Gono Should be Condemned for his Bankrupt Policy

IN the Zanu PF controlled Herald newspaper,  Reserve Bank of Zimbabwe (RBZ) Governor Gideon Gono is reported to have proposed the reintroduction of the Zimbabwe dollar anchored on gold. He said this last Monday while giving oral evidence before the Parliamentary Portfolio Committee on Natural Resources, Hospitality and Tourism.


The committee had ill-advisedly invited the central bank governor for it wanted to know the financial sector’s preparedness in terms of introducing plastic money ahead of 2010 World Soccer Cup Finals to be held in South Africa.

 

Also invited was the Bankers’ Association of Zimbabwe (BAZ), led by its president John Mangudya. Imagine a committee full of serious people sitting down to discuss about plastic money, yet it was reported more than two months ago that the Minister of Finance Tendai Biti has engaged the bankers about the same issue amongst other concerns.

Gono had adequately dealt with it in his latest, modestly delivered mid-year Monetary Policy Statement (MPS), paragraphs 85-92, which is available on the RBZ website.

Characteristic of himself during the “Gonomics era” from 2004-2008, Gono proffered an array of advice beyond his call of duty that included the need for political stability, addressing infrastructural issues like availability of electricity, water, transport network, and the health delivery system, among others.

One wonders if he had nothing else to do within his mandate when he had the temerity to “proffer an array of advice.” It is also worrisome that the parliamentarians failed to stop him in his tracks so that he focused on his mandate ONLY.

He called for gold to be valued by an independent body comprising all stakeholders. Recalling what he referred to as “all stakeholders”, this would include his advisors in the mould of hoodlums like Joseph Chinotimba and his business acolyte Jonathan Kadzura, who parades himself as an expert in everything — politics, economics, business and rural development.

On July 30 Gono, without the usual pomp and ceremony and live television coverage, delivered his mid-year MPS. While facing the banking chiefs and executives only, he reasonably welcomed and applauded the inclusive government’s expression of full faith in the multiple currency system.

“The benefits of this noble policy which was reconfirmed and fortified in the Short Term Emergency Recovery Programme (Sterp) have been phenomenal to the economy as a whole,” he said. “Under this system, inflation favourably responded very drastically, falling from the painful multi-million percentage levels into the negative territories virtually during the entire first half of 2009…”

He observed that capacity utilisation in companies moved upwards from trough levels of around 10%, to current levels in the 34-45% range.

He expressed the desire that “continued policy consistency and better institutional coordination should see the economy registering even better levels of capacity utilisation levels…The hyperinflation that characterised the economy over the past two years had adversely affected and indeed severely constrained economic activity.

Against the background of widening parallel markets and speculative activities, economic activity rapidly contracted and informalised. Capacity utilisation across most sectors of the economy declined to levels below 20%, resulting in severe shortage of goods and services.

“The cumulative effects of the hyperinflation led to the relegation of the Zimbabwe dollar as a medium of exchange and store of value in the economy. Subsequently and progressively economic transactions were conducted in foreign currencies. The migration to the use of multiple currencies adopted by government ended the hyperinflation immediately and set the platform for enhanced formalisation of economic activity and recovery.”

As a sign that Gono practises a well-grounded Orwellian “doublethink”, one has to read through the following paragraphs of the MPS:

“11. As Monetary Authorities, our views and advice on this matter are anchored on the following 2 key principles:

a) That the existence and stability of a country’s national currency is defined and dictated by the barometer of real economic activity in the economy. Accordingly, therefore, in as much as the loss of value of the Zimbabwe dollar was a direct result of the near absolute stagnation in Zimbabwe’s productive systems, a quicker recovery and sustained growth in the productive sectors of the economy will lay a solid foundation for the return of the Zimbabwe dollar and this can be anytime depending on how seriously we work as a nation to rebuild our economy.
To this end, therefore, there are no calendar time limits favouring or barring the return of the Zimbabwe dollar, and as Monetary Authorities, we will continue to carefully gauge the overall performance of the economy to inform us on the appropriate decisions or courses of actions to take, in close collaboration with our Principals in the Inclusive Government.

b) Our strong views and preference however are that as Zimbabweans we must have our own currency and autonomy in formulating our fiscal and monetary policies.

Whilst too much demand relative to supply has traditionally been pointed out as the mother of inflation and its noxious spill-over effects to society and the economy, too little demand can itself be an equally deleterious vampire that can bring down the economy amidst plenty in stockpiles and flooded stockrooms full of goods facing little or no demand.

This is a sign that the above quoted views in the MPS are in serious conflict with his Zanu PF principals’ desire to benefit from a freefalling economy. His statements could have been reviewed and a notice was made that he was seemingly becoming reasonable.  

The statement made by Gono at the parliamentary committee deserves condemnation by those most willing to see the economy recover. The Zimbabwe local currency will be introduced when the economy has fully recovered. His free hand on the tiller should never be allowed.

Gono has made his pitch for the Zimbabwe dollar and the media, economic analysts and online chatrooms are mute! If ignored, Gono might think that his bankrupt pronouncement was reasonable enough to merit attention. Nobody challenged or critiqued the economically destructive thinking during the Gonomics era.

The only voices we heard were those who praised and agreed with him. Not surprising he called his views, as destructive as they are, “outside the box” so that he can benefit out of his own generated chaos.

On a separate matter, much of what is in all his MPS is of research nature, not a Monetary Policy Statement in the technical sense. The RBZ (not the governor) should be publishing monthly, quarterly and annual bulletins that we last saw during his predecessor (Leonard Tsumba)’s tenure. The bulletins save us the pain of going through a “textbook” of the governor’s quarterly presentations, full of nothing but fiscal issues beyond his core business.

Goodwill Mpofu writes from Harare.

Goodwill Mpofu