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Exposed: The men who are causing mass suffering in Zimbabwe

25 Feb 2019 at 07:36hrs | Views
The Reserve Bank Governor gave a monetary policy statement which was exactly two months late. The delay was caused by a power struggle within those in finance corridors of power namely the minister of finance and the RBZ governor and, because of disagreements in Government as to what should be announced. The Minister of Finance has been trying to introduce order and sanity by introducing reform programs to restore order and monetary stability within the framework of reasonable macroeconomic conditions. While the governor Dr Mangudya was busy trying to prove that he has been correct despite the failures which were visible there for all to see the economy sank deeper into an abyss.

Minister Ncube inherited a cocktail of disaster, which resembles hyena's lunch. The monetary system was riddled in corruption with bigwigs running curtails and black-markets. He found that the Reserve Bank was in a complete mess, it had godfathers who could not be questioned and they let the lives of many to hang on the thread. With lack of guidance, the Government was spending far more than they were collecting and the warning bells and sirens blurred loudly   Indicating that the economy was in crisis. This went with everybody noticing but nobody lifting up his hand to help.

As the minister was instructed by ED to hit the ground running he took steps to stop the bleeding – raising taxes and imposing strict budgetary discipline on all Ministries and Parastatals. However, the corrupt cash barons are still to be prosecuted. Expenditure which is not helpful or profitable continued to be passed. Unauthorised trips were left to blossom and there was clearly public spat between Mthuli and Panonetsa Mangudya. This showed the rings which were put around the bond you all know by who.

In all this dust the minister put up controversial measures which indeed helped the economy to stand. There were results, the results stunned many people. The fiscal deficit vanished and since that time we have been running on a surplus over expenditure. The impact was felt throughout the economy money supply stopped growing and the macroeconomic fundamentals stabilised. This was short lived as the governor wanted to be felt so there were announcements and counter-announcements. The RTGS dollars that everyone was using was said to bear no relation to the US dollar. This made the informal market to react with shock and the market rate shot up to 7:1 in a few weeks, forcing up import prices and giving rise to hyperinflation. The cruel painful memories of 2008 were rekindled.  The economy nosedived. All this because two men are fighting for recognition the other to protect his corrupt team and the other to kick start the dead economy.

In a bid to sidestep the cash crisis next, the right to hold any hard currency balances in a special foreign currency account at their banks was granted. This was accepted with deep routed suspicions and did not have a positive impact as it started. The nation and companies were deeply suspicious of these accounts but slowly they began banking any foreign currency earnings or receipt's in such accounts. This had no assurance that the long hungry hand of the state will not find its way in the national pocket.

Despite the mistrust, our coffers kept over US$700 million in the accounts and this, brought to the Government an idea of the liberalisation process. In the meantime, inflation was reaching hyperinflation levels and this was, in turn, boosting fiscal revenues and reducing the real value of the mountain of electronic money created before the changes in August 2018.

The monies which accumulated in the coffers encouraged the staring of the process of taking the country towards a more open and market-driven economy where the value of the currency in circulation would be established by market forces.  This faced problems because the country had no currency of its own and the bond had lost credibility. In order to circumvent the problem a currency in disguise was introduced and was called RTGS' dollars.

This was based on an electronic clearance system called the 'Real Time Gross Settlement' system. In other words, it was electronic money, backed by nothing except local promise and wishes. We only have a balance we can not touch feel or pocket. It is money in your mind and called air money or plastic money. The other currency was the Bond' notes and coins which has seen great criticism from the economists and the nation at large. This became a currency which was hated by all and soon got controlled by black market. Bond was printed in excess and was however only found in the street and not in the bank.

As with any currency, if you create or print money in excess of transactional needs you automatically reduce its value. This is what has happened to both the RTGS dollar and the Bond notes. So the US dollar was never at par with RTGS dollar or bond.

The government ran a huge fiscal deficit and created electronic money to fill the gap, it once again printed money in excess. The currency crashed and everyone thought that we were back to 2008 when our domestic currency, the Zimbabwe dollar was destroyed and all savings wiped out.when corruption took over and people lost everything.
But this time we were saved by the minister who forced the Government to live within its means this brought back stability and it controlled inflation levels.

Despite the fight between the minister and the RBZ governor The country managed to create the conditions for growth, led by export industries. This has proved to be difficult to get past the power brokers in the system. The fight between the RBZ governor and the minister did not help the nation. There were disciples and handlers of the black markets who benefitted from the corruption in the system.  A great many people in the State and the private sector were feeding off the system of exchange controls introduced by the Government in 2014. This entailed taking over US$3 billion a year from the earnings of all exporters and sweeping it into the Nostro (foreign currency) accounts of the Reserve Bank at the artificial rate of 1:1 with the US dollar. Again dome used the bond notes to clean the banks of all US dollars. Nobody looked.

Initially, this was not a problem as real market exchange rates were at that level. But as the State printed money, so the real exchange rates widened and when inflation started driving up costs, exporters were unable to cover their costs from the proceeds of sales.

However, exports began to decline and  Exports began declining seriously in late 2018 and are now well below what they were a year ago. Some exporters were threatening to close operations until this destruction of value was remedied.
Goods imported using these cheap dollars (fuel, wheat, cooking oil, pharmaceuticals and electricity) were available at a third of their real value and demand soared. Shortages and queues followed. Things then fell apart.

It is for this reason the government formed the backdrop to the monetary policy statement this week.
This pushed the economy very low. had this been done the currency would have traded at 2:1 or slightly more, inflation would have declined to below 5 per cent per annum in the third quarter of the year and shortages would have vanished.  But for the fights in the financial gurus, it took us deeper in economical pit latrines.  With the monetary policy given we hope our exporters to suddenly be flushing with cash and exports to expand rapidly, we would become a relatively low-cost tourist destination and remittances would increase. Rapid overall economic growth would grace the nation.

However, as observed by Cross a Zimbabwean economist "it was not to be and what we got was a partial fulfilment of the above. The Governor allowed the float but retained the sweep of exporters' earnings into the Reserve Bank accounts. The only concession I saw was that the Bank would now pay 2,5:1 for this currency – reducing the massive destruction of value that the old system prescribed. He fixed the exchange rate at 2,5:1 against the US dollar and claimed he had enough reserves to hold the rate against this peg. This I doubt very much and I predict that the peg will not last long against real market forces." This was said in reference to the governor.

Zimbabwe still needs more reforms while the monetary statement was a real step forward, economists are not totally satisfied and the outcome will prove them right.

If we are using the US dollar it will take a long time to be able to end the money shortages. The queues will remain present for a long time to come.  Zimbabwe needs exports and cash floor. We need our own currency and more productions. We must stop being a supermarket nation.

Issuing a new currency soon will strengthen the Reserve Bank and eliminate queues. It will also become a sound basis for pricing in local currency and will elbow the multi-currency system. The key to success in that respect is the Minister's idea of a professional and independent Monetary Policy Committee to control and manage the new currency. The fighting by the two men must stop. It is their fight which is destroying our economy more.

If we can get all this right, the people of Zimbabwe will always be grateful to them. Zimbabweans do not need the horrors of Grace's period to come back.

Leadership must retire one of the two and judging from the events the governor has overstayed his welcome.
Now our eyes are open we now know the men who have made the nation bleed.

Source - Dr Masimba Mavaza
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