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Gono’s moonshine policies a disaster

ON Monday bank executives came back from central bank governor Gideon Gono’s briefing to tell their workers at money transfer agencies (MTA) that they no longer had jobs.


Th

e executives, who were not given prior warning, were this week trying to reorganise their businesses to absorb the staff rendered jobless by Gono’s announcement. The employers now have to grapple with labour issues as workers require packages and benefits before joining the ranks of the unemployed.


This is Gono’s answer to our economic problems today. To him the situation is so drastic that it warrants closing down companies at press briefings. The element of surprise has become a hallmark of his reign as central bank governor and government’s chief agent of economic reform.


Gono’s approach increasingly smacks of failed military strategy. He has positioned himself as a general prosecuting a war on many fronts. His army is however constantly under siege and to break out of the cordon surrounding it, he believes it is best to strike the opponents when they least expect it. However, now as before, he has missed his target.


He did it with banks when he came in as a governor in 2003, putting them under curatorship and closing a number of financial institutions. Banks, moneylenders and asset management firms were identified as agents of economic discord then. His guns at one time were turned on exporters and miners whom he accused of being conduits of foreign currency leakages.


He then tried employing the sweet but disastrous surprise of dousing parastatals, farmers and big business with cheap money hoping that this would translate into national prosperity. It failed and simply compounded inflationary pressures.


Project Sunrise two months ago was perhaps his signature battle when he rolled out the big guns. He shocked most in government by introducing new notes and drastic measures to collect the old ones.


This was supposed to end speculative behaviour, kill the foreign exchange parallel market and catch money launderers off guard. He has said Sunrise II beckons. But it is increasingly looking like Operation Moonshine.


In all this feverish activity he has missed his sworn enemy, inflation, which was at 619,5% in November 2003. He has excuses galore for his continued failure. It is everyone else’s fault and not his ad hoc policies.


His latest measures have betrayed an increasing desperation to save face for failing to find a solution that he promised was on the horizon when he took over as central bank governor. The parliamentary Portfolio Committee on Finance has been asking some uncomfortable questions — like why there has been such little progress on the inflation front. The latest set of measures is unlikely to do the trick.


The abolition of MTAs will drive the foreign currency parallel market further underground, but that will only happen if industry, which has become more reliant on funds from the MTAs for foreign currency, doesn’t first halt production because of lack of foreign currency for critical imports. We fear shortages more significant than we have witnessed hitherto could emerge as a result of this measure.


Gono has also forced banks to take up compulsory five-year bonds. This will squeeze liquidity out of the financial sector, creating a severe liquidity crunch and pushing rates upwards as a result. If the financial institutions are forced to borrow at extremely high accommodation rates — because a significant portion of their funds is locked up in bonds — some of them could collapse. This will further erode public confidence in the banking system.


Also banks are being forced to take up a five-year paper — basically a statutory reserve in disguise — in a fluid environment. Isn’t it ironic that the RBZ sees nothing wrong with making policies on the hoof — especially on interest rates policy front — but would like banks to commit themselves to long-term paper? Five years is a life time under current conditions.


All in all, however, Gono’s new policy pronouncements on banks threaten the survival of the institutions instead of protecting them. The new measure to review banking licences annually means depositors will not be sure which banks will still be open come next year. Any loss of confidence in the sector will result in depositors removing their funds from banks and storing them in more secure instruments such as property and in foreign currency procured on the black market.


At the end of the day the new measures still fall short of what is required to boost exports and earn foreign currency to pay for fuel, power, drugs and industrial inputs. The answer to our problems does not lie in furtive manoeuvres around banks and industry but on policies built out of consensus.


Gono’s one-man crusade has become a major threat to this economy. And the irony is that, despite all the pain and sacrifice in finance and industry, the inflation rate is nearly double what it was when the governor first came in!