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seal disregard for rule of law
amendments passed last week are not just the abrogation of the basic human
rights of Zimbabwean citizens. They also put the seal on this regime's
disregard for private property and lack of belief in the rule of law.
The economic implications
are dire: it is not just foreign investors, but local entrepreneurs who
look to such basic elements being in place before they are willing to
invest. Without investment, there will be no jobs, no income, no growth.
Presumably this government
thinks it can do without foreign investors and that local people will
invest anyway because they are captives in this collapsed economy?
This is deluded thinking,
symptomatic of the view that the country can go it alone, spurning the
challenges and opportunities presented by participating in the modern
global economy. This is the path Zimbabwe under the present government
is already treading - of swift descent into a subsistence economy, except
perhaps for a few enclaves producing primary products for export.
Yet, true to Zanu
PF's propensity for policy inconsistency, this is also the week when the
government has paid US$120 million of the arrears owed to the International
We are told the payments
are from the country's own funds and that this in a desperate bid to remain
a member of the IMF - in other words to continue as a player in the global
We in the MDC are
concerned that the confusion (at national, regional and international
levels) these inconsistencies provoke will only serve to worsen the country's
In respect of the
current negotiations with the IMF, what people do not seem to appreciate
is that paying off a chunk of the arrears is the "easy" part. What is
more difficult for this regime is meeting the requirement to present a
comprehensive economic policy package which the IMF board will find coherent
If the country is
to return to the IMF fold, the successful execution of an agreed programme
with the IMF over a period of at least nine months would be necessary.
Only then would the release of fresh funds be considered and only then
would it be necessary to clear the arrears.
Why then pay a large
portion of the arrears now?
If US$120 million
of foreign currency was available from the country's own resources, why
was it not used to buy food, fuel, medicines and the crucial inputs required
to keep the economy going, in particular to allow production of items
which can be exported?
The frightening reality
is that this government is happy to see people starve. When it comes to
spending extremely scarce foreign exchange, arms purchases and IMF arrears
are considered far more important.
The forex situation
was already so bad that mineral concessions earlier this year were given
to firms in Dubai in return for a few weeks of fuel imports. Now we are
told that operating gold mines are being pledged for unpayable foreign
currency loans from South African private banks. Yet the government still
has the temerity to continue harping on about Zimbabwe's "sovereignty".
The state media claim
that Zimbabwe's economic policies are in fine shape. Nothing could be
further from the truth. It is not just that the figures are so far off-scale,
the problem with the current policies is that trademark inconsistency
we've already been talking about.
Just before the IMF
team arrived in Zimbabwe for a last look at the country's policies before
the September 9 IMF board meeting, the RBZ sharply increased interest
rates and allowed the "auction" exchange rate to depreciate to a level
to allow non-primary product exporters to be competitive.
The direction of these
policy changes is towards the orthodox approach, but the changes made
are as usual too little, too late. Their main impact at this stage will
be to add to inflation through greatly increasing the local currency cost
of imports and raising the financing costs of locally-produced goods and
If a competitive exchange
rate had been set and maintained when the "auction" was started in January
2004, exporters at that time would have been able to respond.
Stocks of imported
items were at a high level, giving a breathing space to get foreign exchange
generation working again. With the auction rate at a competitive level,
the parallel market would have disappeared altogether.
That opportunity was
squandered, and the situation 20 months later is that there are so many
shortages (fuel, electricity, raw materials, skilled labour) that there
will not be an effective response to the competitive official exchange
The biggest inconsistency
in current polices, though, is on the fiscal side. The orthodox approach
to reducing hyperinflation requires not just tight monetary policies but
a complementary fiscal policy of extreme restraint.
The Minister of Finance
seems to think that a budget deficit of 8,7% falls in this category, but
from the viewpoint of a consistent anti-inflation programme, a budget
deficit of 8,7% of GDP is a disaster.
are many reasons to think that the actual budget deficit will be very
much higher than this. For example, food imports are going to cost more
than budgeted, but perhaps the low budget shows the intent to let the
country starve. The interest charges are also grossly underestimated:
with 30 and 91-day Treasury Bills at 200% and 265% respectively there
is significant feedback from the tightening of the monetary policy to
In addition, there
are huge subsidies being paid outside the budget, which also have inflationary
consequences. Properly accounted for, the subsidies going through the
GMB, for example, amount to more than a trillion dollars a month. Zesa,
Tel*One, the NRZ and other parastatals are all running colossal deficits.
Without taking dramatic
action to cut government expenditures (eg scrapping all the new ministries,
amalgamating others, selling military hardware, closing Zimbabwean embassies
abroad etc), and to restore some degree of cost-recovery for basic services
provided by parastatals, the fiscal position will negate the monetary
So, the upshot of
the government's inconsistent policies is the worst of all worlds. Going
forward, Zimbabweans will have to face continued shortages, accelerating
inflation, continued loss of jobs, widening poverty and increasing hunger.
There will be growing resentment at a large chunk of the country's most
scarce resource - foreign currency - being paid to the IMF with absolutely
no immediate prospect of a return on this payment.
What we have so often
said before becomes ever more starkly evident as the crisis deepens: that
the causes of Zimbabwe's crisis are fundamentally political. Until there
is substantial political change - starting with restoration of the rule
of law and a political commitment to a consistent macro-economic stabilisation
and recovery programme - there can be no "turnaround", let alone sustained
improvement in the economy of this beleaguered country.
*Biti is MDC
secretary for economic affairs.
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