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Dell's ghost haunts Zim government
Shame Makoshori, Financial Gazette
February 28, 2008

http://www.fingaz.co.zw/story.aspx?stid=2285

The government is in a quandary over escalating inflation ahead of landmark elections scheduled for March 29. A price blitz launched in June last year to mitigate the inflationary crisis has come back to haunt the ruling party, as the country battles acute shortages and unprecedented price hikes. Ironically,, the government last year dismissed former United States ambassador Christopher Dell's remarks that inflation would escalate to record levels and become the biggest challenge to the ruling Zanu PF's continued hold to power. Dell triggered apprehension in government by suggesting that President Robert Mugabe's government would not survive the year due to an escalating economic meltdown caused by runaway inflation, which he predicted would hit 1,5 million by year-end. No government, Dell indicated, had ever survived under such a highly inflationary situation.

However, this was not enough to move President Mugabe's government, which had long accused the United States and its European allies of working in cahoots to topple it from power. Trade Minister Obert Mpofu was hurriedly thrust into the forefront to launch a price blitz in July that slashed prices by at least 50 percent and sparked looting across the country, resulting in widespread shortages."This is going to go down as one of the fastest ways of reducing inflation," Mpofu declared then. He added: "Detractors will find out that what they were trying to do has come unstuck. Even Dell will discover that his projections are wayward." But barely a year since Dell's blunt projections, inflation has indeed emerged as the biggest threat to President Mugabe, who faces his toughest challenge at the polls from opposition Movement for Democratic Change leader Morgan Tsvangirai and a rebel from his party, Simba Makoni, whom he described this week as a "political prostitute."

Figures from the state-controlled Central Statistical Office (CSO) indicate that inflation breached the 100 000 percent level in January, sealing Zimbabwe's trajectory down the economic abyss. The CSO reported last week inflation rose to 100 580.2 percent in January, up from 66 212 percent in December. Month-on-month inflation in January slowed 119.3 percentage points to 120.8 percent from December's 240.1 percent, but this was not enough to stop the economy from plummeting to new depths. While an inflation rate of over 100 000 percent is still far lower than Dell's projection, the figure is still too high for a country not at war. In fact, analysts say the rate might actually be lower than the reality. Projections from independent sources indicate that Zimbabwe's inflation, the highest in the world, could reach one million percent.

"Our research shows that inflation will go up, but that will depend on the political landscape after the elections in March," an economist with a local financial institution, who declined to be named, told The Financial Gazette. "We are expecting a rapid increase in prices if there is no change in the political environment. We will not be surprised if inflation hits one million percent between May and June before going down. After September, we expect a rapid decline in the rate to about 100 000 percent. But again this will depend on whether a new political dispensation will be in place. It will be difficult if the status quo remains, but remember worldwide, there is no government that has survived a hyperinflationary environment," the economist said, echoing Dell's sentiments. He, however, added that if the political environment improved, year-on-year inflation could decline to 20 000 percent by December.

This figure could start rising in the first quarter of 2008 to around 500 000 percent as government could be forced to increase maize imports after excessive rains this season affected maize yields. Last week President Mugabe conceded that the food situation in the country was bad. And analysts predict that apart from government increasing the import bill, depleted maize stocks will force the few farmers with good harvests to increase prices, thereby stocking inflation fires. Much of the inflationary pressure has come from accelerating money supply growth, made worse by increasing money printing to meet national obligations in the absence of balance of payments support. Multilateral and bilateral financial institutions withdrew support to government over human rights violations after the controversial seizure of white-owned farms for the resettlement of blacks, most of who were not sufficiently trained in farming.

Economists said balance of payments support could be restored if the political environment improves although this would depend on the government's willingness to embrace market reforms, which could also increase the economic pain for the people in the short term. "The International Monetary Fund and the World Bank might take some time before pouring critical balance of payments support, but foreign direct investment inflows alone, which we expect if there is a change of government, could bring much needed foreign currency to prop up the economy," the bank economist said. Kingdom Financial Holdings group economist, Witness Chinyama, projected a further decline in the economy caused primarily by excessive government expenditure. He said government expenditure would skyrocket due to a likely increase in subsidies. Chinyama said the increase in government expenditure had already started saturating the markets, with daily market positions amounting to trillions of dollars. "The outlook remains bleak because the factors that have been driving inflation are still there and in some cases they have worsened. "Traditionally, government expenditure increases during elections and this is what we are already seeing," said Chinyama.

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