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Harare still has long way to go to mend ties with IMF
ZimOnline
September 20, 2006

http://www.zimonline.co.za/Article.aspx?ArticleId=146

HARARE - Prospects of Zimbabwe resuming normal relations with the International Monetary Fund (IMF) are growing dimmer by the day as President Robert Mugabe's government pursues policies at tangent with agreed macroeconomic targets, analysts told ZimOnline.

They said it was even looking highly unlikely that the IMF will be going ahead with an Article 14 consultative mission to Harare next month and itself a routine information gathering mission that would not mean resumption of financial assistance to the troubled southern African nation.

The official Herald newspaper had at the weekend speculated that an IMF team would be in the country in October to assess the country's progress in implementing an economic turnaround programme.

"That team will not be coming any time soon from what we gather," said consultant economist John Robertson.

Added an economist with a commercial bank: "The issue is about convergence of policies and already the IMF has set the tone by indicating that all is not well with regards to the economic management of Zimbabwe."

The IMF last week condemned the continued performance of quasi-fiscal operations by the Reserve Bank of Zimbabwe (RBZ), which it said was hindering the country's fight against runaway inflation.

Implying that Zimbabwe has two finance ministries, IMF deputy director for the African department Siddharth Tiwari said one of the things that Harare needed to do was to streamline economic management processes, particularly how the fiscal policy is administered.

"Quasi-fiscal deficits in the central bank are fairly large and there is a need to reduce the size of these deficits to levels that are conducive to development," he said.

But RBZ governor Gideon Gono has insisted the central bank will carry on performing quasi-fiscal functions, saying he and "others charged with the responsibility to plan, implement and monitor government and economic programmes" could not stand by and watch while people suffer.

Referring to an impending water crisis in Harare, the RBZ chief promised to print more money to enable the Harare City Council and the Zimbabwe National Water Authority to procure water treatment chemicals.

"I believe there are a number of things we can do such as to stop printing money and curb government spending if we are win the support of our partners," said economic commentator Eric Bloch.

The RBZ, accused of fueling inflation by printing money to finance its quasi-fiscal activities, has in the past few years also dolled out large sums of money to farmers and loss-making state companies.

The IMF cut aid to Zimbabwe in October 1999 following differences with Mugabe over fiscal policy and other governance issues.

The once-buoyant southern African economy has since then been on a free-fall, with the world's highest inflation rate of 1 204.6 percent in August and a weak exchange rate.

The IMF's Tiwari also said the economic meltdown that has seen Zimbabwe short of food, fuel, electricity, essential medicines and every other basic commodity, called for deeper macroeconomic reforms and would not be resolved by an injection of funds.

"I would like to note that there is substantial goodwill on the part of the international community to help Zimbabwe, but the first step has to be taken by the authorities," said Tiwari.

Exchange market reforms are also an important pre-requisite, as are improvements in the business climate and the rule of law, the IMF official noted.

Zimbabwe currently operates a dual exchange rate policy, with the official rate administered by the RBZ and another parallel market rate where most of the trade takes place.

"You can do all of the above and if you do not convince the private sector it is not going to work," said Tiwari.

Zimbabwe's economic crisis rapidly worsened in 2000 after Mugabe embarked on a controversial programme to expropriate land from whites for redistribution to landless blacks. The Zimbabwean leader refused to pay compensation for the land, only accepting to reimburse the farmers for infrastructure on the properties.

The land reforms plunged the mainstay agriculture sector into deep recession, with food production declining by about 60 percent to leave the country dependent on aid from relief agencies.

Foreign investors pulled out en masse fearful because of lack of guarantees their investments could be safe in Zimbabwe, while the southern African country's traditional development partners and donors in the West withheld support in protest over gross human rights violations during Mugabe's chaotic and often violent land reforms.

The Harare administration has responded by seeking to strengthen economic ties with the East in particular China, which last week agreed to provide US$200 million to boost agriculture this season.

But economic experts say more money - much more than China can provide - is required to lift up Zimbabwe's economy from the mire.

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