Mon, Aug 21, 2006 page9

• Zimbabwe's ruin: How not to run an economy

  • By Andrew Meldrum / THE GUARDIAN
  • • 
    • 
    • 

  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."

  The currency switch-over highlights the severity of Zimbabwe's continuing economic collapse. In eight years, the country's GDP has declined by more than 40 percent, an unprecedented contraction by a country not at war, according to the World Bank. Other economic indicators are equally dire. Unemployment is estimated at 70 percent to 80 percent. Agricultural production has dropped by 60 percent and factories are operating at less than 20 percent of capacity, according to economists.

  The result of the economic collapse is that Zimbabwe's population, once one of Africa's most prosperous, is impoverished and hungry. Ten years ago about 30 percent of Zimbabwe's population lived below the international poverty line. Now more than 70 percent do. Mugabe maintains that the economic decline has been caused by sabotage and sanctions by Western countries opposed to his seizures of white-owned farms.

  Ordinary Zimbabweans and economists alike blame Mugabe's chaotic economic policies, which deny open access to foreign currency, support bloated state corporations with huge deficits and force banks and pension funds to invest in government bonds at negative rates.

  Zimbabwe's budget, according to a new supplement presented to parliament by Finance Minister Herbert Murerwa on July 27, is running a deficit at 24 percent of GDP. The government is paying for its profligacy by printing money. It became too expensive to print standard currency two years ago so the government began producing cheaper "bearer cheques," which are printed on only one side and have an unsettling resemblance to Monopoly money.

  The urban rich and the cross-border traders are busy finding ways to avoid being caught out by the remuneration. Many fear it is the rural poor who will be left holding the bag of unusable Zim dollars on the deadline today.

  "The poor and the poorly educated will be hurt most," said John Makumbe, a Zimbabwean political science lecturer. "They are being treated like economic saboteurs. Their money is being seized if they travel with more than Z$100 million, yet they often have school fees to pay of Z$300 million. These are supposed to be Mugabe's strongest supporters, yet they will bitterly remember the day that the government confiscated their cash."

  "There are growing fears that there will be riots over the currency change. Mugabe's fiercest opposition is the economy. He can rig elections, he can control the press, but he cannot rig the economy. The economy refuses to obey his orders," Makumbe said.
• Most Popular

  • 1

    Inter edge Atalanta to stay top

  • 2

    Flight disruption was deliberate ploy, experts say

  • 3

    Missile mass production to commence in Q2: official

  • 4

    Taiwan prepares to ring in 2026: Watch here

  • 5

    Crowds brave rain for fireworks in Taipei, Auckland