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The IMF decision
Eddie Cross
September 12, 2005

Last Friday the IMF Board met in Washington DC to decide on the future of the membership of Zimbabwe. We have been a member and a shareholder for many years and in fact have had a number of IMF sponsored stabilization programmes during this time. In all its history the IMF has only expelled from its ranks one other country and that was in the mid 50's. To get expulsion through, the Board has to first make the recommendation for expulsion and then has to secure 85 per cent of its membership votes to endorse the recommendation before expulsion becomes a reality.

So it's not easy to expel a member - especially if they can rely on a block of States like Africa plus a handful of other maverick countries that will support the retention of Zimbabwe as a member - no matter how delinquent.

What are the reasons for the decision of the IMF to consider it's ultimate penalty? The most obvious is the fact that we are not servicing our debt to the Fund. Last week we were in fact some US$300 million in arrears and had only been making token payments for a year or so. But we owe everyone money - PTC owes over US$100 million to its service providers, ZESA owes money to those who supply us with equipment and spare parts and electricity, GMB owes money on food imports, Noczim owes money to oil suppliers across the world.

We have an official external debt of over US$5 thousand million - none of this is being serviced and no payments have been made to other key multilateral institutions - the World Bank is owed money, the African Development Bank is owed money - perhaps more than the IMF in arrears. So why is the IMF debt so important? The reality is that it is not that important. Paying our arrears to the Fund would not change our status one iota - we could not expect IMF support for any sort of stabilization programme for some considerable time after the issue of the arrears has been dealt with and a workable recovery programme put in place.

No, the reason why the IMF threat was finally treated with such deference is mainly political. African leaders - struggling with their image abroad and with economic and financial problems at home, did not want to see an African State expelled for misbehavior. South Africa gave impetus to this view when they offered to settle the arrears themselves to avoid our expulsion.

To some extent the issue is also all about the fact that the Fund is the ultimate Bankers Banker. A decision to expel Zimbabwe would have formally confirmed our status across the world as a pariah State. It would have closed doors to us in virtually every corner of the world when it came to commercial lines of credit and other forms of financial assistance. It would have damaged NEPAD and struck a blow against the reputation of other African States whose position is only marginally better than that of Zimbabwe. Who would be next, many countries would ask?

In fact the arrears were not the major issue on the IMF agenda in terms of its relationship with Zimbabwe. What was the real issue was quite simply the failure by the Zimbabwe leadership to get to grips with the problems that had resulted in the almost total isolation of the country diplomatically and the near total collapse of the economy. During successive visits to the country, the IMF team has asked local Zimbabweans "how do you carry on under these circumstances?" They looked at the statistics and were astonished that we were still functioning.

We also wonder how we survive - and obviously this is both an achievement and a failure, because allowing the whole pack of cards to collapse might have brought change sooner than it will do in the near future.

And so we have the specter of the Zanu PF regime contradicting itself with respect to the IMF issue. One minute they do not matter and can "go to hell" . The next we are scouring the country for our last remaining sources of foreign exchange to make a meaningless payment to the Fund which will ensure that we are not expelled but are then left with insufficient resources to import essentials like food.

Just speculate with me for a moment on what the Fund might demand in a wish list to the Zimbabwe authorities in order to restore our status as a functioning and welcome member of the Fund. My own list would incorporate the following: -

• Zimbabwe must make take steps to end its diplomatic and political isolation and to restore democratic credentials to its government.
• Zimbabwe must respect the rule of law and the independence of its Judiciary and it must respect the legal rights of its citizens and investors.
• Zimbabwe must restore freedom of the press and liberalize its electronic media. It must dispose of its controlling shareholding in the Zimbabwe Newspapers Group.
• Zimbabwe must observe all human and political rights as described in the UN Charter and in its supporting agreements to which Zimbabwe is already a signatory.
• Zimbabwe must adopt, without delay, a comprehensive package of macro economic reforms designed to unify both exchange rate and interest rate regimes, to restore fiscal and monetary stability and discipline.
• Zimbabwe must implement a wide range of reforms designed to strengthen the private sector and the market mechanism.
• Zimbabwe must give urgent and immediate attention to the humanitarian crisis.

It is now too late to rescue the 2005/06 agricultural season and we will have to wait another year before meaningful remedial action can be taken in the farm sector.

The IMF decision keeps the pressure on for reform, it gives South Africa time to exercise its responsibilities in the region and it does not make our situation any worse. I guess that is a lot to achieve under these circumstances. What are the chances of Zimbabwe meeting the IMF on all key issues - zero, under this management. They, like the rest of us will have to wait for management changes before we can expect any changes for the better. Mugabe and his sorry crew only offer more of the same debilitating inertia and Soviet style controls and corruption.

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