Wednesday, December 31, 2008

Comment from John Robertson

To close off this very difficult year I gave myself the very difficult task of reading Gideon Gono's book and writing some comments for you. My effort is attached and my only hope is that reading it will not be as painful for you as reading the book itself.

We have to hope for an early breakthrough, specially now that the Zimbabwe dollar has become virtually worthless. Immediate challenges for government are to get Parliament sitting again so that a Budget can be passed and the whole revenue and expenditure process can be put back onto a legal footing. For at least this reason, we should see some strenuous efforts being made in January, but the points in my summing up paragraphs on the last page of the attached will still need urgent attention. Whether they get the right kind of attention, from locals as well as foreigners, might well determine our future!

My most sincere thanks to you for all your support during the year and my warmest good wishes go out to you for a better 2009.

Five curious years result in a curious book
A comment on Dr Gideon Gono’s book, Zimbabwe’s Casino Economy
If you could start a sincere discourse in which you could honestly declare –
that you have received the President’s personal guidance at least twice a week for five years
that you proudly hold a conviction that every one of the President’s policy pronouncements met the highest possible moral, academic, philosophical and practical standards of excellence
that you hold a firm belief that the only reason for their failures has been the imposition of sanctions, and that Zimbabwe’s survival of the international sanctions onslaught has led directly to your having achieved major breakthroughs in economic theory –
– you too could write a book that would put an extraordinarily up-beat spin on Zimbabwe’s recent history. You might also be able to persuade yourself that, now that many banks in developed nations are having to be rescued, the brilliance of Zimbabwe’s monetary policies is no longer in doubt.
But first you would have to successfully impose a few new definitions on certain English words that would completely destroy your claims if their original meanings were to be used.
The word “sanctions” is the main one. This word has to be redefined to mean any response from abroad that is not wholly supportive of Zanu PF-policy decisions, that does not respect the sovereign rights of the party’s leadership to choose any policies they wish, or that shows an unwillingness to completely overlook Zimbabwe’s failures to fulfil contractual obligations.
This means that if any government, donor agency, international bank or development institution finds that it is not in agreement with Zanu PF policy objectives, or is agitating for long-overdue debt repayments, or is dismayed by the conduct of party officials, that body can be accused of imposing sanctions.
And if any lender expresses concern that new loans to Zimbabwe might not be repaid, and therefore sets tough conditions or refuses to lend Zimbabwe the money, it too can be accurately accused of imposing sanctions.
Points carefully overlooked – Dr Gono’s book is laced with numerous examples of carefully overlooked points – are that lenders are fully entitled to base their lending decisions on the assessed credit worthiness of borrowers, whether that assessment is based on past performance or current earnings expectations.
Zimbabwe’s score is dismal on both counts. Consequently, loan refusals are hardly surprising. In such cases, refusals are standard practice for any banker. As for the donors, NG0s and aid agencies, Zimbabwe’s government disqualified itself from receiving direct assistance by adopting and endorsing conduct that violated human rights. The conduct concerned includes violent ruling party-supported actions that hit directly at civil liberties and made direct and deliberate attacks on entirely legal political movements that tried to attract support for alternative political and economic policies. These attacks severely affected investor confidence and further damage was done when the Zanu PF policies began to sharply reduce Zimbabwe's foreign earnings by forcing the closure of most of the farming companies that produced most of the country’s exports.
Unfortunately, these were the earnings that had supported Zimbabwe’s access to credit. Continuing flows of revenue were needed to repay the banks offering continuing lines of credit for flows of imports, and export earnings were also needed to service longer-term debts. The rapid fall in earnings caused Zimbabwe to become a poor credit risk, so lines of credit were withdrawn.
But as an expression of his commitment to support every Zanu PF policy decision to the hilt, Dr Gono has passionately declared that the land reform policies that led to this decline are irreversible. This has done nothing to persuade potential lenders that Zimbabwe has improved its prospects of settling debt. They quickly decided that Dr Gono’s position on land reform meant that the lost revenues flows would not be restored, so new loans should not be offered.
Land reform has become a curious title for a process that caused Zimbabwe’s most productive land to almost stop producing. As it was highly productive, this was not the land that needed reform. The rest of it did, or more accurately, the farmers on the rest of the land needed reform. In choosing not to reform these farmers, but merely to move them to the land from which good farmers were evicted, the ruling party caused this land to become far less productive.
Whatever anyone would prefer to believe, the simple fact is that this land has stopped delivering the former volumes of crops and the former foreign revenues that helped sustain the whole country.
To be more specific, this land is no longer delivering the food, the jobs, the exports, the range of industrial inputs or the taxes that used to support or fund a large proportion of Zimbabwe’s total economic activity. And ever since this land reform programme started, Zimbabwe has had to import large quantities of food that, with its loss of export earnings, it could pay for only by cutting other imports.
To now claim that aid agencies, international banks and donor countries must happily and unconditionally accept the obligation to restore Zimbabwe’s spending power is to exhibit a special form of arrogance. Zanu PF is effectively declaring that those capable of offering assistance have obligations and those who need help should never have to account for the actions that placed them in need.
Further, if the donor countries and aid agencies don’t deliver on these obligations, Zimbabwe’s leadership will be acting reasonably when it accuses them of imposing sanctions. In his book, Dr Gono inflates that accusation into a claim that these unkind donors and institutions have engaged in “sanitised terrorism” that is being carried out to demolish the whole economy.
However, another of the points that Dr Gono fails to mention is the fact that, far from imposing sanctions, aid agencies are now actually supplying food to about half Zimbabwe’s population.
Had he raised that subject, he might have had to try to explain why Zanu PF considers aid to be a threat if it arrives in the form of food for distribution directly to communities that the aid agencies themselves have identified as vulnerable. Much as Zanu PF would prefer not to discuss this issue, the facts here have become obvious: Zanu PF wants to be in control over the distribution of all aid so that beneficiaries only of its choice will receive it.
This is because part of Dr Gono’s general thesis is that the aid workers have been complicit in conspiracies to bring about “illegal regime change”. If a careful analysis of the dozens of references to “illegal regime change” were to be made, an honest conclusion would have to be that Dr Gono believes every suggestion criticising a Zanu PF policy and observing that better alternatives should be adopted, can be described as an illegal effort to unseat the government.
Only one explanation for this belief can exist: Dr Gono is clearly convinced that Robert Mugabe is the only person with any legitimate right to claim the role of Head of State. On his apparent contention that this is an absolute truth, Dr Gono can claim that all challenges to President Mugabe’s authority are illegal, and many are bordering on being acts of treason.
Whether linked to sanctions or to regime change, the word “illegal” is another that has been given a new definition.
So great is the conviction that Zanu PF has sole rights over the country, the party wants to be able to demonstrate that its supporters’ needs will be met, even if only by ensuring that opposition party supporters’ needs will not be met. Zanu PF claims to feel insulted when the donors of food, medicine and aid of any other kind bring in the items as direct imports and carry out the distribution themselves. This sidesteps the preferred course of handing the money over to ruling party officials and trusting them to spend it in the country’s best interests. For “country”, read Zanu PF. This is another of the word definition changes.
Dr Gono is accurate in describing the land reform programme as the starting point for explanations of Zimbabwe’s current difficulties, but most references to land reform are accompanied by words such as historic, irreversible and inevitable. With considerable eloquence, Dr Gono shows that he unconditionally throws his weight behind the entire programme.
None of his references mention the fact that land reform closed down Zimbabwe’s biggest industry, or that this industry had been a highly successful contributor to the country’s economy largely because of the adoption of methods and technologies that had evolved all over the world in very recent years.
When the country was colonised, most of these farming techniques did not exist. For that reason, Zimbabwe’s high-tech, capital-intensive commercial agricultural sector is no more an expression of colonialism than General Motors or IBM are expressions of the colonial history of the United States of America.
More importantly, as the effect of land reform has been to reduce farming activity to patches of small-scale subsistence cropping, often using out-dated cultivation practices and almost always on a small fraction of the land that was “recovered” from large-scale commercial farmers, the whole programme has been a disaster. Dr Gono’s unconditional support for it, whatever the cost, is therefore misplaced. He, of all people, should be looking for ideas that work.
A more accurate description of what is needed to solve the whole land issue could be approached by starting with the fact that commercial farmers and communal farmers worked to entirely different systems, Commercial farming companies could lodge title deeds with banks in support of loan applications. With this financial backing, they could make use of rapidly advancing technologies and invest in developing their own skills.
Because the land was marketable and the market value of land was known, bank loan applications were readily approved. These loans allowed the companies to buy expensive inputs and equipment, to learn how to apply the latest scientific breakthroughs and to pay wages to their employees through the year, even when they had no current income in the months between harvests.
