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

Zimbabwe IMF Membership in the Balance

IMF ratchets up pressure on Zimbabwe to change policies and repay entire debt to the fund.
By Progress Dodo
The executive board of the International Monetary Fund will meet in mid-March in Washington for the second time in six months to decide formally the fate of Zimbabwe's membership of the fund.

In a tribute to hyper-inflation, Zimbabwe's Central Bank last month printed a staggering 21 trillion Zimbabwe dollars in order to buy nine million US dollars to pay the IMF and thus avoid becoming the first country since Czechoslovakia 52 years to be expelled from the world's most important lending institution.

Although Zimbabwe still owes another 120 million US dollars in payment arrears, it is likely to be given until November to find the money.

The nine million US dollar payment averted immediate expulsion, but none of the IMF's previous concerns and policy recommendations have been met by the Zimbabwe government in Harare. For the time being, the IMF executive board will shelve its frustrations and avoid recommending Zimbabwe's expulsion for a cat's cradle of political and economic reasons.

To achieve an IMF membership cancellation, the board needs an 85 per cent vote majority - a figure almost unachievable for a group containing many Third World countries that would be reluctant to support such drastic action against a state whose president, Robert Mugabe, has been a Third World hero for his struggle against colonial rule.

The fund, anyway, does not have a history of expelling its members - the only exception being the cancellation of Czechoslovakia's membership in 1954.

However, a cat and mouse game between Washington and Harare is sure to continue, with the IMF ratcheting up pressure on Zimbabwe to change its policies and repay its entire debt to the fund. The constant threat of expulsion is the only diplomatic avenue open to achieve policy changes in the country with the fastest declining economy in the world and where inflation is forecast to top 1,000 per cent before the end of the year.

Zimbabwe's Central Bank says the country's inflation rate officially stands at 613 per cent. But the IMF in its latest report on Zimbabwe says the real inflation rate already exceeds 900 per cent. The IMF report adds, "In the absence of a comprehensive and immediate [IMF-recommended reform] policy package, Zimbabwe's economic prospects would be bleak."

Following Zimbabwe's expulsion from the [British] Commonwealth in 2001 on a charge of rigging elections, the IMF is the only western-orientated organisation that still has leverage on Zimbabwe. The relationship will continue, with the IMF insisting that Zimbabwe puts in place measures to curb impending total collapse.

The love-hate relationship between Zimbabwe and the fund began in 1997 when President Mugabe made one-off payments of 2,500 US dollars to each of 50,000 members of the rebellious War Veterans Association who had fought a liberation war against white minority rule in the 1970s. To widespread astonishment, in a country where the average working wage was only 30 US dollars a month, Mugabe also granted the war veterans monthly pensions of 100 US dollars. As a result, the Zimbabwe dollar crashed, driving up inflation and pushing the economy into a downward spiral from which it has never recovered.

After failing to get economic policy changes, the IMF stopped giving Zimbabwe fresh funds after 1997, thus shutting down one of its remaining sources of balance of payment support. It also suspended Zimbabwe's IMF voting rights.

Mugabe accused the fund of pandering to the whims of his “western enemies” and immediately stopped servicing the country's mounting interest payments to the IMF. In 2002, he told the fund to "go and hang", insisting that Zimbabwe would go it alone, arguing that the institution’s managers had tricked him into adopting unworkable and damaging economic reform programmes in the early 1990s.

But in private Mugabe has always recognised the need for urgent balance of payment support from the same institution.

Instead of expelling Zimbabwe, the IMF has repeatedly adopted a diplomatic stance, preferring to threaten expulsion rather than actually to wield the axe.

Although Mugabe continues to rubbish the fund publicly at political rallies, his key economic man, Gideon Gono, governor of Zimbabwe's Central Bank, has said repeatedly that Zimbabwe is committed to healing its troubled relationship with the IMF.

And IMF pressure clearly worked because, after a seven-year gap, Zimbabwe began resuming payments of its debts in 2004.

It is the hope, however forlorn, of economic change that continues to dissuade the fund from going the expulsion route.

Alex Magaisa, a Harare-based economics lawyer, said this is wise because, in current circumstances, the threat to expel can achieve more than actual expulsion, which would deprive the West of opportunities to influence economic and, more importantly, key political decisions.

And apart from the complex matter of leverage, there is also the issue of the cumbersome process that is required before a country can be kicked out of the fund.

However, the standoff will remain because, although Zimbabwe continues narrowly to avoid expulsion, there will be no resumption of new IMF loans unless there are drastic policy changes.

The IMF will still demand that Mugabe cuts state expenditure, open the market and halt further invasions of commercial farmland. The IMF board will also demand, as it has always done in the past, that government reduces money supply and the civil service wage bill, which eats more than 20 per cent of the national budget.

It is equally unlikely that the Zimbabwe government will implement any of these recommendations soon. "The economic situation is desperate and, although some reforms might come, they will be slow," said Eldred Masunungure, chairman of the political science department at the University of Zimbabwe in Harare. "Mugabe has staked his pride on the land issue, and he will want to handle that in a manner in which he thinks he is not losing political face."

But John Robertson, the country's leading economic commentator, warned that Mugabe will damage Zimbabwe’s rapidly declining economy still further by not responding quickly to the IMF's call for reform. "Zimbabwe has suffered from political grandstanding and there is nothing at the moment to suggest we are not going to see more of that," he said. "Sadly there is no end in sight at this stage. All indicators point to tougher times ahead for the majority while the government looks short on ideas."

As if to confirm the economists' worst fears, Mugabe immediately went on television after the narrow escape from expulsion to liken the IMF to "the Devil" and to assert, "The IMF and Britain are squeezing us economically so that politically we would do what they would want us to do. No other country has been treated this way.

"The British [Zimbabwe's former colonial masters] and the Americans want to use the fact of our owing the IMF to bring about the change of regime here."

Mugabe thus ensured that the war of nerves between his government and IMF headquarters in Washington will continue for some time yet.

Progress Dodo is the pseudonym of an IWPR contributor in Zimbabwe.