Mugabe warms to the West

ROBERT Mugabe's anti-Western rhetoric has been conspicuous by its absence of late, a sign the 91-year-old leader has mellowed or realised that Zimbabwe may need financial help.

A year ago, the veteran turned to "old friend" China, but behind the official warmth Beijing made clear the days of blank cheques were over, forcing Harare to make repayments on US$1 billion of loans made over the previous five years.

Since then, the southern African nation's economic plight has worsened and Mugabe said he may need the support of foreign creditors such as the International Monetary Fund (IMF), which he likened in 2006 to "the devil" and "a political monster".

"The economy is in such a dire state and Mugabe's rapprochement with Western donors is a realisation that he has very few options - even if he may have personal misgivings and it goes against his political beliefs," said John Robertson, a Harare-based economist.

The government is forecasting growth of 1,5% this year but many analysts say Zimbabwe is tilting towards recession - its first since 2008, when hyperinflation clocked 500 billion percent and Mugabe lost his first ever election.

Deflation has taken root as consumer demand shrinks and the economy struggles with a shortage of dollars. Once bustling factories in Harare are now rusty shells, devastated by the 1999-2008 recession that cut GDP by about half.

In addition, the mines are reeling from the fall in commodity prices and a drought has left 16 percent of the population needing food aid. Formal unemployment stands at more than 80% and power shortages are getting worse.

"This is the worst since 2008. The economy looks very bleak and there is a lot of negative sentiment," said Anthony Hawkins, economics professor at University of Zimbabwe's Graduate School of Management who predicts a 1 percent contraction this year.

The third quarter Confederation of Zimbabwe Industries' latest Purchasing Managers Index stood at 43,1, only a shade above the 42 level that indicates a recession.

"DEVIL AND MONSTER"

Against this backdrop, Mugabe told parliament in late August he was looking to boost ties with foreign creditors.

Finger jabbing and remonstrating, Mugabe has in the past been most critical of the United States and Britain, accusing them of seeking to topple him from power.

That vitriol is now just a memory, while the European Union, looking beyond Mugabe's rule, has gradually lifted sanctions. The bloc still maintains an arms embargo and what it calls a token travel ban and asset freeze on Mugabe and his wife.

"We invite other countries with which we may have differences of whatever nature to eschew threats, pressures and punitive actions, in favour of reconciliation, friendship and dialogue," Mugabe told the U.N. General Assembly last month.

Harare has also opened talks on fresh loans from the World Bank, IMF and African Development Bank for the first time since 2009, when it started defaulting on its foreign debt, which now stands at US$10,4 billion or 74% of GDP.

In the past, Mugabe parceled out land seized from white commercial farmers, raised wages for state workers and printed money to finance government spending to shore up his support.

Now he has little room to manoeuvre after the adoption of the U.S. dollar in 2009. The government can no longer devalue the currency, print money to stimulate the economy or influence interest rates.

POLITICAL SUICIDE

But new international loans will require reforms, including selling some loss-making state firms, which are a constant drain on the public purse, analysts said.

Harare would need to plug leaks in its finances, increase transparency in mining revenue, redistribute idle farms to competent farmers and ease black economic empowerment laws requiring foreign-owned firms to sell majority shares to locals.

"By far the biggest reform is that of the civil service. The government needs to cut spending on salaries, which the authorities are conscious of," said a Western diplomat who has helped Harare in discussions with foreign creditors.

Wages take up 83% of Zimbabwe's US$4 billion annual budget. Finance Minister Patrick Chinamasa has said the bill should be cut in half, but there is no consensus within cabinet on how to do it.

The government is now the biggest employer with 550000 workers of the total 800000 formal jobs. Most Zimbabweans earn a living in the informal sector and on the streets.

In April, Chinamasa said cabinet had agreed to suspend bonus payments to public workers because of falling tax revenues, but days later Mugabe publicly reversed the decision, conscious of the political fallout.

Christopher Mutsvangwa, a strong Mugabe backer and outspoken minister for veterans of Zimbabwe's independence war against white minority rule, accused Chinamasa of cosying up to the IMF and criticised any plans to cut civil servants wages or jobs.

"Now that is patently immoral as it is political suicide for ZANU-PF, the people-centred party," Mutsvangwa wrote in a state-owned weekly newspaper on Oct. 11.