The system worked because the sale of successfully grown crops allowed the farming companies to settle their debts and immediately start making plans for the next season. Imaginative development works that often took many years to complete could be funded by additional loans. Dams and irrigation schemes not only helped companies remain efficient during poor seasons, they also added to the collateral value of the property being pledged in support of the loans.
The system also worked because of – not in spite of – the fact that the companies had placed the ownership of their land at risk to obtain the loans. To avoid any prospect of foreclosure, they had to be successful. So they worked as hard as they could to ensure success.
But this system was thrown out with the cancellation of property rights, the destruction of the market for agricultural land, the forced dissolution of the farming companies and the allocation of the land – free – to resettlement farmers. With no title deeds to offer the banks and the disappearance of the land’s market value, the resettlement farmers could not borrow money against it.
The inputs they needed had to be given to them as handouts , or they had to be heavily subsidised. But getting help in the form of money to pay wages proved impossible. The farmers ended up cultivating only the small areas they could manage with the help of wives and children, in much the same way as they had in the communal areas. But on their new plots, they did not have the help of a support network of their extended families and friends.
Success in the normal sense eluded them, but they measured their success by a different standard. Bank foreclosure was not a possibility, but each faced a real threat of dispossession from more senior member of the party. For some this was best avoided by making their plot look less desirable by producing mediocre crops, but others felt that demonstrations of fierce loyalty to the party would better protect them. Neither of these helped crop yields, but farmers claiming they suffered no threat of dispossession could claim to be successful.
The word “success” has therefore been redefined. Its new meaning permits the use of phrases such as “the successful land reform programme…”.
But the vast majority of farmers did not achieve real success. Even backing from the business sector became less effective as the services of agricultural suppliers, with their bulk depots, workshops and technical experts, went into a steep decline. This soon added to the difficulties faced by communal farmers too, as it impacted on their access to inputs and their costs. These directly affected their levels of output and made food shortages very much worse.
The basic fact here is that two very different systems were at work and they delivered very different results. But for some reason, Zimbabwe's politicians believed they would be praised and rewarded for choosing to destroy the agricultural system that stood out as the most successful in Africa, and for replacing it with expensive and severely disruptive extensions of the subsidy-dependent less successful system.
The rewards and praise have not been forthcoming. To the ruling party, this is clear evidence of disrespect for the sovereign rights of the country’s leaders to formulate the policies it thinks fit without risking international censure. This lack of respect amounts to sanctions that, according to Dr Gono, have been motivated by an eagerness to promote regime change. These sanctions, he claims, are a form of economic terrorism, the purpose of which is to sabotage the ruling party’s glorious efforts to overcome the evils brought to this country by colonialism.
The hidden claim that is implicit in the principal arguments put across by Dr Gono is that any decision ever taken by President Mugabe is never ever to be questioned, Whatever the decisions, Dr Gono’s position would clearly be that he – and everybody else – has an obligation to accept all of them without question and find ways to make them work.
A distillation of page after page of his basic thesis would be that President Mugabe’s decisions have always been right and that every one of them would have worked brilliantly but for the imposition of sanctions. The “illegal” sanctions, he claims, were all designed to bring about “illegal” regime change by causing the collapse of the Zimbabwe economy.
But despite the virtual collapse of the economy, it is clear that Dr Gono would argue that the sanctions have failed. Because President Mugabe is still the Head off State, he has survived them. So Zanu PF can claim to have triumphed against the “economic terrorism” attacks launched against them by the most powerful countries in the world. According to Dr Gono, this proves that Zimbabwe’s state of collapse is nothing about which Zimbabweans should be embarrassed as it is the fault of those who imposed the sanctions.
Zimbabwe’s leaders are not the first to create a mythical threat and follow this with the generation of highly intrusive and oppressive regulations and punishments, which they claim to be essential to combat the threat. Triumphant claims can then be made that the non-existent threat has been contained. Typically, the full depths of the dishonesty are achieved the reinforcement of the oppressive regulations and punishments, supported by the claim that these remain necessary because, without vigilance, the threat would certainly return.
Whether the threat was identified as the certainty that the sun would not rise tomorrow unless an unfortunate family submitted to demands that their child should be sacrificed, or is now identified as the certainty that Zimbabweans will face hunger and deprivation unless the world calls off sanctions and stops trying to depose its rightful leader, the real menace amounts to something rather different: the determination of the governing authorities to ensure absolute obedience by imposing and enforcing oppressive policies.
But just as sacrificing children had nothing to do with making sure the sun would rise and everything to do with holding the Aztec population in subjugation, calls for the removal of wrongly defined sanctions has nothing to do with enriching the Zimbabwean population. It has everything to do with controls and restoring the leadership’s access to the foreign funding needed to enforce them.
In one of the more colourfully misleading paragraphs in his book, Dr Gono claims: “…The country perspired under the gruelling yoke of colonialism for close to one full century. Before attaining political independence in 1980, the country went through a bloody armed struggle, as the impoverished indigenous population resisted, and fought and won over colonial forces.”[1]
From this, he goes on to describe the many reasons why colonial distortions called for the adoption of unconventional measures. However, it is the carefully overlooked distortions that have emerged since independence in 1980 that are very much more in need of attention. Today, the population is more impoverished than it ever was during the colonial era, and as for the “gruelling yoke”, all the evidence suggests that the colonial authorities were never as harsh on the population as Zanu PF is today.
The colonial era created the most diversified economy and the best education and health services of any country in Africa. The result was one of the most developed of all the Third World’s countries. As for the “bloody armed struggle”, this was sponsored and funded by the USSR and Communist China for their own ends. One day, an accurate history will show that indigenous people opposed the incursions in numbers that greatly exceeded the total of the so-called “colonial whites”. It is perhaps for this reason that Zanu PF has recently passed legislation prohibiting any possibility that any other political party might obtain support from abroad, the way its supporters did.
Dr Gono’s major fear is that the sanctions claims will be proved wrong and cause his whole thesis to completely fall apart. So in efforts to prevent debate that might draw people towards such a dangerous conclusion, Dr Gono makes numerous pre-emptive strikes that are designed to demolish the courage of his critics. He does this by suggesting that any who deny the existence, or the penetrating damage of his long list of sanctions will risk being ridiculed for their stupidity, or worse still, they will risk being accused of economic sabotage.
Regrettably for Dr Gono, these ploys do not cause the caution of lenders to become definable as sanctions. Neither do they encourage aid agencies to offer assistance that can be shown likely to add to the ruling party’s capacity to tyrannize the population, or would directly compensate ruling party members for the personal inconvenience their damaging policies have caused them.
All aid organisations face requests from deserving cases, the needs of which go far beyond the donor’s resources. The donors know they would face criticisms from their own sources if they were seen to be using their limited funding to help delinquent governments escape the effects of self-inflicted problems, specially if they show not the slightest intention of changing course.
Without question, Zimbabwe needs help, but the country will not be deserving of help before its authorities have acknowledged the actual causes of the difficulties and have also made firm commitments to rectify them. And any effort to identify the actual causes will take the debate right back to land reform.
On the need for land reform, Zanu PF agues that their case is proved by the facts that the country was colonised and the land taken by the colonisers had to be taken back.
But this can be restated as a different description that also rests securely on facts: a very small population saw its land colonised; new productive methods bought in by the colonisers helped that small population to become very much bigger – twenty times as big – and now that much larger population is said to want the land back.
It is worth mentioning here that independent studies have called this politically charged claim into question. The vast majority of the population is most concerned about job security, not land, according to an extensive survey carried out by the Helen Suzman Foundation. Now that the land has been returned to the people and so few of these same people can be seen to be trying to work it, the truth of the Suzman Foundation’s findings has become starkly apparent.
But more crucial truths are that the production methods, which were so successful in building the population’s size, are still needed. This is simply because the population is now far too big to be sustained by the pre-colonial methods of production. Population growth rates have increased all over the world in the past century and they have ushered in dramatic changes everywhere, not just in Zimbabwean. Most populations know they are in a new world, and they have moved up, moved on with their lives and moved with the times.
