small group of motorists - an event repeated at several petrol stations in the capital.

A day after the new currency was introduced, cash joined the list of shortages in the country, which already includes petrol, water and electricity.

Commercial banks blamed the scarcity of the new currency on inadequate supplies from the central bank. "We have started rationing the little that we have, so that we can distribute it to as many people as possible," a commercial bank official said. The bank has set a maximum withdrawal of Z$40,000 (US$160) per individual.

The currency reforms instituted by Reserve Bank governor Gideon Gono are aimed at reining in an annual inflation rate of around 1,000 percent, to reverse the country's economic meltdown.

But on the first day of the new currency as the sole legal tender, shortages drove the parallel exchange rate to Z$580 to a US dollar, according to dealers. Last week the unofficial rate for the new currency was Z$750.

Government and reserve bank officials were still distributing the new currency to financial institutions on Tuesday.

Many people who missed the deadline were trying to offload old currency for new but there were no takers, and Gono said there would be no extension of the deadline.

Citizens had three weeks to swap their old currency for the new denominations, but the central bank governor set a daily limit on the amount that could be exchanged. Most people lost confidence in the banking system after several banks closed in 2003 and kept their money at home.

Zimbabweans have become used to shortages: although the country produces coal, electricity is rationed because it lacks the foreign exchange to pay for imports from neighbouring states, and cannot generate its own because it lacks fuel to transport coal to power plants.

A foreign currency shortage also makes it difficult for authorities to buy equipment to repair the water reticulation system and there are growing health concerns. "We are sitting on a time bomb," said Precious Shumba, spokesman for the Combined Harare Residents Association. "And with the hygiene being compromised, we could soon get an outbreak of diseases because refuse is also not being collected."

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