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Harare must ditch 'ambush' economics: analysts
ZimOnline
October 11, 2006

http://www.zimonline.co.za/Article.aspx?ArticleId=264

HARARE - President Robert Mugabe may have to bite the bullet and do away with interventionist policies to allow free market forces to operate in Zimbabwe if his government is to win the war on inflation, analysts have warned.

Analysts told ZimOnline yesterday that Mugabe's interventionist policies were the main drivers of inflation, which declined to 1 023.3 percent in September from 1 204.6 percent the previous month.

Despite the drop, this remains the highest rate of inflation in the world.

"The government has tended to intervene even where market forces are working well like in the case of fuel where the price had stabilised at around $650 a litre before they set the price at $350 a litre," said eonomist James Jowah.

The price of fuel has since shot up to between $1 200 and $1 500 a litre of petrol on the black market where the commodity is readily available.

A litre of petrol sells at the gazetted $350 at the few service stations that receive subsidised fuel from the National Oil Company of Zimbabwe.

The fuel price increase has triggered a fare increase, with most urban transport operators raising their fares by 75 percent in the past two weeks from $200 a trip to $350 a journey.

The interventionist policies also saw the government last month freezing the price of bread at $200 a loaf at a time the bakers wanted the price raised to more than $300 in order to meet production costs.

The price of bread was later agreed at $290 a loaf, but not before the commodity had disappeared from the shelves and was now being sold at around $500 a loaf on the black market.

Analysts are also convinced that Mugabe and his economic advisers, notably Reserve Bank of Zimbabwe (RBZ) governor Gideon Gono and Finance Minister Herbert Murerwa, should loosen their grip on foreign exchange and allow free market forces to determine the exchange rate.

An investment analyst with a Harare-based commercial bank warned that the Zimbabwean authorities would continue to fight a losing battle as long as Gono presses ahead with his brand of "ambush economics".

"Since coming on board in December 2003, Gono has thrived on taking the market by surprise through his ambush economics but that has not helped the situation because people always find their footing and regroup after being hit by his policies," said the investment analyst who spoke on condition he was not named for professional reasons.

Gono's policies and measures have largely failed to instil confidence in the market but have rather abated an already existing atmosphere of speculation and mistrust between the monetary authorities and service providers.

The latest example of Gono's "ambush economics" was Monday's cancellation of trading licences of 16 money transfer agencies.

This caught most of the affected agencies by surprise and is likely to worsen the foreign currency parallel market as most of the people employed by these agencies will go underground and feed the parallel market.

Zimbabwe is in the throes of a seven-year-old economic crisis that the government's critics blame on economic mismanagement by Mugabe.

But Mugabe denies the charge blaming the crisis on sabotage by Western government after he seized white-owned land for redistribution to landless blacks six years ago.

Zimbabwe’s economic crisis has manifested itself in serious shortage of foreign currency, food, fuel and electricity. - ZimOnline

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