But Zanu PF clearly has no intention of moving with the times. In particular, it insisted on a return to the pre-colonial land rights arrangements. These were feudal in nature and depended upon land being allocated by politicians. Individual ownership rights were not permitted then and they are not wanted now.
Apart from the fact that taking land off the market will permit those with influence to get large pieces of it for nothing, the only reason that can be discovered for attacking this system is that property rights are seen to confer power onto property owners. Politicians see this as a threat because they see themselves to have won power in order to wield power, not to share power with people who have property rights. The answer, therefore, is to prevent the dilution of the leadership’s powers by declaring the land to be the property of the State.
This is why land that was taken from the destroyed companies has not been sold to new owners. It has been allocated to people who will never expect to gain total control over it, but who will remain acutely conscious of the need to remain supportive of the leadership to remain in occupation. In other words, patronage figures largely in the system.
In considering more directly the actual content of Dr Gono’s book, it is this un-stated, but very real issue of patronage that underlies the many unfair, unjust and inaccurate accusations made against any and every business sector or individual that is not fully supportive of government polices.
One example is Dr Gono’s treatment of the banks. He points out that in the late 1990s the banks were lending about 95% of their loans to farmers, but by 2003 this had fallen to around 10%, “spelling a very precarious fate for agriculture as the mainstay of the economy”[2].
He carefully avoids mentioning that the collateral value of the land has been destroyed, so the security of title deeds to back the needed loans no longer exists. He offers no thoughts on why he believes the banks should be happy to lend to people who will not only be unlikely to pay them back, but might also seek protection from the ruling party to sidestep their repayment obligations.
In the same section, Dr Gono makes reference to claims that Zimbabwe has been isolated, condemned and demonised by the Western world, and that this has led directly to the withdrawing of development funding and loans. This justified his perceived need to move away from the conventional macroeconomic management ideas as “no thinking central banker could simply stick to the niceties of conventional wisdom and expect a better or meaningful outcome for Zimbabwe”[3].
The idea that the suspension or absence of external assistance in some way absolves a central banker from the need to observe the rules of basic arithmetic has to set a new absurdity record.
Several themes recur throughout the book, apart from the claimed sanctions and their claimed “devastating” effects on the economy. Shortages that forced people to seek openings that involved gambling on price, exchange rate and market movements make up one of them, and yet another is “recurring droughts”, which are also blamed for the low agricultural production figures.
Given the statistical fact that rains in the past ten years have been better than average and that most storage dams have been full enough to deal with the crops in the few disappointing years, it might seem that the normal definition of the word drought has been replaced by any description of a sequence of wet and dry spells that did not meet various farmers’ hopes that the season would be perfect.
However, while seasons can very seldom be described as perfect, the claimed frequency of droughts does not fit the facts. The country as a whole has not suffered a severe drought in the past ten years and apart from a serious lack of rains in the southern half of Zimbabwe in 2002 and a few disappointing years, the seasons had every prospect of producing reasonable crops.
But as government officials tried to track the effectiveness of their policies on those who received subsidies or input handouts, they made a practice of tracking down the beneficiaries and asking for details of yields and deliveries to the markets. For many of the farmers, this presented a problem, mainly because they had cashed in the seed, fertiliser and fuel to meet needs that were far too pressing to be dealt with by planting crops that might or might not come up.
Because they could not admit to this unpatriotic conduct, many of them claimed that they had planted their crops, but were wiped out by drought. Thousands of separate reports claiming that droughts had affected the length and breadth of the country were enough to confirm to the authorities that all their sterling efforts had been rendered ineffective by drought. The authorities have eagerly accepted the claims because having to admit that the fault might lie with their policies was a far less acceptable alternative.
Dr Gono makes strenuous efforts to justify his claimed ability to “think outside the box” and to break free of conventional thinking, which he clearly believes to be too restrictive to be useful, specially in Zimbabwe’s extraordinary circumstances. In Chapter Three, he accurately describes the workings of a market economy, but his purpose is to draw together some of its essential strands only so that he can trash them.
He expounds upon the forces of supply and demand, but suggests these can be damaging and frequently need to be countered by government interventions and subsidies. The pricing of foreign exchange, he suggests, should certainly not be left to market forces when the central bank’s authority can set its correct price, while the need to balance liquidity requirements with the value of productive assets has to be done in a way that will ensure that prices are not influenced by the levels of liquidity.
He goes further to link these concepts to western thinking and the Protestant Work Ethic, which is all solid stuff, but it turns out that even this is designed to set the ideas up for dumping. The capitalist Protestant Work Ethic is condemned because of its linkage to European or Western thinking, and the condemning point is that it was the Europeans who did all the colonising in Africa.
His second point is that the principles of the Protestant Work Ethic are not working anyway. As proved by the recent banking crises in Britain, Europe and the USA, they have been abandoned, he says, in favour of the economics of “manipulative gambling akin to the workings of a casino”[4].
The extraordinary choices of examples, accusations, revelations and behaviour patterns that he then – in several chapters – expounds upon to substantiate his claim that Zimbabwe has been failed by the Western capitalist system is marked by one remarkable omission: the massive Zimbabwean distortions that have been deliberately generated and imposed by the authorities in general and the Reserve Bank in particular.
According to Dr Gono, he had no option but to intervene when foreign currency scarcities caused exchange rate movements to add to costs, but he does not admit that the never plentiful supplies of foreign currency were drastically reduced because government policies caused massive shrinkages in export earnings. The cause of the problem was the loss of exports; the foreign exchange scarcities were an effect. Another the effect was rising prices.
Bringing in controls and regulations to influence effects rather than causes simply caused distortions. When one of the treatments of the symptoms was to demand that government should have access to foreign exchange at preferential rates, it opened the door to increasingly corrupt arbitrage-related deals, but when senior politicians and public servants were granted an even more attractive privileged rate of exchange, the distortions increased and the opportunities for highly profitable manipulations multiplied vigorously.
Large-scale business transactions that were dependent upon the existence of different exchange rates led to schemes and scams that involved imports of food, fuel, luxury as well as utility vehicles and farm equipment. On the export side, the access to low-cost US dollars permitted influential people to acquire fabricated gold products at the same effective discount, and these were exported along with unknown quantities of foreign currency, but the Reserve Bank’s imposition of low prices for gold from the mines allowed it to claim some sort of balance.
All of these distortions could have been overcome by adopting a single market-related exchange rate. Dr Gono’s frequently repeated remarks disparaging the workings of markets seem to place the very idea of having the market set the rate beneath contempt, but at least part of his antipathy to the idea seems more likely to come from his unwillingness to accept that government should have to compete for foreign currency against all other market participants.
Of even most importance, however was and is the fact that the people best placed to manipulate and profit from controls, regulations, preferential exchange rates and a variety of privileges, such as duty-free imports, are those closest to him in positions of authority. In launching his frequent attacks on the business sector, Dr Gono appears all the time to be directing attention away from the far greater levels of exploitation and obscene profit-making taking place within the ranks of those who make the rules and claim the right to privileges.
Part of his problem seems to be that, while such conduct is described as corruption when carried out by the business sector, the same conduct, if admitted, would be described as the legitimate exercise of the privileges of office. As sweeping legislation that would stamp it out cannot be imposed because so many would claim exemption, and as the controls and regulations are needed to sustain the privileges for the important few, Dr Gono is left with the only option of heaping accusations and more controls onto private sector activities.
A glaring omission in Dr Gono’s book is any form of analysis on the possible effects of the controls. He could have made mention of the extent to which the wholly unjust price controls imposed at the end of June 2007 forced most local manufacturers to scale down their operations and many to close altogether.
He could have described the way that interest rate controls have completely destroyed any inclination to save money, and have dramatically changed the business habits of borrowers.
He could have mentioned the sequestering of corporate Foreign Currency Account balances by the Reserve Bank and then the official siphoning of these sums to meet official spending needs. To sustain their operations, the affected businesses had to bid in the unofficial market for the hard currency they needed. He could have mentioned that the rising demand forced up the price of foreign exchange, and then the prices of everything that was bought with that money.
He could have admitted that these companies were victims of the officially-approved appropriation of their foreign currency balances, but instead he hoped to persuade the public that these were the profiteering and greedy companies that were responsible for Zimbabwe’s world record-breaking inflation rate.
