Tuesday, January 27, 2009

Zimbabwean economy's dollarisation a quick fix to crisis: analysts

HARARE (AFP) — Zimbabwe has become a de facto dollar state as its tottering economy battles chronic hyper-inflation that has eroded the local currency, but analysts say that the dollarisation is merely a quick fix.
Most monetary transactions in Zimbabwe are now conducted in US dollars, British pounds, South African rand and Botswana pulas since businesses were licenced by the central bank to trade in foreign currency some four months ago.
A passport now costs 670 US dollars (516 euros), state-run newspapers are sold for a dollar, telephone calls are billed at 0.29 cents a minute, and transport operators charge one dollar per trip.
But Professor Anthony Hawkins, an economics lecturer at the University of Zimbabwe, said that although the dollarisation was a logical move, it will not end the country's woes.
"This is an exercise which does not solve anything, now everyone has to be paid in foreign currency. Not everyone has foreign currency. The only solution to the country's crisis is a political one," he told AFP.
In a bid to discourage payments in local currency, the national carrier Air Zimbabwe charges 19 quintillion Zimbabwean dollars for a return flight from Harare to Bulawayo. The same trip costs 215 dollars.
The country's world record hyperinflationary environment has led the central bank to slash 13 zeros from the local unit over the past three years in a bid to make the currency more manageable.
Earlier this month, the bank indicated it would introduce a 100 trillion dollar note, in its latest attempt to keep pace with conditions that has left its once-vibrant economy in tatters.
Zimbabwe Congress of Trade Unions acting secretary general Gideon Shoko told AFP that since most goods and services are now being charged in foreign currency, workers must also be paid in hard currency.
"Everyone is charging in foreign currency, even vegetables vendors are selling their goods in foreign currency," Shoko said.
However, most employees were not going to work as they could not afford the transport fees, he said, raising questions of where ordinary Zimbabweans still being paid in local money were to source hard currency.
Banks are now competing for clients to open foreign currency accounts, but despite the proliferation of the US dollar, consumers are short-changed at stores as shops do not have small coins in stock.
Independent Harare based economist, Charles Tichaona said the dollarisation of the economy was only good for the short term.
"The local unit has lost attributes of being a currency as evidenced by the fact that almost every corner of the country is now trading foreign currency," he said.
The economy has shrunk by nearly 40 percent over the past six years, with the last official inflation estimate of 231 million percent in July believed to be many times higher.
Adding to the Zimbabwe's problems are consecutive years of drought.
Zimbabwe's economic crisis has also worsened under a protracted political deadlock between President Robert Mugabe and rival Morgan Tsvangirai.

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