IMF to the Rescue?

There are indications fund may resume relations with Zimbabwe and help arrest economic decline.

IMF to the Rescue?

There are indications fund may resume relations with Zimbabwe and help arrest economic decline.

Until this week, it seemed as if nothing could shake the determination of Zimbabwe's long time ruler, President Robert Mugabe, to keep his belligerent war with the West going.

Somehow, the prospect of the International Monetary Fund, IMF, writing off Zimbabwe's ballooning foreign debt and resuming balance of payments support has changed that, at least a bit.

As Mugabe cheer-led renewed land grabs at his birthday party two weeks ago and continued to allow farmland to lie fallow, foreign governments' frustration with him was almost equalled by their frustration with the South African presidency, which has pursued a widely discredited policy of quiet diplomacy, preferring engagement with Mugabe rather than isolation.

This has sometimes appeared to work at cross purposes with openly hostile politicians from Britain and the United States, which extended sanctions against Mugabe and his cronies last week for another year.

Now, South Africa seems to hold the key to the resumption of IMF balance of payments support to Zimbabwe. Events of the past two weeks show that South Africa's influence could finally rescue Zimbabwe's moribund economy.

South Africa finance minister Trevor Manuel has managed to persuade the IMF to re-engage Zimbabwe and help it emerge from its ten-year-long economic recession. IMF managing director Dominique Strauss-Kahn spoke to Manuel last week about the prospects of resuming relations with Zimbabwe and helping to arrest its economic decline.

This week a top level IMF delegation led by Vitaliy Kramarenko arrived in Harare and has held meetings with top officials, including Economic Planning Minister Elton Mangoma, Finance Minister Tendai Biti, Gideon Gono, the Reserve Bank Governor.

The IMF team is accompanied by World Bank officials, who deserted Harare in 2006 and will be in Zimbabwe until March 24. The visit is part of an annual review of IMF member countries to assess economic and financial stability and policies.

The strain in Zimbabwe's ties with the IMF date to 1999, when arguments about the value of the country's currency and its troops in then-Zaire, now the Democratic Republic of Congo, caused the fund to withhold aid. Within a year, the African Development Bank and the World Bank had followed suit.

By 2001, Zimbabwe had stopped paying back all foreign loans. In early 2002, Zimbabwe's arrears with the IMF amounted to more than 100 million US dollars, and the government's own deficit was ballooning.

In 2003, the IMF suspended Zimbabwe's voting rights in the organisation.

In 2007, when the fund started the process of expulsion, Zimbabwe began taking steps to placate it.

Zimbabwe started paying back its debts and undertook a new monetary policy aimed at denting annual inflation and shoring up the shrinking economy. Even though its efforts were in vain, the fund was mollified and decided to delay Zimbabwe's potential expulsion by six months, by which time there were disputed elections involving Mugabe and opposition leader Morgan Tsvangirai, which eventually led to talks to establish an inclusive government.

The new leaders, in particular Tsvangirai, leader of the Movement for Democratic Change, MDC, and now prime minister, and Biti, as the new finance minister tasked with resuscitating the shattered economy, optimistically pushed the view that the IMF should re-engage Zimbabwe to help with balance of payments support so that the inclusive government would have an easier time obtaining aid.

Biti and Tsvangirai met South African president Kgalema Motlanthe and his finance minister on February 20. The two Zimbabwean leaders pleaded with their Southern African counterparts for South Africa's help and goodwill in re-engaging the international community.

At that meeting, Biti tabled a document containing a two billion US dollar request.

Half would be for "direct on-budget assistance" to get schools, hospitals and farms running. It includes the costs of recurrent expenditure to pay civil servants salaries in foreign exchange; the purchase of drugs, medical equipment and agricultural inputs; and for urgent assistance to the vulnerable and destitute.

The other half would be a "self-liquidating credit line" that would allow wholesalers, retailers and producers to purchase goods using credit.

The document also outlined that full reconstruction would cost about five billion dollars and would require IMF backing, which Biti argued could help convince sceptical western governments to provide much needed financial assistance and other support.

Manuel, with his status and influence with institutions like the IMF and World Bank, was asked to spearhead the process of winning back IMF backing by underwriting Biti's request.

IWPR has been told that the IMF team is in Harare mainly to review economic developments and prospects, and it will report to the 24-member IMF executive board, which plans to meet after March 24 to decide Zimbabwe's fate.

Clearly, Mugabe is paying attention.

Zimbabwe has been pleading with South Africa for aid. So far, no deal has been reached. A donor conference called by the Southern African Development Community’s Council of Ministers also ended in failure. A package from Pretoria would allow Zimbabwe to pay some or all of what is overdue, perhaps salvaging its strained relationship with the fund and getting back desperately needed foreign aid.

On March 10, the IMF's director for Africa, Antoinette Sayeh, said the organisation could not disburse funding to Zimbabwe until the country cleared its arrears and demonstrated responsible economic policies.

"The fund is not in a position to disburse resources to Zimbabwe, among other things, because Zimbabwe is in arrears," Sayeh told Reuters. She was speaking on the sidelines of an IMF conference in the Tanzanian capital to discuss the impact of the global crisis on African economies.

Mangoma said after meeting the IMF team officials from the Bretton Woods institutions had expressed willingness to immediately assist Harare "to start things happening".

"The meeting was positive," said Mangoma. "They have told us that they are willing to immediately assist us."

By itself, this is a remarkable development. Mugabe has seemed impervious to foreign pressure, even as his own country has experienced extreme hardship and starvation. That he should care about the IMF is intriguing.

Analysts say perhaps he values the prestige of membership of one of the few international groups that wields real power in the form of cash, or perhaps he is hoping for new loans from which to skim cash - something that Britain and the United States have accused him of doing in the past.

"Mugabe may even want the money just to keep the lights on in Harare. It actually doesn't matter. The important thing is that the leverage is there," said a banking economist.

The leverage, however, does not reside with the IMF. By allowing itself to be placated, the fund has limited its own ability to affect policies in Zimbabwe. That may be for the best, some economists say, since insisting on specific changes would allow Mugabe to score political points by again rejecting the IMF altogether, with disastrous consequences for the inclusive government.

But the upshot is that the leverage sits solidly in South Africa’s hands. South Africa also seems willing to bail out its northern neighbour, provided Mugabe makes some lasting changes and shows real commitment to power-sharing.

Chipo Sithole is the pseudonym of an IWPR-trained reporters in Zimbabwe.
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