Yes on inflation, no Xmas from CFX
GIDEON Gono completed his first year in office as Reserve Bank governor last week. He would probably call it a successful year if he narrows his performance index to inflation, which has significantl
y reduced to 149% from a record 622% in January this year.
Credit must be given to him for improving foreign currency inflows into the official market from about US$300 million recorded last year to US$1,3 billion achieved over the past nine months. In a country where signs of achievement are scarce on the ground, Gono could also claim credit for the increased flow of gold into the official market. He has also brought some degree of sanity to other sub-sectors of the financial services sector like asset management companies and discount houses.
There is also a semblance of order in the money market. He will claim that he put the brakes on the rollercoaster economy of 2002 and 2003.
All this is mostly true. But predictably, political opportunists have hijacked Gono’s achievements as if they were their own or those of the government which, let us remind ourselves, got us into this fine old mess in the first place. As it is, many of Gono’s policies — such as re-engagement with international lending institutions — fly in the face of President Mugabe’s “go-to-hell” policies.
Gono would not claim to be infallible. His monetary mortality came to light last Friday when an institution he should have been watching more closely found itself in deep trouble. He gave depositors at CFX Bank an unforgettable Christmas present by placing the bank under curatorship.
The Zimbabwe Independent broke the story of the misfeasance at the bank in our last edition and the bank was put under curatorship in the evening of the same day.
CFX were our principal bankers and we were exposed immensely together with dozens of other companies which cannot meet statutory obligations, pay creditors or meet salary commitments. Then there are the thousands of ordinary workers — mainly teachers, clerks and other junior professionals — whose salaries are locked up in the closed bank.
Some would say we should have ignored the story and reaped the dividends of silence. We should have closed our eyes to the fraud at the bank and thereby “saved” ourselves and many others.
Obviously we do not subscribe to this argument. The rot was already there and getting worse. As a leading business paper we had the responsibility of disclosure once we had the story confirmed. There was a huge hole in the accounts of Century Bank which merged with CFX to form CFX Bank. The expert eyes of the central bank did not see it and they are therefore culpable, whatever their excuse.
The central bank solemnised the marriage between CFX and Century Bank. It was satisfied that the union would work after certifying the two parties as healthy. Gono at the time had the powers to stop the nuptials. He did not do so because he believed everything was in order.
But all was not well as revealed by CFX’s own investigation and the subsequent audit by PriceWaterhouse Coopers.
The central bank has some explaining to do to depositors who cannot buy toys for their children or food for their table because the bank has closed shop. Our belief is inspired by Gono’s own philosophy that “failure is not an option”. It follows that a scholar guided by this standpoint must be meticulous in giving very little room for slippages. The Reserve Bank was evidently not as scrupulous when it okayed the merger between the two banks.
The central bank’s culpability is exacerbated by declaratory statements by Gono in September that no bank would close.
Intermaket Bank, Barbican, Royal, Trust and Time Bank have all closed down despite his assurances. Even when it was clear that most of the banks would cave in, Gono still poured in more than $400 billion of taxpayers’ money in a futile effort to save them. They collapsed and with them more than $2 trillion from treasury.
With CFX Bank’s closure, vast layers of trust the public had invested in the banking sector will have evaporated. Gono’s credibility as the head of the monetary authority entrusted with the supervisory role of banks has also suffered a major knock.
His reasoning that mergers would save struggling financial institutions has been proven wrong. The public will in future not trust any institution born out of a marriage of convenience presided over by Gono. But he is nevertheless going ahead with his ZABG project, an amalgam of failed institutions. We do not put much trust in the efficacy of that operation either.
While Gono must be congratulated for taming the inflation monster and improving foreign currency inflows into the country, his feverish work rate will in the final analysis be gauged by his handling of the banking sector. Banking executives have fled from his blitz because they fear an absence of justice and he has facilitated the arrest of at least half-a-dozen others who, in trading on the parallel market, did no more than the Reserve Bank encouraged them to do two years ago. Meanwhile, banks have closed under his stewardship and thousands of workers will have a dour Christmas.
He is still far from getting a firm grip on the sector, Zimbabwe’s indigenisation flagship. He was brought in to restore order and inspire confidence. After the events of last Friday, we are still waiting for him to do so.