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Biti raises spectre of price controls

WHEN inflation soared out of control in 2007, President Robert Mugabe had a quick solution to the problem — cut prices of goods by half and impose a freeze.

Almost overnight goods disappeared from the shelves. Mugabe’s argument was a simple and less convincing one: businesses and retailers were conspiring with Western forces, Britain and United States, to raise prices and force a mass uprising of the people.
The days that followed saw several executives and shop managers being arrested and fined. To ensure that businesses were adhering to set prices, government quickly set up a National Incomes and Pricing Commission (NIPC) headed by Godwills Masimerembwa.
The commission did its best but possibly realised the task of monitoring prices of goods in a market where industry had close to zero production capacity and empty shops was an uphill one.
In the months that followed, it became apparent that government had lost the price control battle.
The NIPC became irrelevant. Apart from occasional threats, it was as good as dead. But the last nail on the NIPC’s coffin came when the country officially adopted the use of multi-currencies in January 2009.
With the use of the US dollar and other stronger currencies, it was generally assumed prices would be relatively stable.
But inflation data and the economy’s outlook are proving otherwise. Now Finance minister Tendai Biti might be forced to recommend the resurrection of the NIPC and go down the same road, judging by his comments last week.
In his review of the 2009 and first quarter economic performance, Biti painted a gloomy picture. Inflation is rising. Profiteers are back. The country’s balance of payments position is US$1,6 million in the red. In essence, Zimbabwe is importing much more than it is exporting. Civil servants salaries are not sustainable.
But his main worry above all was inflation. Since last year, government adopted a free market economy where demand and supply are the chief variables. As such, government, according to Biti, had left the market to regulate and correct itself.
Government, Biti lamented, could have blundered and now wants to assume a more than watchdog role. If he follows through on his threat, this would be a marked departure from a free market economy into a semi-command economy where the state dictates economic policies.
Biti is of the view that businesses can no longer be allowed to “have its own cake and eat it” alone while abusing government liberal economic policies.
His argument is not new. In fact, it is the implausible one Mugabe made three years ago. Biti says although Zimbabwe has achieved economic stability, the economy is facing a number of “downside risks” with a potential to “reverse the gains realised” to date.
Like Mugabe in 2007, Biti sees profiteers bent on lining their pockets with cash at the expense of the economy. But unlike Mugabe, Biti does not see a grand conspiracy for regime change. Instead, he feels “greed” is the cause.
Biti said: “There are strong signs that inflation is on the increase as demonstrated by the month-on-months inflation of January and February 2010. What is clear and self-evident is that speculation tendencies are back on the market and that there is a huge constituency of the business sector that is keen to draw us back to the hyper-inflationary matrix of 2008. Going backwards where there was no confidence and businesspeople increased prices for the sake of increasing prices, we will not accept that.
They (business) cannot expect us to play basic liberal economics when they themselves (business) are not playing by the book.  Business cannot have their cake and eat it. We are making a clear message that we are not accepting inflationary pressures on our economy.”
But will price controls succeed in fighting inflation where even Mugabe, with the assistance of state machinery, has failed? Many feel that if Biti pushes for price controls, the move could achieve the same disastrous ends like Mugabe and invite the electorate’s anger on his Movement for Democratic Change, a partner in the unity government.

Chris Muronzi

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