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Cash crisis: Scourge to ordinary people
Kumbirai Mafunda, Financial Gazette
January 24, 2008

http://www.fingaz.co.zw/story.aspx?stid=2051

When Nhamo Mutamangira, a widowed mother of five, suddenly fell ill early this month, she needed urgent medical attention. She had no resources, but managed to get to Parirenyatwa Group of Hospitals - one of the country's largest referral hospitals - with the help of a Good Samaritan. But that could not guarantee her immediate help.

She spent over five hours at the hospital without any assistance, with relatives and friends battling to contact her brother, Tendai, in case he could help them out of the situation by taking her to a private medical facility where drugs, medical personnel and equipment are still available. Indeed Tendai finally arrived, and had Nhamo moved to a private hospital close to the public health facility. But that was the beginning of a nightmare.

Staff at the private hospital flatly refused to assist her unless they paid cash upfront.

Tendai had the money, but it was locked in his bank, where hundreds of people have been spending long days in queues to make withdrawals, but still leaving at the end of the day without accessing cash.

Eventually, Nhamo had to be taken back home, writhing in great pain. Desperate to save his sister's life, Tendai woke up the following morning, queued for cash at the bank as early as 3 am, but only managing to secure barely enough cash to pay for the admission fees.

And, as fate would have it, Nhamo died the same day, a casualty of a cash crisis that has afflicted the recession-plagued economy since October last year.

Last week the Reserve Bank of Zimbabwe (RBZ) moved to ease the cash crunch by introducing higher denominated bearer cheques of $1 million, $5 million and $10 million.

The new notes came barely a month after the lender of the last resort had introduced $250 000, $500 000 and $750 000 bearer cheques ahead of the festive season. But the measures appear to have had little impact in alleviating the cash crisis as evidenced by the meandering queues outside most financial institutions and most banks even slashed maximum cash withdrawal limits to between $50 million and $200 million from the $500 million announced by RBZ governor Gideon Gono last week.

And this week the biting cash crunch forced Gono to humiliate most banks by naming and shaming them for aggravating the cash crisis by creating artificial shortages after failing to collect money from the central bank and dispatching it to clients.

Gono charged that some banking institutions were engaging in imprudent and unethical practices, such as tying depositors' funds into illiquid speculative investments such as real estate, stocks and trading in foreign currency on the parallel market and therefore creating cash shortages. The central bank chief took the unprecedented move of showing captains of industry and the media RBZ vaults where higher-denominated bearer cheques amounting to $100 trillion had not been collected by the banks.

Gono advised the banking public to report to the police or the monetary authorities banks failing to dispense cash on demand.

On Tuesday, Finance Minister Samuel Mumbengegwi gave the banks up to next week to clear the long queues or face unspecified action.

"Your are just undefendable. It is high time government does what it has to do because I cannot continue to defend you because you are simply undefendable," he was quoted in a local daily saying.

Gono last week warned of the unintended consequences of introducing higher denominated notes particularly in an environment of high indiscipline on the part of economic agencies and in light of the prevailing shortages.

"Just like people have been happy with the abundant rains, the downside has been that farmers cannot go into the fields because of the incessant rains while crop nutrients are being lost due to leaching," he said. "Higher denominations are good, but it backfires when businesses hike prices," he said.

In its weekly commentary Kingdom Stockbrokers (KSB) echoed Gono's sentiments.

The brokerage firm said while the introduction of higher denominated bearer cheques was welcome, the measures were by no means the panacea to the country's problems. KSB said a long-term solution to the cash crisis is the stabilisation of the economy through reducing inflation and the re-establishment of positive real interest rates.

Given that the amount of money held for transactions and precautionary purposes depends, among others, on the movements in prices, KSB said the current hyperinflation environment would soon render the new and higher cash withdrawal limit inadequate.

"The hyperinflationary environment coupled with low nominal investment rates has caused serious negative real investment rates," said KSB.

"These negative returns on investment have significantly reduced banking habit as the resultant reduction in the opportunity cost of holding cash has given rise to significant speculative activities, which have worsened the inflation situation through an increase in asset price inflation. Such financial disintermediation weakens monetary policy effectiveness as its transmission mechanism works through banks," added KSB.

Now in their fourth consecutive month, the country's cash shortages, the latest addition to the long list of shortages that have ravaged the country, has brought a lot of suffering and pain to most Zimbabweans. People cannot get medical attention after failing to secure cash from their banks. Service providers no longer accept electronic payment methods like the Real Time Gross Settlement facility because transactions are taking long as much as a week before funds reflect in the receiving account.

Cheque payments are no longer practical because payment limits imposed by the central bank have been overtaken by inflation.

As a result, even those trying to give the dead decent burials have been affected.

Funeral homes are stuck with dead bodies for days because relatives have to battle to withdraw cash from banks to transport corpses and meet burial costs.

And while this is happening, unemployed youths are cashing in on the crisis buy joining queues on behalf of people desperate to get cash, taking home as much as $20 million per day for just helping them jump queues. Unemployment in the country is now estimated to be close to 90 percent.

Security guards manning bank premises have set up make-shift stalls next to the queues where they sell anything ranging from maputi to cigarettes and newspapers to make that extra dollar.

The guards say the "extra trade" helps them supplement their meagre salaries in a country ravaged by one of the highest inflation rates in the world.

"It makes me earn extra money to take care of my family," says Tapera Matuke, a guard manning one of the black owned banks.

Economic observers say because of hyperinflation which is compelling most people to use up their savings on buying daily basic consumables, life has been reduced to queuing, for cash and basic commodities like bread. Nonetheless, while enterprising youths make a killing out of the cash crunch, most Zimbabweans continue to suffer.

Inevitably, Zimbabwe now needs not the much talked-about turnaround, but drastic economic surgery to turn the corner back to normalcy.

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