He could have acknowledged that a fundamental requirement of sustainable business is that goods should be sold at prices that exceed their costs of production, but instead his belief in state intervention had him defending his extremely low cost BACCOSSI, or Basic Commodities Supply-Side Intervention loans, which allowed producers to continue selling at prices below production costs by closing the recurrent revenue / expenditure gap with borrowed money.
He could have acknowledged that, as a banker, he would not normally approve such business practice, but has recommended it in Zimbabwe’s situation because the Reserve Bank was able to fund such loans with obscenely high Statutory Reserve Ratios. These were claiming, interest free, 50% or more of all typical bank deposits. The low cost loans to agriculture, the ASPEF or Agricultural Sector Productivity Enhancement Facility, and the PSF or Productive Sector Facility were funded with money effectively confiscated from banks in the same way.
He could have admitted that these loans, at deeply negative real rates of interest, were releasing the borrowers from the need to achieve high efficiency levels because they were getting the money virtually for nothing. He invited them to make the most of the inflation that was vigorously eroding the value of the repayment commitments before they had to be met.
He could have admitted that the whole scheme depended upon inflation continuing at a very rapid pace, and on depositors being bound, by a lack of options, to continue depositing money in the banks.
He could have admitted that the whole process has rapidly destroyed the entire country’s savings stock. He could have gone on to say that his policies have demolished the normal functions of savers and lenders, whose funds used to be tapped by investors who were engaged in creating new productive capacity.
He could have admitted that, at enormous cost to Zimbabwe, his policies have brought productive investment almost to a halt. Now almost all business activity involves importing, buying and selling, not making the goods here. Zimbabwe is now far less a nation of producers of goods, and much more a nation of traders.
He could have admitted that as so much of the activity has slipped into the informal sector, its contribution cannot now be measured, its conduct cannot be monitored or regulated and its profits cannot be taxed.
He could have admitted that in carrying out his statutory functions in terms of the RBZ Act, his efforts to regulate the Zimbabwe’s monetary system has rendered the system almost unworkable, that his efforts to achieve and maintain the stability of the Zimbabwe dollar have resulted in a failure of world record proportions, and that his moves to ensure the smooth operation of the payments system have left it operating anything but smoothly.
On top of these, his policy measures to foster the proper functioning of the financial system have sidelined the banks and seem likely to soon impoverish what is left of the insurance companies and pension funds.
Dr Gono does have serious grounds for complaining about unacceptable conduct and had good reason to condemn speculative trading on the Zimbabwe Stock Exchange, specially when it was intended to generate profits of quadrillions on the strength of cheques written against insufficient bank balances. However, his attacks on the stockbrokers, the banks and the Zimbabwe Stock Exchange seem at this stage to be wholly unfair. People who wrote cheques for sums they did not have were breaking the law, but the sweeping accusations against any who were acting on their instructions would be legitimate only if collusion could be established.
But Dr Gono should also accept that the behaviour would not have been even contemplated if the distortions caused by the massive imbalances between the supply and demand for foreign currency were not so serious, if interest rate returns made the money market as suitable an investment option as the equity market, if the options facing holders of rapidly depreciating Zimbabwe dollars extended beyond the Zimbabwe Stock Exchange and if the Zimbabwe dollar was not crashing in the first place.
The fact that all of these issues have generated antisocial or unpatriotic behaviour might be reprehensible, but it should not be surprising. People will always be inclined to protect what they have, and most of what Zimbabweans have left today has never been more in need of protection.
Perhaps we should not be surprised that Dr Gono has filled his book with explanations and accusations that are intended to exonerate the President, the government and the Reserve Bank, but it is this that is most reprehensible. Attacks on incorrectly identified causes will not solve the problems.
All of the primary causes and most of the secondary ones too have been deliberately overlooked or hidden because of their political objectives or origins, but we will not solve the problems until we correctly identify them and deal with them in more constructive ways.
Sanctions are not among these causes, and neither are droughts, regime change conspiracies or attempts to sabotage the economy. The reason for the foreign exchange scarcity is not because the lending and development institutions have backed off, it is because Zimbabwe almost completely scuttled its principal foreign exchange-earning sectors. Our sharply reduced ability to earn foreign exchange certainly made the possible lenders very reluctant, but they became much more so when a large proportion of the funds we wanted to borrow had to be spent on goods for consumption.
Also, the country’s officially supported behaviour did nothing to inspire their confidence. The collateral value of agricultural land was destroyed, removing completely the security that used to back the vast majority of bank loans. The process caused the dispossession of highly motivated and productive people, but the allocation of their physical assets to people with fewer skills and almost no motivation to work hard for assets they got for free had entirely predictable results: output dropped to levels not seen since the 1950s.
As this dispossession process was accompanied by wholly unacceptable attacks on commercial farmers and their employees, and as these were carried out by militia groups who could carry out violent and disgraceful acts with impunity because of their backing from the ruling party, reactions began to surface from the international community. When opposition party efforts to bring about entirely legal regime change through the ballot box were dealt with extremely harshly, the international community took exception to the contempt the Zimbabwean authorities had for their own people as well as for the international treaties signed by Zimbabwe to uphold human rights.
Political sanctions were imposed on identifiable culprits and their supporters, but until mid-2008, not a single one of the sanctions had any bearing on Zimbabwe’s economic performance. Since then, the disappearance of bank note paper is about the only economic sanction that has affected everybody.
If you were to remove from Dr Gono’s book the paragraphs that rest on his claims about illegal sanctions, illegal regime change conspiracies, economic sabotage and droughts, and if you were to also take out the self-congratulatory explanations of all the policy measures he devised to deal with unsubstantiated claims that the country was suffering the effects of ruthless attacks by economic terrorists, I regret to say there would be not much left to read.
However, he does offer an interesting account of the sequence of events over the past five years, and provides interesting detail on the banking crises that led to curatorships, mergers and takeovers. Also, the extent to which the Reserve Bank has actually become the principal executive authority in government becomes evident. As tax revenues fell and the separate ministries became dependent on the so-called quasi-fiscal expenditures for their funding, the Reserve bank was able to apply increasing amounts of leverage to direct or regulate almost every facet of public sector activity.
Far from sticking to core functions, the Reserve Bank has become the country’s major procurement agency for just about everything – cheap handcarts, expensive agricultural machinery, vehicles, food and medicines.
Dr Gono has accepted a second five-year term as Governor, but this term is starting with what seems inevitable – the total collapse of the Zimbabwe dollar. Nobody wants to be paid for anything in Zimbabwe dollars, and Dr Gono has even had to use his executive authority to force various parastatals to accept Zimbabwe dollars in payment for things like electricity, water and telephone charges. However, public servants including employees of the Reserve Bank also don’t want to be paid in Zimbabwe dollars, and Zimbabwe’s problem is that it is earning even less foreign currency now, following upon the fall in world metal prices and the suspension of operations on many Zimbabwean mines.
US dollars are in use all over the country, but their quantity is insufficient to support salary payments across the board. All the shops that have managed to acquire reasonable stock have done so by paying foreign exchange for imports and have no option but to seek payment entirely in hard currency. Before long, those without it will be unable to meet basic needs.
But US dollars are not accumulating within the country, and they are not circulating for long as the shops receiving them must send them abroad to pay for new stocks. The amount coming is has fallen because of the increased economic uncertainties overseas and in South Africa, so funding from the Diaspora might not make the needed difference.
The only thing that will is financial assistance from abroad. However, many changes will be needed before that becomes a possibility. Even Dr Gono’s frequently repeated claim that the developed world’s governments should now take him seriously because they are employing Reserve Bank of Zimbabwe’s strategies to rescue their undercapitalised banks will impress none of them.
While Europe and North America are fearful that they will see annual inflation rise from 3% to perhaps 8%, Zimbabwe’s estimated December figure of more than one sextillion percent suggests that no useful comparisons can be made.
However, the real difference is that none of these countries deliberately closed down their biggest industries, destroyed most of their sources of tax, wiped out their biggest sources of export revenues, rendered their largest employment sector jobless or absorbed and spent their country’s total domestic savings.
These are the actions that the Zimbabwe authorities did take. And despite the price being so high, Dr Gono, eagerly supported by the rest of the government, is still defending the policy choices that caused the damage.
So far, it is clear that we have done nothing to become deserving of the needed help. I regret to have to close this comment with the thought that Dr Gono has said nothing in this book that will improve our prospects of getting that help.
Despite the difficulties, please accept my very best wishes, first for your survival and, very soon, your increasing prosperity during 2009.
Kindest regards,
Zimbabwe’s Casino Economy Page 17

