Tuesday, December 9, 2008

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.

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