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Eric Bloch Column

War strategies against inflation

By Eric Bloch

FOR many years, almost ad nauseum , government has pledged to wage a vigorous war against inflation. In practice however, it has only resorted to a very few — and extremely minor &#82

12; skirmishes against inflation, and intermittently sought to quell the exceptionally virile black market, even launching the justly internationally-condemned Operation Murambatsvina, but to virtually no avail.

Whatsoever few endeavours were made to curb the pronounced black marketeering proved that the only effective way of ending black market operations is to ensure that there is a sufficiency of required commodities (be they foodstuffs, petroleum products, foreign currencies or otherwise).

Naught else will close down black markets. Any other strategies merely drive the black market deeper underground, with commensurate price increases.

The only other substantive measure applied by government has been recurrent, totally counterproductive, impositions of price controls.

Contrary to the stated objective of curbing inflation, the results of price controls have been diametrically opposite. Price controls rendered production and marketing of many products non-viable, with consequential immense shortages, opening doors wide for black marketeers to trade at extortionate prices in such limited quantities of the scarce products as could be sourced.

In contrast to government’s endless, baseless and unfulfilled promises to end inflation, the only real drive against ever-soaring prices was that of the Reserve Bank of Zimbabwe (RBZ), which resorted to stringent exchange and interest rate management, thereby bringing inflation down from its all-time high of 623,8% (year-on-year) in January, 2004 to 123,5% in April.

But this was achieved at great cost to exporters, whose operational viability was destroyed by the disparity in exchange rate movement against rising operational costs. Ultimately, it became impossible to hold down the exchange rates without causing an almost total collapse of the export sector, whereafter inflation surged upwards once more.

In practice, inflation can only be brought under control if there is collaboration between government, the RBZ, the private sector and labour.

But, first and foremost, government must genuinely wish to wage war on inflation to such an extent that it is prepared to subjugate most other political aspirations to that key objective. It needs to formulate substantive strategies instead of spurious ones, and to implement them with determination, irrespective of any negative repercussions upon its self-interests and those of the individuals that constitute government, or its influential supporters.

The first measure should be a genuine and very marked reduction in government spending. As admirable as are the intents of the Minister of Finance, Dr Herbert Murerwa, to bring about a reduction in the size of the presently over-blown public service, and to fund new ministries from unexpected votes of existing ministries, that does not suffice.

Government needs to reduce the number of ministries which exceed those of most developed and enriched countries. Those are posts which Zimbabwe cannot afford!

In like manner, a government which genuinely wishes to be responsible, which wishes to place the populace ahead of itself, which is determined to cut expenditures instead of increase them, would place the establishment of a Senate on the back-burner until Zimbabwe can afford it.

Further meaningful cuts could be achieved by effecting a marked reduction of the defence forces.

Why does a country at peace with its neighbours require many thousands of soldiers, squadrons of jet fighters, military bases proliferating the country, and a vast wealth of ordnance. Similarly, Zimbabwe does not need the plethora of diplomatic missions that it has around the world at unaffordable expense. Certainly, very few of its embassies are achieving any enhancement of Zimbabwe’s abysmal image internationally.

The next key action required in the war against inflation is a genuine assault upon corruption.

It is all very well that Zimbabwe now has a Ministry of Anti-Corruption and a very recently established Anti-Corruption Commission but, with very rare exception, Zimbabwe has turned a blind-eye to almost all corruption for more than 25 years.

A rare and very commendable exception has been the recent prosecutions of more than 40 Zimra officials. Those prosecutions are particularly notable because of the rarity of real endeavours to do anything to diminish the intense corruption that characterises both the public and private sectors of Zimbabwe.

Costs of corruption have to be recovered, and therefore are very major contributants to inflation.

The third, vitally necessary stratagem to bring inflation under control must be to increase productivity nationwide — in the country’s parastatals, throughout commerce and industry, agriculture and in every other economic sector.

The greater the volumes of production without prejudice to quality, the lesser the unit costs and the consequential lowering of inflation.

Attaining greater productivity requires collaboration between government and the producers. Within parastatals, government must cease talking about privatisation and joint ventures with private sector strategic partners, and must turn its talk into realities.

It must capitalise parastatals adequately so that their ongoing costs do not continue to be swollen by unsustainable debt service. Unnecessary personnel must be weeded out whilst other personnel must be incentivised with market-related, productivity-based remuneration.

Programmes of land acquisition, resettlement and redistribution must be restructured to ensure a real, lasting agricultural recovery.

Industry, mining and all others must be facilitated and incentivised to achieve maximum productivity.

Hand-in-hand with the productivity, competition in commerce and industry must be encouraged, for competition motivates efficiency enhancement and profit-reduction (per unit sold), with resultant favourable impacts upon inflation.

The greater the competition, the more each is motivated to curb costs in order to retain and gain patronage without prejudice to profits.

A key element to bring inflation control is to achieve exchange rate stability, as was recognised by RBZ. But that stability must be achieved without prejudice to exporters, and the only way to bring about stable exchange rates (other than by regulation and its concomitant negative consequences), is to ensure that there is a sufficiency of foreign exchange to meet demand.

In the long-term that is best attained by substantial export growth and Foreign Direct Investment (FDI), concurrently with realistic endeavours at import-substitution.

In the medium-term, international balance of payments support is essential, but will only be forthcoming when Zimbabwe has reconciled with the international community. That requires massive transformation, including genuine espousal of democracy and compliance with its tenets, real re-establishment and maintenance of law and order, unqualified respect for human rights, irrefutably free-and-fair elections, establishment of an investment conducive environment together with forthright actions of conciliation.

Clearly there are many other necessary strategies for a successful war on inflation, but unless the war campaign includes draconian cuts in state expenditure, unequivocal resolve to contain corruption, determined pursuit of productivity and competition, and constructive measures to achieve exchange rate stability, the war will continue to be lost.

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