WHEN Gideon Gono assumed office as the third Reserve Bank of Zimbabwe governor in December 2003, he acknowledged the country was facing a crisis “without
precedent in (Zimbabwe’s) short history”.
Nothing appears to have improved since then.
The crisis, as has become common idiom in government and business circles, was described by Gono as a “challenge”, a term meant to apply gloss over government’s failure to administer one of sub-Saharan Africa’s once most prosperous economies.
But the real challenge Gono faces is not one of an “unprecedented economic crisis”, but an overabundance of his own economic prescriptions to deal with the economic catastrophe.
Time is running out.
Gono completes three years of his five-year term in December, and will have only two years remaining before his term of office expires in 2008.
In his maiden monetary policy statement, financial pundits viewed him as making the distinction of having well-defined fiscal policy positions. Gono said his 12-month vision was “to see the implementation of policies that seriously arrest and reverse our inflation from the expected initial peak of 700% in early 2004 to below the 170-200% levels”.
Those that had hoped to judge him using figures should have been impressed.
Although the 170-200% levels were not achieved within the year, the country experienced a 500% decline in inflation from an all-time high of 623% in January 2004 to 124% in March 2005.
Even the most unsentimental cynics believed Zimbabwe was out of the inflation abyss.
But for a man perceived to dread failure, Gono should be as worried as his critics who are beginning to feel vindicated for disbelieving that he could heal the country’s economy.
He has made the catchphrase “failure is not an option” almost a war cry at the central bank’s impressive home along Samora Machel Avenue.
Since 2005, inflation has soared unabated, touching an all-time high of 1 204,6% year-on-year for August 2006.
The vision appears lost, and the monetary policy is gradually sliding off the rails.
According to the vision, Gono’s two-year plan was to consolidate gains from the previous year that he indicated would “express themselves through reduced inflation levels, from three digits to a two-digit figure”.
The first two years were to be an integral anchor to later economic revival measures, but, the vision faded during the first two years.
“It is the bank’s five-year long-run monetary policy vision to attain a ‘healthy economy’ in which inflation and currency stability become entrenched in all our national planning efforts and actions,” Gono declared.
Today, inflation remains the highest in the world despite intermittent decreases now and then.
The International Monetary Fund (IMF) has forecast inflation to average 1 216% this year, and 4 278,8% next year, suggesting that it could breach the 5 000% mark next year.
During the current year, the IMF predicts that real GDP will contract by 5,1%, and by a further 4,7% next year.
The local currency has been kept artificially stable on the official market, where exchange rate policies have been arbitrarily changed almost with every monetary policy review.
On the thriving parallel market, the currency is becoming increasingly defenceless, and critics argue that the parallel market, which Gono has tried in vain to destroy, reflects the true value of the domestic currency against international currencies in present hyperinflationary conditions.
For example, the Zimbabwe dollar, which opened the year at $100 to the US dollar, is currently trading at $1 400 against the greenback on the parallel market.
Dealers said buyers of huge volumes were spending as high as $1 600 on the greenback on a secondary parallel market involving institutions.
The five-year vision is seriously under threat, with currency and inflation stabilisation looking so far like failed skirmishes.
Analysts said the unorthodox approach to monetary policy since Gono’s tenure as governor was proving costly to the economy, and creating conflict between him and fiscal policy agents.
They said policies were being crafted, abandoned, redesigned, and discarded with haste to the extent that the economy had become an “experimental guinea pig” to the central bank governor.
A growing legion of critics is beginning to view Gono’s monetary policy measures, which won backing during his first year in office, with increasing scepticism.
A bank treasurer, writing in this newspaper last week under a pseudonym, described Gono’s policy review measures as “destructive”.
“While the governor has declared war against speculators in both the foreign exchange and stock markets, the man is guilty of sparking off speculation of the greatest magnitude,” the bank treasurer said.
For bankers, Gono has become the most feared governor ever to preside over the monetary policies. While his predecessors have been hogtied from devaluing, he has been given the leeway to do so without restraint.
Soon after becoming governor, he closed down at least 15 financial institutions, blaming them for being major culprits in speculative activities that had driven the parallel foreign currency market and fuelled inflation.
A raft of policies have been crafted, amended, and redesigned during Gono’s tenure at the central bank, all designed to deal with the financial sector.
The big five banks this year complained that they could twist in the wind as a result of monetary policy measures, particularly a high interest rate regime that had conspired with high statutory reserve ratios to wipe away accumulated capital.
Gono gave in to bankers’ request for a softening of that policy, but last week he pounced once again on the unsuspecting banks, imposing financial sector stabilisation bonds to be taken by financial institutions according to the sizes of their balance sheets.
The bonds are likely to take away huge sums of money from the banks, forcing them to borrow from the central bank, whose accommodation rates Gono also raised just over two months since bringing them down in July.
This will have the effect of creating huge costs for the financial institutions, threatening their survival.
Individuals, too, are becoming worried by a number of monetary policy measures, particularly those that have robbed them of convenience in the conduct of economic activities.
Examples are the prescribed withdrawal limits of $100 000 for individuals, as well as a recent requirement that all transactions on the Zimbabwe Stock Exchange above $50 000 should be done through the Zimbabwe Electronic Transfer and Settlement System.
Gono said monetary authorities would soon insist that every transaction above $50 000 should have a taxpayer’s number.
It was unclear how individuals intending to invest on the stock market would get the tax numbers, but critics argue that Gono wants to exclude as many people as possible from investing on the local bourse.
The ZSE has so far been the only investment vehicle offering positive returns in the economy.
Gono said the stock market had “become a cause for extreme concern to monetary authorities as the ZSE has become a platform for creating vast amounts of paper wealth without real productive activities on the ground”.
While the governor may deplore speculative behaviour, the most telling indictment to date of Gono’s record is that despite his immense power and ambition, inflation is nearly double what it was when he came into office. And no serious effort has been made to curtail state expenditure which remains the root cause.