Zimbabwe’s Casino Economy, Page 19

Ibid, Page 18

Ibid. Page 61

Bank Clients Cry Foul

The Herald
Published by the government of Zimbabwe
30 December 2008
Bulawayo - MOST banks in Bulawayo have run out of smaller denominations, a development that has seen some account holders failing to withdraw money as they are being asked to bring change.Clients intending to withdraw ammounts below $10 billion were yesterday advised to bring change as most banks only had $5 billion and $10 billion notes.This has sparked an outcry from most account holders who feel the move is an inconvenience. Some were even told to form groups of 10 so that they would be given $5 billion which they would share out among themselves."We were told by the teller that they do not have smaller denominations so he advised us to get into a group of 10 and they would give us $5 billion and we would change the money elsewhere. However, up to now we have been struggling to get that change. If the bank does not have it, where else can we get it?" said Mr Nkosilathi Dube, a client.Other account holders left the banking halls empty-handed, as change was not available."This is ridiculous. I only want to withdraw $500 million and I'm told to bring change of $9,5 billion so that they can give me a $10 billion note, which I will also struggle to change," said another account holder.The introduction of higher denominations has seen smaller denominations disappearing, forcing businesses to register losses as they fail to get change. Some people have also been failing to purchase goods from shops as they are told that there was no change. -- Bulawayo Bureau.

Saturday, December 20, 2008

Shops defy NIPC

The Herald - 20 December 2008
BUSINESS yesterday responded to the release of the new high denomination notes with massive price hikes, ignoring calls by the National Incomes and Pricing Commission to keep prices at acceptable levels.The Reserve Bank of Zimbabwe released $1 billion, $5 billion and $10 billion notes in line with the increase in withdrawal limits from $500 million per week to $10 billion per month for those in gainful employment. The move by the central bank was meant to provide workers with enough money to buy goodies for the festive season.A snap survey by The Herald revealed that most retailers had effected massive increases to match the new withdrawal limit.Prices of bread and soft drinks in most shops jumped from between $250 million and $300 million to $800 million.Commuters were not spared from the unjustified price increases after operators hiked fares to between $400 million and $500 million per trip from between $50 million and $100 million. — Herald Reporter.In all Afro-foods outlets, a 12,5kg packet of maize meal that had been selling for $4 billion since Monday had a new price tag of $15,750 billion, while the cost of a 2kg packet of brown sugar, previously pegged at $950 million, had shot up to $2 billion yesterday.A 2kg packet of rice was selling for $6,65 billion, up from at $600 million.Prices of bread and soft drinks in most shops jumped from between $250 million and $300 million to $800 million.Although some shops in the city were still displaying old prices, customers were confronted with the new prices at the till.Commuters were not spared from the unjustified price increases after operators hiked fares to between $400 million and $500 million per trip from between $50 and $100 million.Scores of consumers were left stranded in town after they failed to withdraw their monies from banks since most of them were giving cash only to those whose salaries had been deposited into their accounts.Some teachers were stranded because their payslips had been sent to their schools.

Friday, December 12, 2008

HARARE, Zimbabwe (CNN) -- Zimbabwe's central bank is introducing a $500 million note -- the highest current denomination -- as the once-prosperous southern African nation battles against spiraling hyperinflation.

