RELATIONS between Zimbabwe and the Washington-based International Monetary Fund (IMF) have taken a further plunge with the release last week of a damning
six-page report on the country’s deteriorating economic and political climate.
On June 6 the IMF suspended Zimbabwe’s voting and related rights after having determined that the country had not sufficiently strengthened its cooperation with the Fund in areas of policy implementation and payments.
As a result of that decision Zimbabwe can no longer appoint a governor or alternate governor to the IMF, participate in the election of an executive director for its board, or cast its vote in decisions on IMF policy or country matters.
On Tuesday last week the IMF issued a Public Information Notice (PIN) to make known its views to the world about Zimbabwe.
According to PIN regulations, the action is intended to “strengthen IMF surveillance over the economic policies of member countries by increasing transparency of the IMF’s assessment of these policies”.
The six-page report was a longer version of that given out on June 6 expressing the IMF’s dissatisfaction about relations with Zimbabwe.
The report was released as the country’s banking system faced its worst crisis ever with an acute shortage of banknotes and collapse of public confidence.
The IMF said the Reserve Bank of Zimbabwe (RBZ) should ensure that banks met all prudential regulations and were adequately capitalised and fully provisioned for non-performing loans.
They noted that strengthened banking supervision and determination in dealing with problem institutions would also be prerequisites for the successful introduction of the planned Deposit Protection Scheme.
Directors urged the authorities to introduce legislation to combat money laundering and the financing of terrorism in accord with international standards.
The IMF expressed concern about the expansionary stance of fiscal policy, including large quasi-fiscal operations, which had weakened the fiscal position and contributed to exchange market distortions.
They said dealing with inflation would require expenditure restraint, in particular on low-priority items, while protecting key social services.
President Robert Mugabe and his government officials have however said they are no longer bothered about IMF advice, mainly because the organisation had messed up Zimbabwe’s economy in the first place, they argue.
Mugabe and his officials claim Zimbabwe is better off without the Washington-based institution including its sister organisation, the World Bank, because their policies have become bitter pills to swallow for citizens.
The president has openly told his government to dump the Bretton Woods Institutions.
In its report the IMF said Zimbabwe’s economic crisis reflected to a large extent “inappropriate economic policies: loose fiscal and monetary policies, the maintenance of a fixed exchange rate in an environment of rising inflation, and administrative controls”.
“Increased regulations and government intervention have driven economic activity underground, and contributed to the chronic shortages of goods and foreign exchange,” the IMF said. “The impact of these policies have been exacerbated by the fast-track land reform programme, recurring droughts, and the HIV/Aids pandemic.
Meanwhile, investor confidence has been eroded by concerns over political developments, weak governance and corruption, problems related to the implementation of the government’s land reform programme, the push for an increased indigenisation of the business sector, and the selective enforcement of regulations.”
Insiders this week said Mugabe and his government officials were extremely unhappy about the release of such a damning report internationally, especially coming when they are engaged in behind-the-scenes talks with the opposition Movement for Democratic Change (MDC) to try and solve the current crisis.
They said government was of the opinion that the West was happy if Zimbabwe’s political and economic problems persisted resulting in citizens considering overthrowing the 21-year old regime.
The said another issue was that IMF was riled by the fact that government had grabbed vast hectares of fertile land from thousands of commercial farmers who were now seeking employment and sometimes citizenship in the West.
“Decisive steps to restore confidence in the government’s economic policies, including enhanced governance and transparency and respect for the rule of law, and broad ownership of the reform process, will be key to revamping productive investment, attracting needed foreign direct investment, and regaining the support of foreign creditors and donors,” the IMF said.
“Directors considered the government’s recent steps to adjust exchange and interest rates and fuel and electricity tariffs, and ease price controls to be steps in the right direction. They stressed, however, that the magnitude and pervasiveness of economic distortions call for a significant further enhancement of the scope and speed of stabilisation efforts.”
The IMF directors said these efforts should be implemented within a consistent overall macro-economic framework and complemented by the sustained implementation of key structural reforms.