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Solving political turmoil key to addressing Zimbabwe's economic crisis

07 Jun 2020 at 16:35hrs | Views
ZIMBABWE is experiencing one of its worst economic crises since independence characterised by cash and foreign currency shortages, fuel scarcities, rampant prices hikes, hyperinflation and increased vulnerability to starvation.

With the global pandemic, coronavirus (Covid-19), Zimbabwe's economic situation has worsened as many, particularly those in the informal economy, have been left without sources of income due to the national lockdown introduced to mitigate the spread of the disease.

Many economic experts have called on the government to re-introduce the United States dollar to help solve the country's economic crisis.

The Daily News on Sunday reporter Sindiso Mhlophe sat down with former Finance minister Tendai Biti and now vice president of the MDC camp led by Nelson Chamisa on Friday to discuss these issues and how the country can address its economic crisis.

Below are excerpts of the interview:

Q: What would you describe as some of the country's major economic challenges?

A: The economy is arrested by a milieu of debilitating challenges, challenges that are beyond President Emmerson Mnangagwa and Mthuli Ncube and beyond the Zanu-PF government.

At the centre of these challenges is the failure to resolve the political, the deep political crisis in the country and it is the exacerbation of the political crisis by Emmerson Mnangagwa.

The attack on the MDC Alliance, the capture of State institutions, the violent takeover of our head office Harvest House are all things that backfire, that are a huge own goal to Mnangagwa.

He must know as someone who went to war that a regime can ban a political party, assassinate its leaders, but that only makes the flame of freedom and democracy grow and flourish. If that was not the case there wouldn't have been independence in Zimbabwe, there wouldn't be independence in South Africa and in Namibia.

All oppressed people would still be unfree, but they became free the more the regimes of oppression acted illegally and unconstitutionally. So, that is the problem of Mnangagwa, he is structurally illiterate and he doesn't understand that you need consensus, agreement, a social contract and that governing a country is voluntary surrender of authority by citizens.

If citizens don't voluntarily surrender their authority and permission to you through a social contract, you can't govern this country. No matter how many army tanks you have, no matter how many guns you have and that regrettably is Mnangagwa's problem.

But I want to come to economics now. The economy is not producing. There is zero productivity. Companies are operating at four percent of normal productive capacity.

When you don't produce you don't generate income. In particular, you don't generate foreign currency. So, we need to go back to basic economics, which is productivity, productivity and productivity. It's not there.

Number two, we have a total mismanagement of monetary policy and the foreign exchange regime in this country. As I have argued and stated, for donkey years, Zimbabwe never had conditions for the restoration of its own domestic currency, therefore, the process of de-dollarisation was a total disaster, a complete disaster which has not worked and will not work.

Number one, a currency is a function of confidence and the quality of the social contract.
The reason why the United States dollar is the most powerful currency in the world is the fact that people believe in it. So, people, including non-Americans, have a trust in it and that's why it is the major dominant currency.

Now you cannot introduce a currency when no one trusts you, not even your own wife, not even your own children, they don't trust you and that is the problem with Mnangagwa and Ncube. No one trusts them, this economy doesn't trust them.

Secondly, you cannot introduce a currency when you are not producing because at the end of the day a currency is a measure of your productive capacity, measured against the productive capacity of other countries.

So, at the end of the day your currency becomes the relationship between your exports and imports. If the situation is what it is at the moment namely, for every US$4 that goes out in the form of imports, only US$1 comes in the form of export earnings, then you have a problem because what it means is that your current account deficit if 1:4.

That gap cannot support a currency, but more importantly is that Zimbabwe involuntarily dollarised in 2009 when I was minister of Finance.

So it was not my wisdom that we remove the Zimbabwe dollar, it was the market, the ordinary men and women in Chiendambuya, Dotito, Tsholotsho, Gwanda and Maphisa, who said we are tired of the Zimbabwe dollar, we want the rand and the US dollar. Now when that happens it's a loss of confidence in the currency.

The currency would have been caught in flagrante, which means the currency was caught with its pants down. So once the currency is caught with its pants down, it means total loss of trust. It's like finding your husband in a compromised position with another woman or vice versa, trust is gone.

That's why in the history of currencies apart from Panama in 1904, there is no country in the world which has involuntarily dollarised which has been able to de-dollarise. The most you can do is you can introduce your own currency, but you then peg it and let it float to the US dollar. So, what they are trying to do is impossible; it has never been done.

Q: The government has on numerous occasions come up with ways to address the economic challenges, including the recent introduction of a price moratorium and a floating exchange rate, in your view why have these solutions failed to yield tangible results?
A: If there is one thing that Zimbabweans should be concerned with, it's the overuse of regulations by this regime. As I am talking to you right now, in 2020 alone we now have almost 120 statutory instruments. This is five months, 150 days, so that means almost every single day this government is coming up with a statutory instrument.

