By Tendai Biti
THE constitutional amendments passed last week are not just the abrogation of the basic human rights of Zimbabwean citizens. They also put the seal on this regime’s disregard for private prope
rty and lack of belief in the rule of law.
The economic implications are dire: it is not just foreign investors, but local entrepreneurs who look to such basic elements being in place before they are willing to invest. Without investment, there will be no jobs, no income, no growth.
Presumably this government thinks it can do without foreign investors and that local people will invest anyway because they are captives in this collapsed economy?
This is deluded thinking, symptomatic of the view that the country can go it alone, spurning the challenges and opportunities presented by participating in the modern global economy. This is the path Zimbabwe under the present government is already treading – of swift descent into a subsistence economy, except perhaps for a few enclaves producing primary products for export.
Yet, true to Zanu PF’s propensity for policy inconsistency, this is also the week when the government has paid US$120 million of the arrears owed to the International Monetary Fund.
We are told the payments are from the country’s own funds and that this in a desperate bid to remain a member of the IMF – in other words to continue as a player in the global economy.
We in the MDC are concerned that the confusion (at national, regional and international levels) these inconsistencies provoke will only serve to worsen the country’s situation.
In respect of the current negotiations with the IMF, what people do not seem to appreciate is that paying off a chunk of the arrears is the “easy” part. What is more difficult for this regime is meeting the requirement to present a comprehensive economic policy package which the IMF board will find coherent and credible.
If the country is to return to the IMF fold, the successful execution of an agreed programme with the IMF over a period of at least nine months would be necessary. Only then would the release of fresh funds be considered and only then would it be necessary to clear the arrears.
Why then pay a large portion of the arrears now?
If US$120 million of foreign currency was available from the country’s own resources, why was it not used to buy food, fuel, medicines and the crucial inputs required to keep the economy going, in particular to allow production of items which can be exported?
The frightening reality is that this government is happy to see people starve. When it comes to spending extremely scarce foreign exchange, arms purchases and IMF arrears are considered far more important.
The forex situation was already so bad that mineral concessions earlier this year were given to firms in Dubai in return for a few weeks of fuel imports. Now we are told that operating gold mines are being pledged for unpayable foreign currency loans from South African private banks. Yet the government still has the temerity to continue harping on about Zimbabwe’s “sovereignty”.
The state media claim that Zimbabwe’s economic policies are in fine shape. Nothing could be further from the truth. It is not just that the figures are so far off-scale, the problem with the current policies is that trademark inconsistency we’ve already been talking about.
Just before the IMF team arrived in Zimbabwe for a last look at the country’s policies before the September 9 IMF board meeting, the RBZ sharply increased interest rates and allowed the “auction” exchange rate to depreciate to a level to allow non-primary product exporters to be competitive.
The direction of these policy changes is towards the orthodox approach, but the changes made are as usual too little, too late. Their main impact at this stage will be to add to inflation through greatly increasing the local currency cost of imports and raising the financing costs of locally-produced goods and services.
If a competitive exchange rate had been set and maintained when the “auction” was started in January 2004, exporters at that time would have been able to respond.
Stocks of imported items were at a high level, giving a breathing space to get foreign exchange generation working again. With the auction rate at a competitive level, the parallel market would have disappeared altogether.
That opportunity was squandered, and the situation 20 months later is that there are so many shortages (fuel, electricity, raw materials, skilled labour) that there will not be an effective response to the competitive official exchange rate.
The biggest inconsistency in current polices, though, is on the fiscal side. The orthodox approach to reducing hyperinflation requires not just tight monetary policies but a complementary fiscal policy of extreme restraint.
The Minister of Finance seems to think that a budget deficit of 8,7% falls in this category, but from the viewpoint of a consistent anti-inflation programme, a budget deficit of 8,7% of GDP is a disaster.
Furthermore, there are many reasons to think that the actual budget deficit will be very much higher than this. For example, food imports are going to cost more than budgeted, but perhaps the low budget shows the intent to let the country starve. The interest charges are also grossly underestimated: with 30 and 91-day Treasury Bills at 200% and 265% respectively there is significant feedback from the tightening of the monetary policy to the budget.
In addition, there are huge subsidies being paid outside the budget, which also have inflationary consequences. Properly accounted for, the subsidies going through the GMB, for example, amount to more than a trillion dollars a month. Zesa, Tel*One, the NRZ and other parastatals are all running colossal deficits.
Without taking dramatic action to cut government expenditures (eg scrapping all the new ministries, amalgamating others, selling military hardware, closing Zimbabwean embassies abroad etc), and to restore some degree of cost-recovery for basic services provided by parastatals, the fiscal position will negate the monetary policy stance.
So, the upshot of the government’s inconsistent policies is the worst of all worlds. Going forward, Zimbabweans will have to face continued shortages, accelerating inflation, continued loss of jobs, widening poverty and increasing hunger. There will be growing resentment at a large chunk of the country’s most scarce resource – foreign currency – being paid to the IMF with absolutely no immediate prospect of a return on this payment.
What we have so often said before becomes ever more starkly evident as the crisis deepens: that the causes of Zimbabwe’s crisis are fundamentally political. Until there is substantial political change – starting with restoration of the rule of law and a political commitment to a consistent macro-economic stabilisation and recovery programme – there can be no “turnaround”, let alone sustained improvement in the economy of this beleaguered country.
* Biti is MDC secretary for economic affairs.