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Zimbabwe currency has biggest decline against dollar
Brian Latham, Bloomberg.com
February 21, 2008

http://www.bloomberg.com/apps/news?pid=20601116&sid=ao9eaiJS0wE0&refer=africa#

The Zimbabwean dollar had its biggest one-day decline on the black market as traders speculated the government is buying U.S. currency to finance President Robert Mugabe's re-election campaign.

The currency slumped to 20 million per dollar, from 6 million yesterday, traders including John Tonganyika said in interviews today from the capital, Harare. It's the biggest drop since Zimbabwe gained independence from Britain in 1980, said John Robertson, an independent economist based in Harare.

Demand for foreign currency "has suddenly gone through the roof,'' said Takesure Hove, who buys and sells currencies in an area of Harare traders call Wall Street. "Perhaps the central bank needs U.S. dollars to finance the election next month and they're buying it through their people.''

Zimbabwe is in its 10th year of economic decline, exacerbated by Mugabe's 2000 seizure of most white-owned farms for redistribution to black subsistence farmers. Price controls imposed by the government last June, combined with shortages of basic commodities, have spawned the world's highest inflation rate of 100,580 percent.

Prices of all goods and services from food to school fees are controlled by the government. Businesses aren't allowed to make a profit of more than 20 percent on goods and services.

Black market
Mugabe, who turned 84 today, will contest presidential elections scheduled for March 29. His ruling Zimbabwe African National Union-Patriotic Front party has been accused by the European Union and the U.S. of human rights abuses and holding unfair ballots in 2000, 2002 and 2005.

"With elections looming and budgets depleted two months into the year, it is inevitable that the Zimbabwe dollar will continue to slide and that the slide will become exponentially rapid,'' Robertson said. "It's been a general rule that whenever government has been in urgent need of foreign currency, the black market rate tumbles.''

Cash-strapped Zimbabweans are forced to buy foreign currency on the black market because the central bank can't meet demand. Zimbabweans use the foreign currency purchased on the streets to import food and fuel from neighboring countries including South Africa, Zambia and Botswana.

Demand for U.S. dollars and South African rand "shot up overnight,'' Tonganyika said.

"Shops in the city are largely empty,'' Jo Armstrong, a Harare travel agent, said in an interview. "Even the very wealthy are surviving to a large extent on what vegetables they can grow in the gardens. This latest crash will destroy many people's lives.''

Daily increases
The government's price controls have forced ordinary goods onto the country's black market, according to Farai Maphosa, an accountant in Harare.

"Prices rise on a daily basis,'' said Maphosa. "You don't go into shops any more. Instead you wait in the car park for the black-market vendors to offer you goods. If you have U.S. dollars or rand, you can get good deals, but if you have Zimbabwe dollars, you pay through the nose.''

An official at Zimbabwe's central bank, who declined to be identified, said she couldn't comment on the black market rate for the Zimbabwean currency. The currency trades officially at 30,000 to the U.S. dollar.

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