A £50 million note introduced earlier in December has failed to clear long lines for cash.
more photos »

Finance Minister Samuel Mumbengegwi made the announcement about the new note in a government gazette set for release Friday. On the back, the purple cotton bill will feature pictures of dairy cows being milked mechanically and a miner drilling underground, he said.
The Reserve Bank of Zimbabwe (RBZ) last week introduced a new set of denominations, including a $100 million note, but that has not helped to clear long lines for cash at banks. Some people sleep outside banks after failing to get cash.
The RBZ said a $200 million note would be in circulation Friday, together with the $500 million note.
The $500 million note is worth about 8 U.S. dollars and enough to buy just eight loaves of bread. Thursday, the greenback was trading around ZW$60 million and is expected to shoot up in light of the new note's introduction.
Prices change on an almost daily basis as businesses now peg their prices against the U.S. dollar.
Don't Miss
Malnutrition bites in desperate Zimbabwe
Cholera: 10 killer facts
Zimbabwe: More than 15,000 have cholera
WHO: 60,000 at risk of cholera in Zimbabwe
Impact Your World
See how you can make a difference
Zimbabwe has had higher denominations than the $500 million note in the past. But over the past two years, the country has slashed zeros from the amount of its worthless currency -- the latest being 10 zeros in August.
Once one of Africa's most promising economies, Zimbabwe is reeling under its worst humanitarian and economic crisis. A cholera outbreak has killed nearly 800 Zimbabweans, forcing hundreds to cross the border into South Africa and Botswana to seek treatment.
The situation has been exacerbated by the closure of government hospitals for more than a month as health personnel demand the government review their salaries and equip the hospitals with medicines and modern machinery.
In addition, 5 million people are in need of food aid, the United Nations says, in a nation that once exported food to its neighbors.
There has been a spate of protests -- including two by soldiers -- over the past four weeks as people voice their displeasure over President Robert Mugabe's policies.
Shortages of most essentials such as electricity, fuel, medical drugs and food have become a common feature in Zimbabwe. That has forced many people to flee the country.

Thursday, December 11, 2008

RBZ statement on cash availability at banks

Tuesday 09 December 2008
Public statement on cash availability at banks by Dr. G. Gono
Governor, Reserve Bank of Zimbabwe, 4 December, 2008
1. Introduction and background1.1 On the 3rd and 4th of December, 2008, the Reserve Bank of Zimbabwe held very cordial and fruitful meetings with the Zimbabwe Congress of Trade Unions (ZCTU), led by Mr. L. Matombo, the President of ZCTU and Mr. W. Chibhebhe, the Secretary General of ZCTU, along with other Senior Executives in the ZCTU.1.2 The nature of the ZCTU mandate and the issues they raised during the discussions were National in nature, representing the interests of the generality of all workers and users of cash in general.1.3 With the Reserve Bank having presented to the ZCTU the current limitations in terms of currency printing due to the adversity of sanctions currently being imposed against the country, it was agreed on the 3rd of December, 2008 that the ZCTU prepares scenarios and suggestions on possible remedial measures that would meet the interests of the workers.1.4 The ZCTU was to also consider their proposals in the context of factual current average salaries and wage levels, as well as the employment numbers.1.5 The Reserve Bank is pleased to report that the ZCTU worked swiftly to come up with proposals which enabled us to make informed discussions and decisions.2. The agreed framework2.1 Having carefully assessed the very genuine representations by the ZCTU in terms of the plight of the workers, the sick and all the other users of cash; and this within the context of full appreciation of theconstrained cash supply chain due to the sanctions against Zimbabwe, the Reserve Bank is pleased to unveil the following jointly agreed positions between the Reserve Bank and the ZCTU, who in their representationsclarified that they were representing not just their constituency, but all the other users of cash in general.The agreed positions(a) That with effect from Friday, the 12th of December, 2008, the cash withdrawal limit for individuals has been increased from $100 million per week to $500 million per week.Company withdrawal limits shall remain at $50 million, per week given that workers' needs have been catered for.(b) That with effect from Friday the 19th of December, 2008, each worker can withdraw up to $10 billion per month, against presentation of a pay-slip which shall be endorsed at the bank to prevent abuse of the facility through repeated withdrawals.(c) That with effect from the 12th of January, 2009, all workers will be able to fully encash their full salaries, without any limit upon presentation of a bona-fide, verifiable pay-slip, which shall be stamped at the bank to avoid repetitive round tripping.(d) That over the outlook period, the cash supply framework will be amicably discussed between the Reserve Bank and Stakeholders on an ongoing basis, so as to promote information symmetries and full appreciationof the realities on the ground on either side.Measures against abuse2.2 The Reserve Bank has noted with grave concern the tendency by some banks to allow their corporate and individual clients to violate the cash withdrawal frameworks, assisted by bank management and bank employeesthemselves.2.3 Accordingly, therefore, as was fore-warned, any bank found violating Central Bank regulations will meet with severe and swift remedial measures.Indiscipline at CFX Bank2.4 As part of its enhanced surveillance programme, the Reserve Bank of Zimbabwe now has capacity to trail cash movements from the Reserve Bank right up to each bank's branch networks through an elaborate CurrencySerial Number Monitoring System.2.5 On the afternoon of Wednesday, the 3rd of December, 2008, banking institutions were issued with a total of $80 trillion to prepare their systems for the increased cash withdrawal limits beginning the morning of the 4th of December 2008, through issuance of new notes.2.6 Among those who got cash was CFX Bank, which got a total of $900 billion on the 3rd of December, 2008 for issuance to their depositors the next day, the 4th of December, 2008.2.7 At exactly 9:30 p.m. on the 3rd of December, 2008, the Reserve Bank's tracking system picked up that the serialized notes issued to CFX Bank had mysteriously found their way into the market, notwithstanding the following facts:(a) It was illegal to have new notes issued into the market prior to the date of the launch.(b) There was no way the money issued to CFX Bank could have gone into the market through any other channel other than the bank's own systems since the delivery of cash to CFX was done to meet the needs for thenext day. No individual client nor company could have legally made a withdrawal of the new notes during the banking hours of 3 December, 2008.The facts(a) CFX Bank got new notes in the following series:$10 million notes: Serials; AA0207001 to AA0217000Amount: $100 billion$50 million notes: Serials;AA7363001 to AA7377000Amount: $700 billion$100 million notes: Serials; AA0079001 to AA0080000Amount: $100 billionGlobal issue: $900 billion (signed off by CFX on collection under voucher number 01408 at 1220 hours, 3 December, 2008.(b) At 9:30 p.m. on the 3rd of December, 2008, serialized new notes off the CFX withdrawal from the Central Bank was already in the market.The following notes are examples of what was retrieved from the market at 10:30 p.m. on the 3rd of December, 2008 under the Reserve Bank's enhanced surveillance system:$50 million notes:Serial; AA7371182;Serial; AA7371195;Serial; AA7371198;Serial; AA7371199; andSerial; AA7371200.(c) The protected informant who worked with the Reserve Bank throughout the night, has reported that a total of $260 billion was off-loaded by CFX in the night of 3 December, 2008, buying foreign exchange. It is left to fellow Zimbabweans to judge what sort of damage to the economy and the welfare of the people such behaviour is causing.(d) The Reserve Bank is in possession of the actual notes that were issued into the parallel market, exactly pinning down CFX Bank as the culprit, they have absolutely no excuse or way out.2.8 Accordingly, therefore, the following measures have been adopted:3. Dissolution of the CFX Bank Board of Directors and removal of top management3.1 With effect from 5 December, 2008, the entire Board of Directors of CFX Bank has been dissolved, and none of them can serve again on a bank Board.3.2 The following persons are, therefore no longer fit and proper to work in a bank or to sit on any banking institution's Board for the next 5 years beginning 5 December, 2008.The dissolved CFX Bank Limited Board of DirectorsMr. P. Chitando - ChairmanMr. J.S. Brown - DirectorMr. E. Shadaya - DirectorMr. J.N. Dhliwayo - DirectorMr. M. Chingwena - DirectorMr. B.C. Hofman - DirectorMr. I. Chagonda - DirectorMr. P. Alichindamba - DirectorMr. A. Kandlela - DirectorUnfit and improper management3.3 The following persons in CFX Bank have been duly declared unfit and improper to work in any banking institution in Zimbabwe for the next 5 years beginning 5 December, 2008:Mr. O. Mukumba - Managing DirectorMrs. P.T. Ndoro - Company SecretaryMrs. B. Kadira - Head of RetailMrs. W. Chidziwo - Head Treasury and Int. BankingMrs. P. Mureya - Head of Finance & AdministrationMrs. C. Dangarembga - Head, Risk ManagementMrs. C. Saungweme - Head of Audit3.4 The shareholders of CFX Bank are called upon to swiftly re-organise their institution's management and corporate governance systems to avoid further improper conduct.3.5 It should be noted also that the requisite due diligence procedures and clearance vetting are to be followed for all the needful appointments.3.6 The Reserve Bank no longer has appetite for curatorships.Another warning to all banks3.7 The entire banking sector is once again forewarned to stop any fraudulent activities.3.8 Where banks literally off-load bulk cash meant for depositors onto the parallel market, as what CFX Bank was caught doing, the blame is conveniently put on the Reserve Bank.3.9 Others have been alleging that there is "Gono's money bag" doing the rounds with cash yet it is unscrupulous banking institutions, who instead of being the trusted custodians of the public's funds, abuse theirstatus and become the agents of economic destruction.3.10 The banking laws of the country do not allow this.The holiday season3.11 The Central Bank has cancelled all annual leave for its Management and Staff and will leave no stone unturned to put a stop to any acts of indiscipline in the banking sector.3.12 Each bank must fully account for all cash withdrawn from the Reserve Bank right up to the actual branch, by serial numbers as directed on 22 December, 2007 when each bank CEO was given a specific letter of instruction preparing for the on-going currency tracking system on all new notes issued.Prices of goods and services3.13 The Reserve Bank also appeals to sellers of goods and services to please have a heart and protect the interest of consumers.3.14 We have noted sadly that almost every time new currency denominations are introduced or when workers' earnings are introduced, prices are increased unjustifiably.3.15 As a Central Bank, we condemn such practices in the strongest of terms.3.16 We call upon all Producer Associations to introspect and self-police their membership in the interest of protecting the welfare of workers, the sick and other vulnerable groups in our economy.Thank you.Dr. G. Gono, Governor, Reserve Bank of Zimbabwe4 December, 2008 - ZimOnline

