THE latest row between Finance Minister Tendai Biti and Reserve Bank governor Gideon Gono (pictured) over the disbursement of over US$500 million from the International Monetary Fund (IMF) intensified this week with the multilateral lender supporting Treasury in its battle to wrest control of the funds from the central bank.This came as Biti, whose fight with Gono has scaled crisis levels, this week tabled a major proposal on a debt clearance strategy which has deeply divided government along party lines just like the IMF funds.
Documents to hand show fights over IMF money and debt clearance are escalating.
However, Biti has so far won the battle for the control of IMF funds, a large sum of them already in the Reserve Bank coffers, after a concerted campaign over the past three weeks. Biti though still faces an uphill task over the debt issue.
Official documents show Zimbabwe has an alarming debt overhang of US$5,7 billion of which US$5,2 billion is external debt and US$413 million domestic debt. Of the publicly guaranteed debt, US$3,1 billion is in arrears. This is broken down into US$1,3 billion multilateral arrears, while bilateral creditors are owed US$1,6 billion and supplier’s credit US$200 million.
The debts are affecting investment and capital inflows into the country, hence economic recovery. Zimbabwe, currently looking for US$10 billion to resuscitate its ruined economy, needs US$45 billion in the next 10 years to recover to GDP levels of 1997.
Government has been relentlessly sued by creditors who include KFW of Germany, Daro Film Distributors and UBS AG of Switzerland, SACE of Italy, ING Bank of the Netherlands, EximBank of US and West Merchant Bank and Lloyds of the UK abroad over debts. It risks losing assets for failure to clear liabilities.
Public assets are targeted for seizure over debts. Zimbabwe owes money to multilateral creditors (international financial institutions such as the World Bank and the IMF), bilateral creditors (Paris Club) and commercial creditors (London Club).
Government has engaged a debt consultant, Patrick Malambo from the Bank of Zambia to formulate a debt and arrears clearance strategy and draft a policy document to guide overall debt management. Biti has proposed different strategies to clear the debt, including the Heavily Indebted Poor Country (HIPC) Initiative which he prefers. Zanu PF ministers are livid over his proposal.
There were clashes on the IMF funds and debt issues among cabinet ministers on Tuesday with Zanu PF officials launching fierce attacks on Biti whom they accused of handling matters shoddily. Biti dropped a hint on this at the Mining Conference on Wednesday.
IMF deputy managing Takatoshi Kato on Monday wrote to Gono informing him that Fund would not agree with his instruction for it to accept part of the US$408,7 million received by Zimbabwe on August 28 as arrears repayment. Zimbabwe owes the IMF SDR89 million or US$138 million.
Gono had written to IMF managing director Dominique Strauss-Kahn on September 8 informing him Zimbabwe would like to repay its arrears using the money it received following the injection of US$283 billion into the global economy to provide liquidity and boost member countries’ dwindling foreign exchange reserves.
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Zimbabwe got Special Drawing Rights (SDR) 328,4 million, an equivalent of US$512,3 million.
“As of today, the 8th of September 2009, I have instructed my Finance Division to pass a swift message to the Fund’s Accounts Department to request the IMF to fully repay Zimbabwe’s overdue obligations through the usage of SRD262 million (US$408,7 million) already in the Reserve Bank of Zimbabwe,” Gono wrote to Kato.
“The balance of the SDRs, including the second allotment of SRD66, 4 million to be released from the escrow account will be deployed into non-consumptive, but productive areas to rejuvenate economic activity in the country,” Gono said. “We seek your support in allowing Zimbabwe as a member of the IMF community to gainfully deploy the SDR allocations to not only clear all IMF arrears, but also provide the impetus for sustainable macro-economic recovery.”
However, Kato wrote to Gono on Monday, saying the IMF would not do that because it dealt with the Ministry of Finance and not Reserve Bank on such matters. The letter was copied to Biti and IMF executive director Samuel Itam.
“I am responding on behalf of the managing director to your September 8, 2009, letter to him regarding Zimbabwe’s SDR allocation. I would like to clarify that under Article V, Section 1 of the IMF Articles of Agreement, each member is to deal with the Fund only through its fiscal agent and the Fund is to deal with the member only with or through the same agent,” Kato said.
“Accordingly, instructions from Zimbabwe for the transfer of SDRs can only be accepted from Zimbabwe’s Ministry of Finance, which is Zimbabwe’s fiscal agent for the Fund.”
This left Biti in charge, although most of the money is currently in Gono’s custody. The minister argues as head of treasury and fiscal authority, he is empowered in terms of the constitution and the International Financial Organisations Act to assume control of IMF funds, while the central governor says he has jurisdiction as chief policy advisor to government on monetary issues. The warring officials have not met over the issue despite letters flying between them since August 28.
Biti and Gono, who are fighting over control of government financial levers, have separately been communicating with the IMF on this issue in a bid to assert control over the funds. Biti said this week he as the “sole authority” on the matter and would decided how the money would be used. He said the bulk of the money would go to infrastructure development and lines of credit for exporters. The minister also said he might channel part of it towards budgetary support.
Gono wants the money directed into mining, manufacturing, tourism and recapitalisation of public enterprises such as NRZ, Zesa, Zisco and Hwange Colliery, among others. He would also like to use the money to repay government debts to corporates, NGOs and the IMF.
Zimbabwe has no capacity to repay its debts and liabilities will remain unsustainable until 2029. For instance, the country’s projected revenues for 2009 are only US$970 million and the GDP is US$3,4 billion, while external arrears alone are US$3,1 billion.
Biti’s debt strategy options include the use of internal revenue inflows which are woefully inadequate, resource-based debt restructuring, Paris Club debt rescheduling and the HIPC initiative which he thinks is the most feasible.