IMF Funds Tug-of-war Enters Legal Arena

TENSION between Finance minister Tendai Biti and Reserve Bank governor Gideon Gono over control of government financial levers has turned into a legal dispute on who has authority over the recent US$510 million financial aid from the International Monetary Fund (IMF).

Last week saw Biti and Gono upping their campaigns to claim custody of the Bretton Woods institution’s Special Drawing Rights (SDRs) disbursed last month to stem the global economic recession.
The funds came after a G20 meeting in March generated US$262 billion to assist global economies. Zimbabwe received US$510 million worth of SDRs while China and South Africa received US$30 billion and US$2 billion respectively.
Asked by Mutare Central MDC-T legislator Innocent Gonese about government’s policy regarding financing of trade rates under the IMF during parliamentary questions without notice time last week, Biti said the treasury had the mandate to disburse the funds.
He said the International Financial Organisation Act of 1980 gave the minister “sole authority” over the funds.
“This Act prescribes that the Minister of Finance is a governor of Zimbabwe’s fiscal agent to both the World Bank family and the IMF,” Biti argued. “It is very clear Section 7 subsection 2 that the Minister of Finance is the authority on the issue of SDRs. However, the bank (central bank) is the bank and that is reflected in both the International Financial Organisation Act and in Section 49 of the RBZ Act.”
The SDR is neither a currency, nor a claim on the IMF, but rather, it is a potential claim on the freely usable currencies of IMF members.
Holders of SDRs can obtain these currencies in exchange for their SDRs in two ways — either through the arrangement of voluntary exchanges between members or by the IMF designating members with strong external positions to purchase SDRs from members with weak external positions.
In addition to its role as a supplementary reserve asset, the SDR serves as the unit of account of the IMF and some other international organisations though this role is slowly diminishing with increased regional cooperation especially within Europe.
In a clear attack on Gono, Biti told MPs that: “This money was given to every country and no one can wake up one morning and say I looked for this money, I need to be congratulated.”
Parliament, Biti further argued, “would propose what to do with the SDR next month” at the presentation of the national budget.
Government sources said Biti was likely to allocate a large portion of the funds towards infrastructural development, much to the disgruntlement of indigenous farmers eyeing the lion’s share.
Apart from the global crisis, Zimbabwe currently with a -9% current account and an invalidated external debt of US$5,7 billion requires foreign direct investment and an estimated US$10 billion to stimulate economic recovery.
The state controlled daily, the Herald, last Friday “revealed” that the central bank boss should be in charge of the funds.
The newspaper quoted the soon to be amended Reserve Bank Act as the legal instrument granting the central bank control over state reserves.
“The bank shall establish and maintain an international reserve which shall consist of all or any of the following assets (i) the entitlement to make reserve tranche purchases from the International Monetary Fund and (ii) the holdings of Zimbabwe of Special Drawing Rights of the International Monetary Fund,” reads the Act.
“The bank shall, to the best of its ability, maintain the international reserve at a level which, in the bank’s opinion, will be adequate for the execution of the monetary exchange rate policies of Zimbabwe and for the prompt settlement of the country’s international obligations.”
While it is not clear when the funds would be injected into the economy, the Finance minister seems to be aware that interest on the SDR could jump from the current 0,26% to higher levels. A higher figure would be reminiscent of the 1980s when the non-concessionary funds attracted 5,5% interest during the late Finance minister Bernard Chidzero’s era.
“I have no doubt in my mind that this current low rate of interest that is levied on the SDRs is going to go up,” Biti said.
Meanwhile the House of Assembly referred the proposed changes to the Reserve Bank Act to the legal committee after the first reading. The amendments would see existing central bank powers being clipped.

 

Bernard Mpofu/Leonard Makombe

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