Lack of intellectual independence retards Monetary Policy Committee


Continued from last week

Qualifications, a proxy for knowledge and skill, are just one aspect of courting market respect — it is the deployment of that supposed knowledge and skill to make sound economic analysis and diagnosis that will earn and sustain the Monetary Policy Committee (MPC)’s respect. In terms of its diagnosis that the economic fundamentals are sound, the MPC has made a false start.

An apparent display of a lack of intellectual independence makes it difficult to have the confidence that the MPC can muster the courage to assert independence from political interference.

The Reserve Bank of Zimbabwe (RBZ) Act states that the MPC shall be independent from the RBZ board; it is silent on the MPC’s independence from government. Worse still, we are not privy to the MPC’s governance charter and rules of order, which would ordinarily tell us the limits of the power of the chairperson of the board.

In our case, the RBZ governor, John Mangudya, is the chairperson of the MPC. We are not sure if the decisions of the MPC will be established through voting or consensus. If it is by vote, what kind of vote it will be: secret ballot, acclamation or any other open method? We do not know if the chairperson has both a deliberative and a casting vote.

These issues are critical to giving the market the confidence that the decisions of the MPC will not be a mere endorsement of pre-cooked decisions by a few powerful MPC members, including the chairperson. The MPC has an imminent policy choice to make — which broad policy objective to prioritise between inflation stabilisation and economic growth.

Prior to the MPC, the RBZ made a policy choice to raise overnight interest rates from 50% to 70%, this in a context of the 2% intermediate monetary transaction tax; both policies pare down economic growth. The fiscal arm is talking of fostering growth from next year. Will the MPC stand up to the fiscal pressure and still maintain high interest rates, stifling both productive and consumptive growth?

The RBZ Act states that the MPC must support government policy objectives in terms of economic growth and inflation. We are not sure what the Act injunction to support means in terms of the MPC’s independence. The law is dead until it is tested.

The RBZ has recently been publicly accused by one of the MPC members that it was sabotaging the economy through policies the member claimed were working against Finance minister Mthuli Ncube’s fiscal measures.

How will sharp differences be handled by members who are known to be sympathisers of Treasury? Will the MPC withstand the inevitable political pressures that will force an increase in unsustainable money supply — the pressure to raise the salaries of the civil servants through Treasury Bills (TBs) being a pending possibility?
I sympathise with the MPC in their attempt to stabilise the local currency. Monetary policy tools are secondary — the value of a fiat currency such as the Zimbabwe dollar is primarily built on perception. There are legacy issues surrounding the local currency.

The MPC will have an uphill task trying to stabilise the Zimdollar, which was hastily re-introduced before the necessary economic fundamentals such as at least six months of forex import cover were put in place. The MPC risks soiling its integrity in attempting to fix a currency that is not trusted. The MPC accepted a poisoned chalice.

The MPC needs to understand that the multi-currency regime during the Government of National Unity (GNU) era alone was not what brought monetary and currency stability. The GNU leveraged on the trust people have with the foreign currencies and worked hard to buttress that trust through a fiscal policy of zero budget deficits and fostering real economic growth that ranged between 5% and 9,6%.

The post-GNU powers-that-be still had the multi-currency regime which was bastardised by fiscal indiscipline and policies that stifled investment. Monetary policy works when there is confidence. Matters such as lack of political reforms, waning international support and goodwill, endemic corruption, extractive political and economic mindsets are the source of our confidence deficit.

The money in monetary ought to remind the MPC what money is, its functions and characteristics: medium of exchange, measure of value, standard of deferred payments, store of value/wealth, acceptability, uniformity, among others.

The unvarnished truth is that the Zimbabwe dollar, at the moment, fails dismally in the basics of money — hence the current overt and covert re-dollarisation. The adoption of International Accounting Standard 29 (hyperinflation accounting) tells us that the Zimdollar is not being accepted. The MPC cannot fix this — they will be policing quasi-money. My prayer is that the MPC will not become a Mortality Policy Committee, rehashing statistics of how the economy is dying.

Brett Chulu is a management consultant and a classic grounded theory researcher who has published research in an academic peer-reviewed international journal. —