CENTRAL bank independence is not much help if the government doesnâ€™t exhibit a commitment to monetary stability.
That notwithstanding, it is imperative to examine without bias the manner in which the central bank has implicitly acted in cahoots with the instigators of the Zimbabwean catastrophe rather than use the tools at its disposal to weather the trauma.
Â Such an endeavour essentially provokes examination of the qualitative worth of the policies that the central bank undertook since 2004; a date chosen to coincide with the shift from the orthodox economic policies to rein in inflation that the central bank had been following albeit ineffectually, due to the continual assault on the real economy by the government.
The year 2004 came with a fall in the inflation rate that had been rising steadily since 1998. The fall coincided with the appointment of the incumbent governor after the rather ignominious departure of his predecessor against a backdrop of cash shortages in the last half of 2003. Â
The incumbent initially (though very briefly) introduced a regime of tight monetary conditions which saw inflation falling immediately.Â The fall in inflation was not solely a result of tight monetary policy, but there are two other contributory factors. Firstly, there was a general fall in inflation expectations following the appointment of the new central bank chief and the prevailing opinion at that time was that the governor was the only rational individual among a band of totalitarianists in the bureaucratic machine.Â Secondly, the utter simplicity of the ideas initially espoused, calling for no new analytical concept or factual discovery, which was the essence of the incumbentâ€™s immediate appeal, hence the dramatic fall in inflation at the beginning of 2004. Â
Buoyed by the initial success, the central bank embarked on a policy shift that borders on financial wishful thinking.Â â€œâ€¦The thrust of the new charade was that market forces are defunct and that a rescue package for Zimbabwe necessitates a concoction of high public spending (in the form of quasi-fiscal activities of the central bank) and cheap money propped by an incomes policy. The fundamental elements of this dogma are based on a false belief that the price mechanism needs to be supplanted by an array of direct government controls for an effective synthesisâ€.
â€œThis atrocious philosophy shift manifested in the mirage of supply-sided interventions with fancy names (Aspef, Bacossi, Operation Food Security, SMEsÂ Development Programmes, Farm Mechanisation Programme etc) that go beyond the operational realm of a normal central bank of maintaining the stability of the currency (both in domestic and external markets) and soundness of the banking systemâ€.
Within the realm of this charade, the country was taken through a series of crack operations that find no justification whatsoever in rational economics except as the whims and caprices of the monetary authorities.Â Â These operations took the form of a banking sector clean-up culminating in the fall of several banks with depositors losing their monies. Then came the anti-corruption operation targeted at business people, but the climax in all this madness was to come during Operation Sunrise I, when roadblocks were mounted by police and youths to curb the illicit movement of the Zimbabwean currency.
In the final analysis, these crack operations all constituted some form of state theft. However, from the central bank rhetoric all these actions were tailored to â€œalter and ameliorate peopleâ€™s socio-economic life for the betterâ€ from the ills of the capitalist society such as corruption, speculation, etc which caused cash shortages, inflation etc.Â Â
Is the catastrophe not an unfortunate result of the central bankâ€™s self indulgent financial experiments?Â In this regard another question needs to be raised:Â Who benefited from these policies? Â
â€œOne of the worst mistakes is to evaluate policies and programmes by their supposed intentions and not by their results.â€ The whole masquerade was crafted to prop up a hugely unpopular government; there is nothing for the man on the bus to Chitungwiza.Â The litany of exchange control measures and counter-measures have been designed to ensure that the government collects the highest possible amount of foreign currency from the meagre flows coming into the economy largely through remittances.
Â A case in point is the recent partial dollarisation which the central bank referred to misleadingly as the â€œlaunch of foreign exchange licensed warehouses and retail shops (Foliwars)â€. Upon realising that the country had virtually completely dollarised albeit unofficially, and the government was still collecting taxes in the worthless Zimbabwean dollars, the central bank allowed partial dollarisation so that the government can collect 15% of the gross foreign exchange sales proceeds from each licensed
outlets in the now official dollar segment of the economy. Â
Where does the ordinary Zimbabwean benefit here? The ordinary Zimbabwean is still getting his/her salary in the worthless Zimbabwean dollar, yet somehow has to purchase goods using foreign currency.Â In justifying partial dollarisation the central bank insinuated that this was just a temporary move as â€œFoliwars are being introduced for an initial period of 18 months to MarchÂ 31, 2010 as an experiment as we gear ourselves for the 2010 World Cup Gamesâ€.Â Has the central bank ever heard of dollarisation hysteresis?Â Dollarisation usually exhibits a non-reversible behaviour; there are some cases where the implementation of successful disinflation programmes was not enough to lessen sharply the demand for the hard currency. Â
The attempt by the central bank to divorce itself from political expediency is feeble. It shares with the government the precept that monetary stability has to be dispensed from above rather than created by the people themselves.Â In this doom-laden saga, the central bankâ€™s ability to moderate the traumas was undermined by its fundamental shortcomings.Â Its profoundly undemocratic nature, embodied in its affinity to use emergency powers in the dispatch of economics made it a perfect tool at the hands of an oppression machinery.
By Terrence Kairiza : A member of the Zimbabwe Economics Society and a PhD student based in Japan.