Bond notes a disaster, says Energy Mutodi

A controversial Zanu-PF youth member Energy Mutodi has described the bond notes which the government is introducing this month end as a disaster for the nation.

He said Zimbabwean fiscal and monetary authorities will soon launch bond notes aimed at easing the country's liquidity challenges amid widespread disapproval by citizens who feel that President Robert Mugabe's corrupt regime is trying to re-introduce local currency through the back door.

"Although Reserve Bank officials are insisting that the bond notes are a positive development as they will enhance money supply through incentivizing diaspora remittances and export receipts, lack of trust by citizens on the government that has stolen from the public for many years is the biggest drawback to the bond notes," Mutodi said.

"Previously, government has introduced bearer cheques and resorted to monetizing the economy as inflation soured due to excessive government expenditure against falling exports. A hyper-inflationary environment set in in 2008 leading to the rejection of the local currency by the transacting public.

In order to arrest inflation and stabilize the economy, government made an inevitable decision to adopt multi-currencies with the US dollar being used as an official currency for all government transactions."

He said ever since the government decided to use multi-currencies as a measure to fight hyperinflation, the Reserve Bank of Zimbabwe has been unable to implement its own monetary policy successfully as its lender of last resort status has been taken away.

"Money supply and interest rates have become exogenous factors to the economy as government cannot control them under the current situation.

Under a normal situation, government prints money to provide liquidity, sells its own securities in order to mop up excess liquidity and announces interest rate changes in order to determine financial market activity," Mutodi said.

"Our current situation is therefore not normal as we do not have financial autonomy. By printing bond notes, government is trying to revert back to normality. However, it is clear that the move will not subsist because the economic fundamentals that promote stability have not been addressed.

Firstly, government still maintains a huge labor force while its revenue base is downsizing due to company closures."

The youth full politician said there is no fiscal space to resuscitate manufacturing companies and invest in other productive sectors while the once prosperous agricultural sector has now been plagued by cell-phone farmers and penniless peasants.

"President Mugabe still maintains a huge cabinet with two Vice Presidents and more than 30 ministers who drain government of huge sums of money in perks and allowances. Secondly, corruption is rife in state-owned firms as ministers and senior civil servants continue to loot them," he said.

"Ministers appoint their friends to parastatal boards who in turn return the favor by facilitating the looting of the parastatals by the minister through bogus tenders and other forms of treachery. Institutions created to improve transparency and accountability in public sector business such as the tender boards, anti-corruption commission and the auditor general's office are ineffective as politicians override them."

Mutodi said thirdly, due to nepotism and lack of meritocracy, the competency of government officials to manage public affairs is unsatisfactory.

"For instance, the Reserve Bank of Zimbabwe has glaringly demonstrated incompetence by proposing issuance of bond notes that erode banking sector confidence. There are also very few ministers appointed for their technical know as most of them are appointed on account of their loyalty. At the same time, technocrats are not being consulted to assist with government policy decision making resulting in laws that constrain the economy," he said.

"To further worsen the situation, poor performing ministers and chief executives of loss-making parastatals who are awarding themselves obscene salaries are not being fired and replaced with competent people. Due to an inactive economy, unemployment and poverty are rife among ordinary citizens. A huge number of unemployed youths survive through buying goods in South Africa and selling them in Zimbabwe; taking advantage of the arbitrage that has been created by the lack of competitiveness of Zimbabwean manufacturing companies."

He said the introduction of the bond notes is therefore going to disadvantage traders who have no other forms of survival.

"Already, the policy announcement to introduce the token currency has resulted in outrageous net cash outflows from the economy. Citizens are worried that Mugabe's government will over print the bond notes so as to argument money supply; resulting in inflation and the erosion of savings. Already government has proven financial indiscipline by digging into bank nostro-savings to finance its unsustainable wage bill," he said.

"For a government that is struggling to pay its wage bill and with a huge debt overhang, borrowing in order to pay incentives on exports and diaspora receipts is irrational. Why is government proposing to give away free money when it is failing to revive industries that are closing due to financial distress? Is it not a better idea to borrow in order to build roads and other infrastructure necessary to attract foreign investment? "

"Bond notes have created far reaching negative consequences to the economy such as loss of confidence in the financial services sector and government, externalization of funds as depositors fear conversion of their money into the worthless currency, drying up of offshore credit facilities as country risk increases, the introduction of a cash premium on transaction costs as well as scarcity of imported goods and possible inflation due to smuggling."

Mutodi said the current political and economic situation does not permit government to implement its own monetary policy.

"The 2008 hyper-inflationary climate is still fresh in the minds of citizens. Instead of resorting to bond notes, government may consider adopting the rand which is a weaker currency with a potential to boost competitiveness and exports. Confidence in the country's leadership has also been eroded by the poor performance of the economy; making it necessary for President Mugabe to resolve the succession issue as a matter of urgency," he said.

"A new president in Zimbabwe is overdue although it may be necessary to allow President Mugabe to serve in another capacity other than the presidency if leaving power completely poses a danger to him and his family. In order to create a vacancy in the presidency, the constitution may be amended to create the post of supreme leader that Cde Mugabe can occupy."