HomeBusiness DigestExpulsion threat earns IMF Mugabe's ear

Expulsion threat earns IMF Mugabe’s ear

UNTIL last week, it seemed as if nothing could shake President Robert Mugabe’s determination to destroy any dissent against his Zimbabwe presidency.

Somehow, the

threat of being kicked out of the International Monetary Fund has changed that – at least a little bit.

As he flattened slums and allowed farmland to lie fallow in the midst of racial violence, foreign governments’ frustration with him was almost equalled by their frustration with Thabo Mbeki, the South African president, who has preferred to engage Mugabe rather than to isolate him and has sometimes appeared to work at cross purposes with openly hostile politicians from Britain and the United States.

Now, Mbeki seems to hold the key to saving Zimbabwe’s membership in the IMF.

Apparently fed up with Mugabe’s actions, Mbeki may finally be using his influence to the advantage of the Zimbabwean people.

The strain in Zimbabwe’s ties with the IMF date back to 1999, when arguments about the value of the country’s currency and its troops in the Congo caused the fund to withhold aid.

Within a year, the African Development Bank and the World Bank had followed suit.

By 2001, Zimbabwe had stopped paying back all foreign loans. In early 2002, Zimbabwe’s arrears with the IMF amounted to more than US$100 million, and the government’s own deficit was ballooning.

In 2003, the IMF suspended Zimbabwe’s voting rights in the organisation.

Finally, in December of that year, the fund started the process of expulsion. Of course, it is not as simple as saying: “You’re out.”

Last year, Zimbabwe began taking steps to placate the fund. It started paying back its debts and undertook a new monetary policy aimed at denting annual inflation of 600% and shoring up the shrinking economy. Inflation came down, to slightly less than 400%.

The fund was mollified and decided in July 2004 to delay Zimbabwe’s potential expulsion by six months.

Meanwhile, the IMF closed its office in Harare. Though the move did not affect the expulsion decision, according to the fund, it was an ominous portent. Meetings with Mugabe ensued a couple of months later.

Then, last December, Zimbabwe’s main opposition party, the Movement for Democratic Change, stepped into the fray. Its leaders optimistically argued that the IMF should allow Zimbabwe to remain a member so that any post-Mugabe regime would have an easier time obtaining aid.

In February of this year, the IMF gave Zimbabwe another extension.

Now, another six months later, Zimbabwe again is trying to appease the fund.

On August 29, it paid US$120 million to the IMF, reducing its arrears to about $174 million. An IMF team was in Harare to review economic developments and prospects, and it will report to the IMF executive board, which meets today to decide Zimbabwe’s fate.

Clearly, Mugabe is paying attention. Zimbabwe has been pleading with South Africa for aid. So far, no deal has been reached, a South African government spokesman, Thabo Masebe, said on Tuesday.

A package from Pretoria would allow Zimbabwe to pay some, or all of what is overdue – perhaps salvaging its relationship with the fund.

By itself, this is a remarkable development. Much like Kim Jong Il in North Korea, Mugabe has seemed impervious to foreign pressure, even as his own country has experienced extreme hardship and starvation.

That he should care about the IMF is intriguing. Perhaps he values the prestige of membership in one of the few international groups that wields real power in the form of cash, or perhaps he is hoping for new loans from which to skim cash – something that Britain and the United States have accused him of doing in the past.

Mugabe may even want the money just to keep the lights on in Harare. It actually doesn’t matter. The important thing is that the leverage is there.

The leverage, however, does not reside with the IMF. By allowing itself to be placated mainly by repayment, the fund has limited its own ability to affect policies in Zimbabwe. That may be for the best, since insisting on specific changes would allow Mugabe to score political points by rejecting the IMF altogether.

But the upshot is that the leverage sits solidly in Mbeki’s hands. He seems willing to bail out his northern neighbour, provided Mugabe makes some lasting changes.

“Whatever we do,” said Masebe, “be it a short-term loan to help them to pay their arrears on their IMF debt or any other intervention that we do, should be seen in the context of an economic recovery for Zimbabwe so that we don’t give them money now and find ourselves in the same situation in a year’s time.”

He added that while Mbeki has not made specific political demands, the conduct of Mugabe’s regime is under discussion.

“You can’t remove economic issues from the politics,” Masebe said. Besides the insight into Mugabe’s choices, there are two broader lessons to be drawn from this episode. The first is that unconditional debt relief may be a bad idea.

Anti-poverty groups have called for the IMF, the World Bank and major creditor nations to scrap all of Africa’s debts. If the presence of debt can create positive changes in Zimbabwe, even indirectly, then it is surely a useful thing.

The second lesson has worldwide implications. As any economist will tell you, people will usually do what you want, as long as you give them the right incentives.

For the past couple of decades, most attempts at persuading so-called rogue states to shape up have relied on restraint of trade or military threats. It could be time for a little more creativity. – The International Herald Tribune.

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