Tuesday, December 9, 2008
HARARE, December 8, 2008 -
Reserve Bank of Zimbabwe (RBZ) governor Gideon Gono, will on Monday launch a book chronicling his experiences as governor of the Reserve Bank of Zimbawe as the nation battles a debilitating the economic crisis.RBZ Governor Gideon GonoGono, who was last week given a new five year term at the helm of the RBZ, is scheduled to launch the book at the Rainbow Towers on December 8.The book is entitled "Zimbabwe's Casino Economy" and is being promoted by the Zimbabwe Publishing House (ZPH).Invitations have been sent to media houses and journalists.The opposition Movement for Democratic Change (MDC) has protested against the re-appointment ofGono as the RBZ governor, blaming him for the current economic meltdown, especially the excessive printing of money.Gono presides over the world highest inflation ravaged economy, officially estimated at 231 million percent.

Dollar crashes as government buys support from armed forces
By Alex Bell
08 December 2008Days after Zimbabwe's soldiers caused havoc in Harare last week over not being able to access their money from the city's banks, the government on Friday forked out millions of dollars to pacify its armed forces - partly causing a spectacular crash of the local currency over the weekend.A large group of disgruntled soldiers went on a rampage in the capital a week ago, attacking foreign currency dealers, traders, breaking windows and looting shops. The attack, which saw the uniformed group clash with military police officers, led to the arrest of at least 16 soldiers.But by the end of the week, the government moved in to pacify the growing unrest among its once dependable and loyal group of uniformed thugs, and paid out cash sums to both soldiers and police officials - with police members each receiving Z$100 million and soldiers receiving half of that.The government's reckless spending to keep its security forces in check and keep itself in their favour came at the same time that cash withdrawal limits were increased from Z$500 000 a day to Z$100 million per week, on Thursday. At the same time, new bank notes were once again introduced into the market on Friday as part of the Reserve Bank's absurd method of dealing with runaway hyperinflation.The combined weight on the local economy this weekend saw the dollar crash to record lows, with the currency reportedly halving in value every five to ten minutes on Friday. The spectacular crash sent the prices of basic foodstuff rocketing upwards - to the point that the new weekly withdrawal limit will only buy three loaves of bread at the new value of Z$35 million per loaf.Independent economic analyst, John Robertson explained on Monday that the local dollar's rapid fall was the direct result of last week's 'improved access to cash'. He described that by Friday, the day after the withdrawal limits increased, the dollar was trading at Z$10 million to US$1. Robertson added that while the prices of goods in foreign currency are unlikely to shift much given the stability of the US dollar, he said the skyrocketing prices of goods in local currency was expected - if you can find a shop that will sell to you in local money.

Thursday, December 4, 2008

Pictures Of Zimbabwe’s Inflation Crisis

By Luke Burgess on December 4, 2008
Hyperinflation has Zimbabwe in the throes of a financial crisis that makes the one we’re dealing with look like a walk in the park.
The monthly inflation rate in Zimbabwe is currently running at 13.2 billion per cent, and could reach an all-time world record within weeks.
The latest figures put Zimbabwe’s annual inflation rate at 516 quintillion per cent. That’s 516 followed by 18 zeros.
Consumer prices on everything from gasoline to glue are doubling on average every 1.3 days.
Zimbabwe’s inflation crisis is now the second worst inflation spike in history, behind the hyperinflationary crisis of Hungary in 1946, in which prices doubled every 15.6 hours.
In September 2007, the exchange rate between the U.S. dollar and the Zimbabwe dollar was USD1 to ZWD253. The current exchange rate between the U.S. dollar and the Zimbabwe dollar is USD1 to ZWD60,623. This is a 23,861% increase since then.

Tuesday, December 2, 2008

Exchange rates

From John Robertson
With regret, but not much surprise, I am finding that the exchange rate numbers are becoming less convincing and more erratic. Disruptions caused by Dr Gono's misplaced attacks on the banks and the stock exchange might take time to settle, but other events are overtaking even the basics of finding money. Water supplies have dried up everywhere in Harare and factories are forced to send staff home. Some hotels, many schools and most of the city centre high rise buildings have become unsafe places to work and demonstrations are said to be in an advanced stage of planning. Cash allowances from the banks are being stepped up appreciably and will hopefully permit the currency to regain at least a little functional value, but inflation seems certain to make that a temporary benefit at best.

Zimbabwe: When Even the Central Bank Can't Keep Up

The Reserve Bank of Zimbabwe reports:
Between the 10th and the 20th of November, 2008, total fraudulent cheques we intercepted in the clearing system had risen to $60 hexillion ($60,000,000,000,000,000,000,000).
Someone really ought to tell Zimbabwe's central bankers that there's no such thing as a hexillion. They might as well say that they've intercepted sixty gajillion dollars' worth of checks.
The word they're looking for is sextillion, as they'd know if they only read this blog. On the other hand, the number of times that someone has helpfully written out a number first in words and then in bracketed numerals has now increased to one (1) from the prior zero (0).

