Vindictive action against banks ill-advised
NEWS yesterday that
government was now moving in on the country’s largest financial institution, Barclays Bank of Zimbabwe, accusing it of dealing in foreign currency, will provide another shock to the already battered economy.
From the look of things every bank and business which has been involved in the country’s economic life over the past few years could be dragged before the courts soon.
Kingdom Financial Holdings and Interfin are also due to appear in court accused of trading on the parallel market. This comes despite an amnesty offered to banks by the Reserve Bank in January.
Others already named for allegedly breaching the Exchange Control Act include NMB Holdings whose directors Julius Makoni, James Mushore, Otto Chekeche and Francis Zimuto skipped the country before they could be interviewed.
Last week, however, prominent lawyer and former Minister of Justice Advocate Chris Andersen raised some interesting points when he told a court, while defending Telecel Zimbabwe, that it should take into account the circumstances which led the company into dealing on the parallel market.
He pointed out that the current situation in Zimbabwe had been caused by the state which until recently had cast a blind eye to the parallel market and also benefited heavily through revenue which was being paid by Telecel monthly.
“The state benefited by the sum of $24 billion and after this is now asking for a mandatory sentence to be imposed. How can this be justified?” Andersen asked.
He submitted that Telecel’s dealings on the parallel market were entered into because of necessity.
Zesa, Air Zimbabwe, Noczim, and even the Reserve Bank had been obtaining hard currency on the parallel market, Andersen pointed out. People would have lost their jobs and there would have been all sorts of problems in the business sector if companies had not obtained foreign currency from the parallel market.
Andersen asked the court how it could be moral to impose a mandatory sentence on Telecel while Zesa, Noczim and other companies in both the private and public sectors were not being prosecuted?
Zesa has denied any involvement in such transactions.
It is common cause that for the past three years Zimbabwe has faced an acute foreign currency shortage. The country’s balance-of-payments position has remained precarious largely as a result of poor export performance coupled with the absence of external capital inflows.
Exports of goods and services are estimated to have fallen by 3,9% from US$1, 6 million in 2002 to US$1,5 million in 2003.
The capital account deficit is estimated to have declined from US$345 million in 2002 to US$309 million in 2003.
Against the background of the weak balance-of-payments position, gross official foreign currency reserves for 2003 are estimated at US$175 million, which represent approximately one month of imports, while usable reserves were much lower at just under US$40 million.
Zimbabwe now has a very poor credit rating so companies are finding it extremely difficult to source foreign currency for imports. Many have resorted to keeping their earnings in offshore accounts so that whenever they need spares they simply utilise these funds.
The RBZ’s new monetary policy statement in December however introduced significant changes in the foreign currency market.
It also ushered in the new offence now known as “externalisation”.
The Exchange Control Act lays down as a mandatory penalty a fine equivalent to the currency involved unless the court finds special circumstances.
During the period of drought the Grain Marketing Board (GMB) was allowed to import grain from neighbouring South Africa using parallel market rates.
During the fuel crisis the cash-strapped Noczim also benefited from parallel market rates as fuel was secured using those rates. The country would have ground to a halt had it not done so.
Reserve Bank of Zimbabwe (RBZ) governor Gideon Gono must be aware of the parallel market deals at Noczim because he was at the centre of fuel negotiations. Andersen cited the RBZ itself as having been a major player on the parallel market.
NRZ, Air Zimbabwe and Zupco are no strangers to the parallel market either.
While we don’t doubt that many deals on the parallel market enriched individuals making them, it would be instructive to calculate how the country would have survived in its daily needs without these deals.
As Andersen remarked of Telecel: “Even though they dealt on the parallel market they did not willfully do so. They did it because of the situation that was prevailing.”
He made the point that there would have been company closures and that people would have lost their jobs. That is happening now that companies cannot access external funds without the axe of state retribution hanging over them. We can expect to see new shortages and the black market those shortages will spawn.
Meanwhile, so long as there is a failure to acknowledge government’s role in encouraging state companies to survive as best they could, on whatever market they could find, in the first three years of this decade and allowing the private sector to do the same, the current purge will appear unfair and even vindictive.
That is not calculated to restore confidence in the country’s financial sector.