Back to Index

http://www.zimonline.co.za/Article.aspx?ArticleId=876

HARARE - Zimbabwe's runaway inflation could rip through a fragile partnership being proposed by the country's monetary authorities to resolve a seven-year-old economic crisis, analysts said on Tuesday.

The analysts said the southern African nation’s annualised inflation, which the Central Statistical Office this week said had quickened to a record-busting 1 593.6 percent in January up from 1 281.1 percent last December, was the litmus test for the much-vaunted social contract on which the government was pinning hopes for resuscitating the comatose economy.

University of Zimbabwe business school lecturer Anthony Hawkins said the greatest challenge facing the government would be how to broker an agreement with business and labour against the backdrop of deteriorating economic fundamentals.

"It's going to be very difficult to get agreement within the next two weeks, which is the time left before the social contract comes into effect," said Hawkins.

The "social contract" is premised on the need to attain mutual understanding on prices, wages and productivity among government, business and labour.

The need for such a contract was the main thrust of the 2006 year-end monetary policy statement announced by Reserve Bank of Zimbabwe (RBZ) governor Gideon Gono on January 31.

Gono shocked the market when he refused to devalue the Zimbabwe dollar as was widely expected and instead insisted that the three key social partners had to reach consensus over the future of the economy.

He proposed the freezing of prices and wages from March onwards, a proposition the analysts said would not be viewed favourably by business and labour given the latest rise in inflation.

"I would be surprised if the trade unions would settle for 300 percent wage increases at a time inflation is expected to rise above 1 800 percent in the next month," said Hawkins.

The analysts said timing would play a crucial role in the creation of the social contract.

"Any contract involving the social partners will only be effective if it comes into force when there is evidence that prices have stabilised. Otherwise all attempts to broker an agreement would rightly be viewed with suspicion by labour and business," said an investment banker who declined to be named for professional reasons.

Gono's overtures for a social contract come against the backdrop of rising worker discontent, which has since the beginning of the year seen strikes by doctors, nurses, teachers, and power utility employees.

Government employees at the weekend issued an ultimatum for a review of their salaries and working conditions and threatened an indefinite industrial action if their demands are not met.

The analysts said there were two options available to the government in the event that its proposal for a social contract failed. One of these would be to impose the social partnership on the other parties while the second one would be for Gono to climb down and accept a devaluation of the Zimbabwe dollar.

The local currency has been fixed at 250 dollars to one United States greenback on the official market since 31 July 2006 at a time when the same American unit is trading at 5 000 Zimbabwe dollars on the illegal but thriving parallel market.

Gono believes that devaluing the Zimbabwe dollar is not the solution to the country's economic woes while industry has argued that a weak currency is stifling plans to increase production and boost exports. - ZimOnline

Please credit www.kubatana.net if you make use of material from this website. This work is licensed under a Creative Commons License unless stated otherwise.

TOP