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ZIMBABWE: Propping up the official exchange rate at any cost
IRIN News
October 10, 2006

http://www.irinnews.org/report.asp?ReportID=55893

HARARE - Zimbabwe has closed its 16 money transfer agencies (MTAs) with immediate effect, sending shockwaves through the country, as many people depend on remittances from relatives working outside the country for their day-to-day survival.

Reserve Bank governor Gideon Gono said in his mid-term policy update on Monday, "all MTA licenses are cancelled. This withdrawal has been occasioned by non-performance and defiant behaviour by most players in this sector."

About three million people, about a quarter of the country's population, referred to as the 'Zimbabwean Diaspora', have left to find work in South Africa, Botswana, Australia, the United Kingdom, Canada, the USA and Europe.

Many repatriate money to their families in Zimbabwe, where inflation is hovering at around 1,000 percent annually and unemployment levels are above 70 percent. Food, treated water and fuel are in short supply, and power outages are common.

Although the official exchange rate is 250 Zimbabwe dollars to one US dollar, on the thriving parallel market, US$1 will get Z$1,300. Gono recently introduced a new currency by lopping off three zeroes from bank notes in an attempt to curb inflation and to make it easier for people to carry cash.

Eight of the closed MTAs were linked to commercial banks, including some controlled by the Zimbabwean government, while the remaining eight were independent dealers.

The MTAs appear to have raised the governor's ire because, instead of trading at the official rate, the agencies were exchanging foreign currency at rates near those of the parallel market.

Living in a hyperinflationary environment, where the prices of basic commodities, such as food, fuel and medicines increase every day, many Zimbabweans took advantage of this favourable exchange rate as a way of weathering the country's economic meltdown.

Gono said the closure of the MTAs, which were authorised by the reserve bank in 2004 as a method of mopping up foreign currency entering the country as remittances, would not affect the banking licences of the affected financial institutions.

President Robert Mugabe's ZANU-PF government is suffering acute foreign currency shortages, and the latest monetary manoeuvre by Gono is seen as a way of funnelling foreign currency into the country through commercial banks and the reserve bank's Homelink facilities, which only trade foreign currency at the official exchange rate.

Gono's decision was lacking in economic sense, said Dennis Ncube, a nurse working in England. "Zimbabwe has the highest inflation in the world - pegged at more than 1,000 percent - and price increases are the order of the day in the country. To continue to peg the US dollar at [Z]$250 since July, while on the parallel market it is more than five times the official value, shows that some economists do not know what is happening among the poor."

Stella Mbizi, a grandmother caring for her four grandchildren in Mabvuku, a poor suburb in the capital, Harare, relies on the remittances from her son and his wife working in South Africa to make it through the month. "The favourable rates that we were able to get from the MTAs enabled me to look after my grandchildren and my two other unemployed children reasonably. The controlled rates will mean we will benefit very little from the bank rates," she told IRIN.

Like many Zimbabweans with access to foreign exchange, she is already thinking of ways to outwit the authorities, which close one loophole only for another to open. "I will have to advise my son and his wife to personally bring the money to Zimbabwe, so that I can change it on the parallel market," she said.

Such a tactic is unlikely to work for Tinomuda Shungu, from Harare's low-income suburb of Kuwadzana, who is the guardian of her brother's three children. "My USA-based brother is a single parent and I am responsible for his children. The new setup is going to generate foreign currency for the government, while ordinary people will suffer," she said.

"We have more than 80 percent unemployment, which means jobs are hard to get. I see many people suffering economically as a result of the unfavourable bank rates."

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