Let’s identify and slay inflation monster
“IT is the single most insidious threat facing Zimbabwe today.” That description of
inflation in last week’s edition of this newspaper may invite other challengers, most notably from the head of state whose damaging policies have spawned it.
But inflation — this week topping 364,5% — is steadily eroding the fabric of society in a way other threats find harder to do. It is eating into incomes, gnawing away at savings, inhibiting domestic investment, promoting speculation on the property market, and making it impossible for many companies to do business.
“Inflation has become an inter-active process — self-perpetuating and generating a perilous momentum of its own,” Finance minister Herbert Murerwa said last year in his budget speech.
He should know. Government’s appetite for funds, its penchant for borrowing and spending, and now its printing of money are the chief causes of the disease. And, as Murerwa pointed out, when economic agents expect the problem to persist, implicit indexation and discretionary pricing become inevitable. This in turn pours fuel on the fire. The current programme of money-printing will result in the injection of $24 billion into the economy at precisely the moment government should be curbing money supply.
Budget deficits are both a symptom and a cause of the current crisis. As government departments exhaust their allocations, the minister will need to return to parliament for fresh funds. Borrowing to cover expanding deficits will in turn add momentum to a process already out of control.
The official rate may be 364,5%. But the real rate is nearer 400% and heading north. It is likely to hit 500% by year-end — probably a good deal sooner. We will soon be at South American levels in the 1970s and 80s.
Brazil and Argentina tamed the beast, as Germany did in the 1920s, by treating it as the nation’s number one enemy and introducing fiscal measures that addressed the problem at source.
Zimbabwe’s authorities have no intention of doing anything so drastic. It is doubtful if, apart from Murerwa’s musings, they even recognise the problem. Every single economic plan introduced to establish order in fiscal relations over the past 13 years has been sabotaged by an incontinent leadership for whom planning of any sort is anathema.
Esap, which many like to pretend failed because it made unreasonable demands on society, was in reality derailed by spending patterns that continued to favour bloated parastatals and the military. Subsequent plans went the same way. The decision by President Mugabe in 1997 to squander over $4 billion on propitiating insurrectionary war veterans was just one disastrous decision in a long line. The intervention in the Congo was another.
We are today reaping the consequences of populist decision-making and a cabinet answerable to an economically illiterate politburo. The chief victims are the populace — in fact anybody except the political plutocrats or those with access to forex. Those with a little savings or on fixed incomes have been ruined. People who spent their whole lives being careful with money have seen the quality of their lives deteriorate dramatically. For those on low incomes and the unemployed, survival is the only concern.
That is the sovereignty ministers garrulously speak of. Zimbabwe is today a classic example of a society pauperised by what President Bush last week correctly described as rank bad governance. It is a striking example of how a government claiming to promote the welfare of the disadvantaged has devastated their prospects by engaging in poisonous demagoguery accompanied by ignorant economic policies.
Mugabe is singularly responsible for the fate Zimbabwe now faces. He was advised by a series of able Finance ministers including the current incumbent to adhere to policies that were friendly to investment and job generation. Instead he chose to regard any recovery plan as an attempt to thwart his exercise of power, even attacking decisions made by his own cabinet as if he was not party to them.
We now have a species of inflation called stagflation because it is accompanied by declining economic activity. Nobody wants to invest in a lawless state where the leadership is actually blocking recovery. Instead of expanding, companies are cutting back operations in a hostile business environment.
Business organisations have been supine in the face of this devastation. One could almost be forgiven for thinking their elected spokesmen had been bought off. What are needed are robust spokespersons for the business community who are prepared to point out flawed policies instead of doing the soft-shoe shuffle at State House or on the useless National Economic Consultative Forum.
With the fastest shrinking GDP on the continent, the country is literally dying. Business leaders must stop pretending quiet diplomacy is the answer. In the middle of a fuel crisis the government is threatening to confiscate jerrycans when no such law entitles them to; it wants to withdraw “operating licences” from what it sees as MDC-aligned companies when no such licence exists; and it is fuelling inflation by continuing to borrow to cover its yawning deficit, at the same time crowding out private-sector borrowers.
What has Emcoz, the CZI or ZNCC said on these issues? Interest rates may be rising again. But the populist decision to hold them down in 2001 and to maintain them well below inflation has battered savings and done much to foster a criminal economy.
While we understandably focus on political problems, it is necessary to identify the inflation monster and insist on policies that address the consequent crisis rather than accepting it as a way of life.