Tuesday, May 5, 2009

From John Robertson

The death of the unmourned Zimbabwe dollar has not quite removed the need to know exchange rates and the widely differing amounts that the equivalent of a US dollar, converted into Zimbabwe dollars, could pay for at different points in the past year. I have attached a table that traces the month-end history of the Zimbabwe dollar costs of a list of basic household needs and these are shown against the official and parallel market exchange rates of the time. You will see below those an attempt to work out the implied US dollar costs of a loaf of bread, but this part of the exercise was mainly to illustrate the extent of the absurdities. You will also see a spreadsheet with the parallel and official rates, but in this the detail becomes more complete after the August 2009 devaluation and zero-ectomy. The whole thing peters out as the Zim dollar faded away
Business Conditions in Zimbabwe, May 2009

Many Zimbabweans have enjoyed a significant change for the better in their personal circumstances in recent months, if only because the shops are better stocked and, now that they are priced in US dollars, the stocks are being offered at reasonably constant, if not falling prices. These constitute major improvements on the very poor supplies at very rapidly rising prices that all consumers experienced for some years before these dramatic changes.
While most people will readily accept that conditions are easier, the new circumstances fall a long way short of qualifying as government achievements. On the contrary, they all amount to government being forced to step aside because of its failures. Zimbabwe had no option but to adopt currency notes that belong to other countries when government could no longer patch up and prop up the wreckage of Zimbabwe’s own currency.
When they themselves didn’t want to receive Zimbabwe dollars, the government officials had to concede that they couldn’t force others to accept them. Even then, the wreckage of the system was left in place and slowed the pace of change for three more months before the Zimbabwe dollar was officially declared to be defunct.
With the Zimbabwe dollar’s demise, many of the Reserve Bank’s functions became redundant and it lost the ability to wield many of its former powers. The IMF, in its brief Press statement on its recent visit to Zimbabwe, generously observed that it “welcomed” government’s “commitment” to eliminate quasi-fiscal activities, but these activities were brought to a stop automatically because the Reserve Bank of Zimbabwe in not authorized to print US dollars.
Similarly, the IMF acknowledges that “positive steps…have already been implemented” in reference to the removal of price controls, foreign exchange surrender requirements and most exchange controls. In fact, these were not voluntary steps. The greatly resented impositions to which the IMF referred inevitably fell away with the collapse of the whole monetary structure.
Unfortunately, this collapse took down with it most of the private sector’s financial services infrastructure as well. The liquid assets of savings institutions and pension funds had already disappeared by the time the crunch came, but when it did, it wiped out what was left of personal and corporate deposits and forced the whole banking system into a liquidity crisis.
Regrettably, that is the starting point for the needed observations on business conditions. Serious shortages of foreign exchange remain firmly in place, despite the fact that all retail transactions and payments for utilities, rents, transport and all other services are being made in hard currency.
So far, efforts to borrow usefully large sums have yielded disappointing results, but large sums are urgently needed for many reasons. Zimbabwe’s ability to earn a reasonable foreign income from commodity exports, manufactured goods exports and tourism has been badly affected by the damage done to capacity in those sectors and to investor confidence. But all of these have become casualties of the severely degraded electricity, water, education, health, transport and communications services infrastructure. We now need funds to fix all of them, all at once.
This brings in the equally serious damage done by all recent events to Zimbabwe’s credit rating. Most of what government has chosen to describe as sanctions is simply the absolutely inevitable difficulty the country has in trying to borrow money, when we have failed to meet loan repayment obligations. Zimbabwe owes more than US$2,3 billion and the repayments are all in arrears. To get around that problem, Zimbabwe has to become immensely more deserving of help than the country is now.
Some local banks with international connections have been able to obtain conditional assurances that lines of credit will be offered, but the conditions usually include the production of evidence that government intends to change the policies that did the damage.
So far, the Zanu PF-administered ministries have shown determination only to prevent change and the meetings between the party leaders have mostly broken down, despite the need for urgent decisions. The few concessions made have been offered grudgingly and without much recognition of their urgency.
In most of the Zanu PF statements, the emphasis has been on the claimed need to preserve policies such as Land Reform and to prevent the Government of National Unity from making any changes to security issues or to the legislation passed to permit increasing state control over the business sector.
The party’s position on these illustrates its continuing conviction that Zimbabwe’s precipitous economic decline was not caused by these policy choices and therefore the needed economic recovery can proceed without making any policy changes.
The party insists that its members actually believe these claims, despite the facts that the policies closed down Zimbabwe’s biggest industrial sector, deprived the country of more than half its export earnings and destroyed most of the jobs held by the country’s largest labour force.
More undisputed facts can be shown to link the loss of the commercial farms to the loss of inputs for the majority of manufacturers and the loss of tax revenues to the state, so the belief that the broad membership of Zanu PF remains convinced that the policies had merit deserves to be challenged.
The more believable claim is based on another fact, which is that the party’s hierarchy profited hugely from the transfers of wealth made possible by the process. Today these still influential people more concerned about losing what they have personally gained than they are about putting Zimbabwe onto a recovery path.
Whether or not this view has been consciously recognised by donor countries, aid agencies or development institutions, a frequently repeated sentiment has been that flows of money from such sources will not materialise while people in positions of authority still include individuals considered to be responsible for Zimbabwe’s economic collapse.
To qualify for the needed assistance, the Government of National Unity is therefore being challenged to achieve more penetrating changes that will include office-bearers as well as policies.

1 comment:

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