Monday, December 1, 2008

Report from Jonh Robertson

With regret, but not much surprise, I am finding that the exchange rate numbers are becoming less convincing and more erratic. Disruptions caused by Dr Gono's misplaced attacks on the banks and the stock exchange might take time to settle, but other events are overtaking even the basics of finding money. Water supplies have dried up everywhere in Harare and factories are forced to send staff home. Some hotels, many schools and most of the city centre high rise buildings have become unsafe places to work and demonstrations are said to be in an advanced stage of planning. Cash allowances from the banks are being stepped up appreciably and will hopefully permit the currency to regain at least a little functional value, but inflation seems certain to make that a temporary benefit at best.

However, I hope that the attached exchange rate table will help you to keep track of the recent changes. The visible parallel market is barely functioning, but the heightened uncertainties appear to have prompted increased caution among dealers who are still handling requests. However, all the signs suggest a greatly reduced level of demand as the Christmas shut-down approaches. For many, the water situation has already brought the date forward and many of the businesses will be looking for firm assurances from all the different utility suppliers before they make plans to re-open.

Kindest regards,

Reserve Bank November 20 2008 Press Statement:

Comments and Observations - by John Robertson

The Reserve Bank Governor’s continued reluctance to admit that market distortions are likely to cause other market distortions appears to be behind his latest intemperate attack on the business sector. To him, the only acceptable explanations for anything are those that ensure that all the blame is placed somewhere other than on the Reserve Bank or the government.
The Governor’s latest efforts start with condemnations of media campaigns that have tried to vilify the Reserve Bank, and of smear campaigns that have argued that he is personally to blame for Zimbabwe’s current hardships. However, his entire defence is to argue that the “facts clearly demonstrate how the Zimbabwe Stock Exchange had become the epicentre of economic destruction”. If the Governor’s more colourful words are removed, the facts presented are:

Ø The ZSE allowed some stockbrokers to bid up share prices, although they had no money to pay for them;
Ø The profits made on selling the shares show up as high demand for cash that is beyond the Reserve Bank’s ability to meet;
Ø The Stock Exchange was deliberately indexing the entire stock market to movements in Old Mutual share prices;
Ø Share prices have frequently risen steeply even though none were traded.
Ø Old Mutual share price movements have shown no relationship with the company’s performance or conditions in the economy.
Dr Gono presents these facts as accusations of professional misconduct, but most of them are no more than descriptions of normal market activity. The circumstances in the market itself are far from normal, but the Governor’s only comments on that subject are intended to deflect the blame for all distortions onto others.
Stockbrokers are usually acting on behalf of their clients, but whether their buying or selling orders are for their clients or for themselves, the buyers want what they have paid for and the sellers want to be paid. Buyers and sellers work through the stock exchange, which is simply a market through which deals are arranged and completed under rules designed to ensure that transactions are carried out efficiently. What buyers, sellers and stockbrokers might get up to is not the market’s responsibility.
This makes the claim that this market has become the “epicentre of economic destruction” absurd. Trying to buy something that can be sold later at a profit is entirely normal conduct. If this profit becomes large because of the scarcities of goods in the market and/or the scarcities of the foreign currency needed to import them, the resulting price increases are not the fault of the market, or the buyers or the sellers.
But buyers do have to work within the law: writing a cheque for an amount in excess of the balance in a buyer’s bank account is illegal. In terms of the law, such a buyer becomes answerable to the seller, possibly through the courts.
Sometimes the buyers’ or sellers’ conduct is chosen to reduce risks or to prevent outright losses and yes, it is sometimes designed to extract the best possible profits. If good profit prospects are then exaggerated by the Reserve Bank choosing to add enormously to the Zimbabwe dollars that can be spent, the fault does not lie with those who make the profit.
The fault lies entirely on the shoulders of those who created the scarcities, anomalies and distortions in the first place. These powerful forces so directly determine the conduct of buyers and sellers that any policy choices that do not effectively deal with them will be no solution at all.
Scarcities account for most of the problems. For goods that used to be in reasonably good supply, the reasons for each and every scarcity can be traced back to some government policy decision. The loss of Zimbabwe’s large-scale farming companies caused reduced supplies of food as well as most non-food agricultural commodities, and their lower production caused lower deliveries to the manufacturers and retailers, lower foreign earnings, lower employment, lower investment levels and lower tax revenues for government.
Falling export revenues did not only mean that Zimbabwe could afford fewer imports. The country also could not afford to settle outstanding debt. Potential lenders were quick to decide Zimbabwe could not be trusted to settle new debts, and when the Zimbabwe government decided to cancel certain property rights and to break the collateral link between farmers and banks within Zimbabwe, the moves reinforced the external financiers’ decisions to keep their distance.
Several other linkages can be identified. When policy decisions caused confidence to fall, the Zimbabwe dollar fell too, prompting government to fix the exchange rate. At the fixed exchange rate, mining and manufacturing exports became less profitable, so a whole new rash of falls affected employment, investment and tax revenues.
And when government’s rising borrowings to make up for declining tax inflows became too expensive because of the rising rates of interest, government set interest rates so low that savings were effectively confiscated. As savings disappeared, investment fell even further, forcing the emigration of those looking for work and of many who had jobs, but saw little future.
Just about every identifiable problem today can be shown to have their origins in dubious policy choices. This remains true whether the challenge is to account for electricity and water cuts, or the loss of nurses, teachers, doctors, engineers and accountants, or the loss of access to lines of credit from international banks or the loss of stand-by facilities from international development agencies.
Price controls, justified by false claims against traders and enforced by political violence, must be added to the picture, along with other forms of intimidation that were intended to generate compliance and obedience.
By carefully redefining the word “sanctions” to include every risk-avoiding decision taken by every individual, government or agency that has chosen not to endorse economically damaging or unjust policies, Dr Gono has tried to shift the blame onto anyone who dares to disrespect the sovereign status of the country and the sovereign rights of its leaders.
Until a few days ago, that line seemed still to be working. SADC parroted the cries for the removal of sanctions, the Pan-African Parliament passed a resolution to the same effect, the impartial mediator in the power-sharing negotiations, Thabo Mbeki, followed the same line and the African Union was also persuaded that the lifting of sanctions would result in Zimbabwe’s economic turn-around.
But this week, the scene has changed. At home, the Zimbabwe currency has become almost worthless, banks have been marginalised, production in every sector has fallen to unsustainable levels, useful wages cannot be paid and services are collapsing. Disease outbreaks are threatening thousands and Zimbabwe is at last being seen as a threat to regional stability.
Regional leaders are losing patience and support for Robert Mugabe is being far less readily offered. The major change has followed upon his displays of arrogance and contempt for important people who have been trying to help. The major effect so far has been a far greater concentration of criticism than ever before.
As news of government’s plans to strip the remaining resources out of the pension funds becomes more widely known, as the need for alternatives to Zimbabwe dollars turns into a threat to the welfare of millions of Zimbabweans, as the efforts made to stifle activity on the stock exchange gather momentum and as food supplies dwindle, the sheer impossibility of the situation continuing will begin to develop its own dynamic.
At this stage, the re-appointment of Dr Gono as Reserve Bank Governor for a second five-year term does not seem likely to make a difference. In his latest statement he re-confirms his conviction that sanctions are the cause of every one of the problems, so none of the measures needed to rebuild Zimbabwe’s capacity to produce, earn, export, attract investment or generate tax revenues are yet being addressed.
Political, rather than economic policy changes are needed to make a breakthrough. Hopefully the pressures will soon reach the levels needed to bring about the necessary changes.

John Robertson
November 26 2008