Economic meltdown stirs panicky response

Dumisani Muleya

THE recent declaration of a virtual state of emergency in the economy through the setting up of the shadowy Cuban-style Zimbabwe National Security Council (ZNSC) to run the economy on a crisis management basis has all but confirmed the policy paralysis grip

ping government.

The move — which reflects serious panic in the corridors of power — also shows government’s implicit awareness of the potentially damaging political consequences of the current economic meltdown.

The ZNSC, chaired by President Robert Mugabe, will run the economy on an emergency basis — as in Cuba where “anguish committees” manage the economy.

The Cuban economy is run by a Council of State assisted by such committees, although the government has devolved some authority to ministries and enterprises in recent years. The state has a major role in the economy and private enterprise is limited although the situation is gradually changing.

Under the slogan “Socialism or Death”, the Cuban regime continues to proclaim Cuba a socialist state with an economy organised under Marxist-Leninist principles. Most means of production are owned and run by the government. About 75% of the labour force is employed directly by the state.

Mugabe tried to do this and failed and now wants to try again, although this time it is crisis management rather than socialist principles that are driving the process. The major sectors of the Cuban economy are tourism, nickel mining, and agriculture, especially sugar and tobacco. Sugar, long the mainstay of the Cuban economy, was surpassed by tourism in the late 1990s as the main source of foreign exchange.

The Cuban economy suffered a 35% decline in gross domestic product between 1989 and 1993 because of the loss of Soviet subsidies. In October 1990, Cuban leader Fidel Castro announced that his country had entered a “special period in time of peace” and that the economy would function as if in time of war until the crisis had been resolved.

This appears to be the mentality within the Zimbabwean government. The ZNSC will apparently run the economy like Cuba’s Council of State until the current crisis disappears, something which is unlikely if no fundamental political and economic reforms are undertaken. Cuba learnt this the hard way.

In the local scenario the state security establishment will effectively run the economy as it cross-cuts the emergency sub-committees which have been set up to perform a rescue operation.

This confirms the view that the Central Intelligence Organisation (CIO) and the Joint Operations Command (JOC), comprising the intelligence service, army, police, prisons and registrar-general’s office, now virtually  run the country and are involved in a gamut of issues from security to the economy.

Observers say the state security establishment has no credible economic  knowledge, capacity or the means to pull Zimbabwe out of the current morass. They say the prevailing situation requires a political solution and economic measures supported by the international community.

The ZNSC initiative only validates the view of a growing police state in Zimbabwe run by the state security apparatus. JOC’s role has become more pronounced in recent years largely due to the failure of civilian public officials. This confirms the institutional and policy failures of Mugabe’s government.

Involvement of the JOC in economic matters will almost certainly ensure that the command economy becomes more deep-rooted again as shown by the return of price controls last week.

Government bureaucracy is already heavily militarised. Serving or retired army officers are to be found in government departments, parastatals, electoral institutions and quasi-government organisations performing the roles of civilians.

Military rule takes various forms which include army control where the generals direct events from barracks, arbitration in which the army comes in as conflict managers between political parties or the government and opposition parties, and army veto where the military vetoes some civilian decisions.

There are also crypto-military democracies in which it is difficult to tell where army interventions begin and end and civilian rule starts and ends.

Anecdotal evidence shows the military — through its retired and serving officers — might be pulling the strings in civilian government issues, but there is still no decisive proof that army authority has taken root and is now the basis of governance in Zimbabwe.

Although there is no discernible military rule in Zimbabwe, beyond the manifestations of indirect interference by JOC, what involvement there is shows the executive’s erosion of confidence in public officials and encroachment of the armed forces — apparently by invitation — in civilian matters.

While this might serve the self-preservation needs of the ruling elite at the moment, it creates problems for future governments which may have to struggle to uproot an entrenched military culture in civilian government.

The ZNSC, chaired by Mugabe, instructed chief secretary to the president and cabinet, Misheck Sibanda, at a meeting on March 17 “to establish sub-committees that will provide technical inputs covering various structural and sectoral issues”.

Sibanda is also chairman of the newly set up Technical Committee of Experts which will coordinate activities of the ZNSC, a key part of the recently established National Economic Development Priority Plan.

The Sibanda team duly formed its taskforces under the National Economic Recovery Committee at a meeting held on March 20.

There have been numerous economic recovery plans since 1991, all of which have failed.

Recent studies have shown Zimbabwe has the fastest-shrinking economy in the world — outside of a war zone. The economy has shrunk by 10% in 2003, 4% in 2004 and 7% in 2005. Negative growth is also expected this year.

It also has the highest inflation in the world at 913,6%, followed by Iraq at 40%. It is feared inflation will soon hit the 1 000% mark.

Countries reeling from bouts of civil war such as Sudan, Somalia and Ivory Coast and poverty-ridden ones like East Timor, Afghanistan and Guinea-Bissau have lower rates of inflation than Zimbabwe, which is not classified a poor country by the United Nations even with its current conditions.

Zimbabwe is endowed with human capital and natural resources. This is why the prevailing situation is such an indictment of the current system, whose regime has distinguished itself for being corrupt and incompetent. No amount of revolutionary demagoguery can mask this reality.

Mugabe’s rule has become costly and unsustainable. His continued hold on power is proving to be an active agent of economic decline, poverty and socio-political instability. The collateral damage of Mugabe’s reign on regional economies is also ominous.

Zimbabwe’s rampant inflation is soon expected to break the 1 000% mark as government continues to print money on a massive scale to keep itself in power. After reaching the four-digit inflation level, Zimbabwe will plunge into a spiral of hyperinflation. No incumbent regime in recent modern history has ever been able to survive such conditions.

Mugabe has come out in defence of printing money, a move which all but confirmed the policy bankruptcy of his government. For a president who is supposed to be an enlightened economist — with a chain of seven university degrees — it shows how the leadership is out of its depth.

A study titled Macroeconomics in the Global Economy by Jeffrey Sachs and Felipe Larrain B, notes the main causes of inflation are revolutions, wars, civil strife and exogenous factors, which all inevitably lead to the printing of money. Printing money increases money supply growth and hence inflation.

For the US, before the 20th century, the main cause of inflation — which peaked at an annual rate of 5 570% and 40% monthly in 1864 — was printing money to finance the civil war. At one time over 80% of the total US government financing was from paper money. The same situation gripped Europe after wars.

During the 1980s, hyperinflationary conditions developed in many Latin American countries such as Argentina, Brazil, Bolivia, Peru and Nicaragua, and in the former Yugoslavia. The situation in Zimbabwe is different from these countries but the conditions for hyperinflation already exist. The economic indicators, unemployment, interest rates, exchange rate and business performance, are grim.

Corruption has also reached alarming levels. Government and the ruling Zanu PF officials are falling on each other to strip the economy of its assets and loot whatever remains. The officials have descended on the cadaverous economy like vultures. They have taken farms, safari companies, they are looting minerals and now they want to grab mines.

They are also abusing public assets for private gain. This has been openly acknowledged by government itself but nothing is being done to save the economy. Rent-seeking behaviour in the public and private sectors is also rampant. These issues are accelerating economic collapse.

The ZNSC will not be able to reverse the economic decline under the current circumstances, not in a “thousand years” as the Reserve Bank governor Gideon Gono recently observed in an eerie echo of former Rhodesian rebel leader Ian Smith’s famous comment on the prospects of majority rule.