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Chronic shortages to end this month, says Zimbabwe central bank
Associated Press (AP)
October 02, 2007

http://www.zwnews.com/issuefull.cfm?ArticleID=17465

Harare - The state central bank announced measures Monday that it said would help to restock empty store shelves by the end of the month. Among the planned programs were cheap loans to manufacturers to restore productivity, and hard currency payments to farmers to keep them in business. "I leave you with a promise most basic goods should and will return to the shelves in the next three weeks," Reserve Bank Governor Gideon Gono said on state television. Gono said the bank also planned to change the nation's currency, striking more zeros off bank notes for the second time since August of last year. In June, the government issued an edict to slash prices on all goods and services by about half. This included a crackdown on overcharging in which more than 7,000 corporate executives, business managers, traders and bus drivers were arrested, jailed and fined for price violations.

The price cuts were meant to tame the world's highest official inflation of nearly 7,000 percent. Instead, the effect was to worsen already acute shortages of food and basic goods in the crumbling economy. Under a new central bank loan program, producers and rural stores hard hit by supply shortages would be able to borrow funds to restore their businesses at the country's lowest interest rate of 25 percent over nine months. To boost production of staple foods, the bank would help the government pay the world parity price of around US$200 (¤145) a ton for corn and wheat, half in local currency and half in hard currency that could be used by farmers to buy their own gasoline, fertilizer and imported materials, Gono said. He said the price crackdown had caused fear and mistrust between the government and businesses and called for what he called for "a spirit of reconciliation and healing" in the economy.

He said many of the nation's economic difficulties were self-inflicted, including the price cuts and a program to seize control of white and foreign-owned businesses. In August last year, the central bank slashed three zeros from the currency and issued new denominations of notes after basic transactions became unmanageable and calculators and accounting systems could no longer cope with amounts traded. Independent estimates put real inflation closer to 25,000 percent and the International Monetary Fund has forecast it reaching 100,000 percent by the end of the year. Bundles of bank notes are again common in basic purchases. Gono said the zeros had now returned, again making transactions unwieldy. He said a new currency would be issued possibly in the next two weeks but gave no further details.

"It's a process that could turn into a hurricane for those who keep cash outside the banking system," Gono said. In the rampant black market, "cash barons and dealers are in the habit of creating mini central banks in their homes." Gono said the printing of extra money, now a routine practice, contributed to inflation and was against "basic textbook economics". "We are living in extraordinary times and extraordinary measures are needed. Once we are out of the corner, we will have no problem formulating policy playing by the book. But for now, the game is one of survival," he said.

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