Institute for War and Peace Reporting | Giving Voice, Driving Change

Financial Meltdown Fears

With the failure of recent currency reforms, analysts warn country faces absolute collapse.
By Godfrey Bepe
Restaurant customers in Zimbabwe are again paying with heavy brick-sized wads of local currency heaved around in carpet bags despite the removal three months ago by the Reserve Bank of three zeros from the country's inflation-wracked currency.



With inflation having topped 1,200 per cent, a takeaway beefburger now sets you back 10,500 Zimbabwe dollars, or 6.6 US dollars at the commonly used black market rate, compared with 2,100 Zimbabwe dollars on August 1, the date on which the old currency was abolished and issued new notes with three zeros lopped off.



Awash with old notes in a system in which the International Monetary Fund says inflation will top 4,400 per cent, Zimbabweans relieved their misery by joking that they were "the world's poorest millionaires".



The scrapping of those old notes and of three zeros from the new ones robbed them of the title, which was of little comfort living as they do in the only country in Africa which for the past seven years has recorded annual negative growth rates.



But already Zimbabweans are heading once again towards becoming "the world's poorest millionaires". Real estate buyers are again handing over deposits of millions of Zimbabwean dollars in notes stuffed into suitcases and car boots.



Before August businesses were handling such huge volumes of notes that they needed currency counting machines even for the simplest transactions. After a brief lull, following Central Bank Governor Gideon Gono's "reform", newspapers are again advertising currency counting machines for sale.



With inflation out of control, massive foreign currency shortages following the collapse of export-earning industries such as commercial agriculture, tourism and gold mining, and a minimal tax base with unemployment at 80 per cent, the collapsing value of the Zimbabwe dollar is just one sign of the nation's wider economic disintegration.



"We are looking at total meltdown," one economic analyst told IWPR. "In the next few months the country could be pushed into absolute collapse. Gono's so-called currency reforms have not worked."



On the black market, which all Zimbabweans and visitors use extensively, the value of the Zimbabwe dollar fluctuates. Over one recent period of four days, the black market rate for just one US dollar swung from 1,200 to 1,600 Zimbabwe dollars. [The official exchange rate, which everyone avoids wherever possible because it is so unrealistic, is one US dollar to 250 Zimbabwe dollars.] "The rate is changing by the hour," one black market dealer told IWPR.



Troubled Central Bank officials are running out of the new currency faster than they can print it as black marketers and money launderers withdraw massive amounts of bank notes to buy hard currency for future speculation. The government introduced regulations to limit withdrawals to 100,000 Zimbabwe dollars at a time, but it is being flouted as the big-time dealers pay bribes to bank tellers who, like all ordinary Zimbabweans, are struggling to survive.



The government has repeatedly refused to devalue the currency properly as part of an effort to stem the country's decline. The black market has been stoked by the severe hard currency shortages, with the unofficial exchange rate being pushed up by the day as even desperate state-owned enterprises seek the hard currency the government is unable to provide in order to settle debts for imported fuel and electricity and other external fees. Many of those debts, especially for coal, seed and fertiliser, are being foreclosed.



Faced with new uncontrollable inflation despite its "three zeros" tactic, the Central Bank is warning that it will introduce yet another new currency soon - and this time citizens will be given only 24 hours to trade in their old notes before they become "useful only as manure", in the words of Gono.



In the bewildering world of Zimbabwean money, the highest existing banknote is for 1,000 Zimbabwe dollars - four US dollars at the official exchange rate, 60 cents at the black market rate - which buys very little. Most transactions up to 100,000 Zimbabwe dollars are in so-called "bearer cheques", printed on low quality paper because the government no longer has enough foreign exchange to import the kind of high quality paper necessary for printing standard bank notes. Bearer cheques have no security and they expire as a means of exchange beyond a date printed on them.



Besides robbing Zimbabweans of the kind of standard cash enjoyed elsewhere in the world, travel over small and long distances has become a nightmare because of the lack of foreign exchange. There is no petrol, for example, at stations along the 260 kilometre trunk road between Harare and the main eastern Zimbabwe city of Mutare. Oil industry executives say the shortages have been caused by the dearth of hard currency to pay for state-controlled imports and the near-collapse of the government's main deal with a supplier that provides 70 per cent of the country's monthly fuel requirements.



The fuel crisis has been exacerbated by the state-owned National Oil Company's strategy of pegging fuel prices in an ultimately futile bid to stem inflation. With petrol set at a controlled price of 325 Zimbabwe dollars a litre, it is, when available, the cheapest anywhere in southern and central Africa, half the price of a local pint of milk or beer.



The trickle of fuel imports are heavily subsidised by the state. Private oil industry executives say that on the open market fuel could be bought and shipped into the landlocked country at a cost of 1,200 Zimbabwe dollars a litre, giving consumers assured and plentiful access at a retail price of slightly above 1,500 Zimbabwe dollars a litre. Without allowing oil companies to import freely and charge market prices, analysts say the fuel crisis will worsen.



Meanwhile, some 3.5 million people in a remaining population of 11.5 million - some three million or more have fled to other countries - face hunger in the coming months because of a disastrous drop in agricultural production as a result of badly planned reforms, including the violent seizure of largely white-owned commercial farms from 2000 onwards, and the inability to afford the import of such essential imports as seed and fertiliser.



The Consumer Council of Zimbabwe reported that the price of washing powder rose 47 per cent, bread 42 per cent and sugar 39 per cent in October. Electricity increased by a crippling 270 per cent. John Robertson, the country's leading independent economist, said the country's industrial base had shrunk 65 per cent in the last six years



Godfrey Bepe is the pseudonym of an IWPR journalist in Zimbabwe.

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