Monetary Reforms Remain Futile

BARELY 10 days after the presentation of the half year monetary policy statement presented last week, the situation on the ground is showing the Reserve Bank Governor Gideon Gono only attempted to cure the symptoms rather than the root cause of the economic crisis.

 

Economic analysts this week said as long as there was no production, monetary authorities will continue to move in circles.

The supply side of the economy should be addressed by confronting Zimbabwe’s real crisis, which is the crisis of governance, sanctions and legitimacy.

Independent economist, John Robertson said monetary reforms just announced will remain futile in the absence of substantive strategies to shore up the country’s battered economy.

“There should be increased production in all major sectors of the economy. He (Gono) addressed symptoms as opposed to the root causes,” he said.

University of Zimbabwe business school lecturer Tony Hawkins dismissed Gono’s latest strategy as little more than posturing.

“What monetary policy? That was a political statement that was made. The nonsense about Zimbabwe being under sanctions was not monetary. There were a few currency changes, but that is where it ends. Freezing wages is not going to end hyperinflation,” he said.

Hawkins said unless there was a political settlement, the zeros would be back on the currency in a few months.

“We are looking at a situation whereby the (US) dollarisation of the economy is going to increase, because our own money would have become worthless.”

“The main causer of hyperinflation is Gideon Gono, who is printing money, which is being used for handouts and is being given to political thugs to beat up people,” Hawkins said.

MDC-T Secretary for Economic Affairs Elton Mangoma said the latest measures of removing zeros will fall flat and cause serious confusion among the public.

He said the announcement that old coins are coming back into circulation would benefit people who do not have a banking culture, which will send a wrong signal to the market at a time when confidence building should be top priority to the Reserve Bank.

“We believe that any central bank should know the amount of money that is in circulation and clearly, allowing people to scrounge for old money from their drawers will make it impossible to know how much currency is on the market. It could further push up inflation,” he said.

The increase of withdrawal limits from $100 billion (now $10 revalued) to $2 trillion ( $200 revalued) has not brought any relief to the public at time when prices have skyrocketed after the monetary policy statement. Many people are also failing to access their money from banks.

Two litres of cooking oil now cost above $1,5 trillion ($150) from $900 billion ($90) while 500g of fresh milk rose from $200 billion ($20) to $500 billion ($50).

Two kg of rice now cost above $1,4 trillion ($140) from $900 billion from ($90).

A full chicken now costs $2 trillion ($200) from $900 billion ($90) while two litres of orange crush rose from $1 trillion ($100) to about $1,6 trillion ($160)

During the 2008 mid-term monetary policy last week, President Robert Mugabe warned the country’s business sector to stop profiteering or face emergency measures.

“If you drive us more than you have done we will impose emergency measures, and we do not want to place our country in a situation of emergency rules, they can be tough rules you know,” Mugabe said.

“We want to leave you with the freedom, the flexibility to make decisions . . . You (businesses) need to be rewarded for your efforts, customers also need a fair price, not ripping them off,” he said.

It remains to be seen what government will do although some economists have warned that controlling prices will result in shortages of basic commodities.

National Incomes and Pricing Commission (NIPC) chairperson Goodwills Masimirembwa said prices being charged were not justified.

“The rate at which prices are rising is a major cause of concern which needs to be addressed,” he said.

Masimirembwa said business has been ignoring prices which have been set by the commission.

The prices being approved by NIPC are way out of sync with the real prices that are already prevailing on the market.

A survey conducted by businessdigest this month shows that by the time the NIPC approve a price, the actual price on the market will be almost three times higher.

The rise in the prices of most basic commodities has been blamed largely on speculative tendencies in the country’s frail economy.

But economists said the dwindling production levels on the back of increased money printing and a weak currency has resulted in too much money chasing too few goods, and this has been worsened by acute foreign currency shortages which has triggered a run on the Zimbabwe dollar on a thriving foreign currency parallel market.

Gono is being accused of opting for the easier alternative of striking off the zeros to make the mathematics of the changeover easier and better for the public but ignoring the stumbling bloc to any recovery by the political situation.

“The Reserve Bank no longer has the capacity to print wads of useless currency, so Gono has decided that the old coins must get back into the system at their face value meaning that if one has a $5 coin, it is as good as $5 dollars in today’s new currency,” said an economist with a commercial bank.

But is it fair to criticise Gono?

Some analysts said Gono should by now realise that the economic problems in Zimbabwe are political. All his attempts since he was appointed governor in November 2003 have been hitting a strong political brick wall, which once resolved could signal a positive direction for the country.

The dialogue currently taking place between the country’s political players is said to be the best way forward as long as there is sincerity from all stakeholders.

By far the most important message in Gono’s otherwise content-free mid year monetary policy statement was subliminal.

Though he did not or could not say it, his message was obvious: “the economy has reached the end of the road,” Zimbabwe was now in endgame.

How this will be settled –– ? by the talks in Pretoria being undertaken by President Robert Mugabe’s Zanu-PF party and the two formations of the opposition Movement for Democratic Change (MDC), led by Morgan Tsvangirai and Arthur Mutambara or by other means –– does not diminish the certainty of this conclusion. Gono had nothing but bad news, with the financial system in near-total gridlock.

A positive outcome of the talks will result in more investors coming in the country which should lead to increased production in all major sectors of the economy and a stable currency. More investment options will also be opened.

By Paul Nyakazeya

 

 

 

 

 

 

 

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