Mon, Aug 21, 2006 - Page 9 News List

Zimbabwe's ruin: How not to run an economy

By Andrew Meldrum  /  THE GUARDIAN , PRETORIA

On the streets of Harare and across Zimbabwe, people of all races and all walks of life are lugging large satchels, backpacks and suitcases stuffed full of money. Many are using the cash in wild sprees to buy goods ranging from cars and stoves to cows. Far from a sign that the country's battered economy is picking up, the mad spending is a frantic attempt to turn cash into assets. Poorer Zimbabweans are carrying their money to banks to exchange it for new bills.

This is Zimbabwe's big currency change-over, a chaotic and confusing exercise that will see current bills replaced by new notes with three zeroes removed. For instance, a Z$20,000 (US$0.32) note will be replaced by a new Z$20 bill. The value remains the same.

"From zero to hero" is how the exercise has been trumpeted by Gideon Gono, governor of Zimbabwe's central bank. According to economists, it is nothing more than a cosmetic change.

Knocking off the zeroes will turn a Z$100,000 note into a Z$100 bill, but it will not reduce the country's hyperinflation, which is raging at more than 1,000 percent a year, according to Harare economist John Robertson.

"That will only be achieved by fundamental changes in economic policy such as controlling the budget deficit," he said.

From today, old notes will no longer be legal tender, so Zimbabweans are rushing to spend their cash or deposit it in a bank.

But in typically iron-fisted fashion, President Robert Mugabe's regime is treating people carrying cash as criminals. Police at roadblocks, border posts and airports are searching the bags to see that no one is carrying more than Z$100 million.

Huge stashes of cash are being seized, particularly from rural peasants bringing their money to the cities to deposit in banks. More than 3,200 Zimbabweans have been arrested at roadblocks and Z$700 billion has been confiscated, according to the state media. Hundreds of businesses are also under investigation.

In a macabre twist, mourners transporting their dead to funerals are forced to open the coffins to prove that they are not smuggling illegal sums of cash along with the remains of their loved ones.

At Harare airport last week police seized several large containers that were filled with more than Z$1 trillion. The money was being smuggled back into the country by three large financial institutions, according to the state-owned Herald, to be exchanged for new currency.

Rampant inflation has rendered the once proud Zimbabwe dollar nearly worthless. Supermarket shoppers must push a trolley-full of currency to buy a trolley-full of basic groceries. Calculators, cash registers and checkbooks fail to cope with the number of noughts needed as prices for daily goods run into millions, houses and cars cost billions and company budgets are in the trillions. Taking off three zeroes will make the Zimbabwean currency easier to deal with until inflation adds the zeroes back on.

At the official rate of exchange Z$250,000 is worth US$1. But realistically the Zim dollar is worth much less because no dollars are available at the official rate. On the illegal but thriving parallel market it takes Z$600,000 to buy US$1.

"Our Zim dollar is useless," said Iddah Mandaza, a Harare factory worker. "It costs Z$600,000 to take a bus to work. We pay millions to buy a bit to eat. This striking off the zeroes is not going to change anything. We all know that. It will be easier to carry money around but it is not going to stop inflation and it is not going to make shortages of food and fuel disappear."

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