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Zim inflation going 'off the chart'
Peta Thornycroft, Independent Online
December 23, 2007

http://www.iol.co.za/index.php?set_id=1&click_id=84&art_id=vn20071223091058142C112953

Zimbabwe is entering "totally uncharted territory", the International Monetary Fund's new mission chief Robert Sharer told ambassadors at a meeting in Harare last week.

He noted there had been an "exponential upswing" in inflation since March - comparable to that in Germany's post-World War 1 Weimar Republic before its demise.

"The past is prologue" was the IMF veteran's forecast - the authorities would continue "muddling through". His comments followed a research visit of three IMF economists to Harare this week.

He told diplomats he found it "interesting" that neither finance minister Samuel Mumbengegwi nor central bank governor Gideon Gono made any efforts to meet them. But the private sector was "very dynamic" and he admired their "survivability and entrepreneurial spirit".

Diplomats asked him what should be done to provide a soft landing for the poorest in the economy if economic sense ever returned and there was a dramatic re-entry into the international arena. For example, would prices rocket if controls were lifted?

"What do you want to protect people from? The World Food Programme is already feeding half the country while there is little or no service delivery when it comes to health and utilities. The faster the reforms come the better," he replied.

Diplomats interpreted him to mean that wealthy urban Zimbabweans, including the ruling Zanu-PF, have little idea how most Zimbabweans are already operating outside of the economy and have become totally dependent on outside help.

Manufacturing and retail industries have shrunk so much that Zimbabwe is now able to provide essentials, including food, for only a minority of the population.

A study by the Global Poverty Research Group last year showed that 50 percent of all urban people are surviving either on remittances or food from relatives working outside Zimbabwe.

And this was long before the government froze prices in July this year, further destroying production.

Now many commentators and workers in foreign humanitarian NGOs believe that almost every family in Zimbabwe depends on remittances from relatives, mostly in South Africa.

This week Gono, who has been heading the central bank for the most disastrous three years of its life and who controls the economy launched another binge of finger pointing and currency changing.

He withdrew the highest denomination note of ZIM$200 000 from circulation and replaced it with three others, for ZIM$250 000, ZIM$500 000 and ZIM$750 000.

None of these impressive-sounding notes can buy US 50 cents, or a bar of soap, which costs about ZIM$5-million.

Gono said he has decided not to chop off zeroes from the currency, as he did last year when computer systems crashed because excessive noughts were incompatible with accounting systems.

He was not repeating this because he said commercial operators had taken advantage of the change to send prices "soaring".

He also increased the amount of cash customers could withdraw from the banks from the equivalent of R20 a day to R160. This was only after weeks of bank customers queuing for hours and even sleeping overnight outside banks, hoping to get at their cash.

Beatrice Mtetwa, president of Zimbabwe's Law Society, said the central bank was using what she described as "deliberate control over people's lives. It is not coincidental that this is happening over the annual Christmas and end-of-year holidays. The effect of the controls will prevent urban people travelling to their rural homes". Most opposition supporters live in urban areas.

"The limits on cash withdrawals are an assault on property rights and also affect people's ability to purchase items for sustenance. Every aspect of a human being's most basic rights is affected by the central bank's controls," Mtetwa said.

Harare economist and former president of the Zimbabwe National Chamber of Commerce, Luxon Zembe, said the present shortage of cash and the suffering endured by the poor is "pathetic".

Gono said he was doing it to curb the black market trade in foreign currency. But, critics say he is the central player in the forex scrum, which he denies.

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