The problem with a statutory instrument is that you avoid Parliament. You are running the country through decree. You don't govern a country by decree and over regulation.

When people lose confidence and trust in you, it doesn't matter what you do, people don't want. This is what has happened, people don't like Mthuli Ncube or Mnangagwa and this is the worst government in the history of governance.

That is why it is so urgent that there is a political solution in this country. We have heard reports of the government secretly printing money and this doesn't help the situation.

We urgently need a political solution in this country because if we do not do that as Ncube admits in his letter to the International Monetary Fund (IMF), there is going to be an implosion. An implosion could mean another military coup, people going into the streets and being shot by trigger happy Mnangagwa, but for crying out loud we need a political solution and a national transitional authority.

Q: You mentioned the printing of money as one of the challenges fuelling the economic turmoil, what are the major concerns around this?
A: Firstly, it is against the law, because Section 49 of the Reserve Bank of Zimbabwe says whatever liability that the central bank creates must be backed by reserves. This is because when they print money they are taking away somebody's money, it's a loan.

This money is not backed by value, it means that it has no value. What does it mean? It increases broad money supply M3 which is what the IMF was complaining about and once there is too much money chasing few goods what happened in 2009 will happen again, hyperinflation. The money itself becomes a Ponzi scheme.

So, we will go back to 2008 where we will end up with a $100 trillion note which cannot buy two bottles of coke.
Stop printing money and do the right thing by living within your means, which is pursuing fiscal consolidation. This is what I used to call ‘eating what you kill'. If you catch a rat you can't call the whole village and have a party as if you have caught an elephant. In economics one minus two, it can't. If one minus two is equal to minus one you are wrong, it won't work.

Q: The government recently announced an $18 billion stimulus package for businesses, is this enough to sustain industry and stimulate production?
A: Before we even go there, the money is not there, it's just hot air. You know its criminal that we have had a lockdown since March 30, 2020 and this government has not put a single cent to Covid-19.

Ncube was before the parliamentary committee on Budget and Finance a few days ago and he said we borrowed from the market $500 million that is less than US$20 million. Borrowed? Where is the budget?
Whereas other countries are coming up with massive fiscal packages, for example, the Americans have put in US$3 trillion, the British have put in close to £800 billion, but we have a government that has not put in a single cent to Covid-19.

As I am talking to you right now, we have done less than 40 000 tests and out of those less than 20 000 are diagnostic tests the rest are just rapid tests which are not final and definitive.

So, for all the hullabaloo and the lockdown it's a waste of time because if you can't do mass testing you are wasting time and harassing people.

Despite the fact that 90 percent of our people are unemployed, that 70 percent of our people are living in poverty and they are living on less than a dollar a day, the government has done nothing for the people.

Other countries like South Africa, people are being given grants, food and cash handouts, what is our government not doing it?

Remember when you have Covid-19 you have to flatten two curves, that is the disease curve and you flatten it by testing people, contact tracing, isolating and treatment.

You also need to flatten the poverty curve by social safety nets, provision of water and food. The third curve that you have to flatten is the economic curve because companies are closing down. So, you need a stimulus to small businesses and SMEs and so forth.

Other countries in the region are doing it, but they are just as poor as we are, but we are failing to do the same. So, the government has failed to manage Covid-19.

Q: With the global pandemic coronavirus (Covid-19) there have been several allegations against the government in terms of managing donations and funds, what can be done to ensure that there is transparency and accountability?
A: We keep on telling donors and the international community that giving money to this government is like putting money in a bottomless pit. The other day they got a donation from Jack Ma and the same people took that donation and started selling it.

So we say to donors you will be crazy and foolish to give money to this government. If they want to help our people, they should help them through well-known NGOs like the Red Cross. But for any donor to give money to the government it's crazy and ridiculous.

Q: So what can be done to ensure that there is transparency and accountability?
A: We support aid to the people of Zimbabwe, but not through the government, because the government itself has an uncontrolled appetite for resources.

Of everything that has been donated towards Covid-19, there must be a forensic audit.
The auditor-general must carry out a forensic audit to find out what has happened to every audit. You cannot have a country run on the basis of every policy being motivated by the bottom line.

Q: What are some of the innovative and sustainable solutions the government can adopt to solve the country's economic crisis?
A: The US dollar must come back and the rand must come back. Secondly the government must remove all restrictions on export surrender earnings, in other words your export surrender requirements must be scrapped.

So, two issues and measures around the fungibility of certain shares in particular the Old Mutual shares must be allowed to be fungible.

So, bring back the US dollar and allow the market to operate. Third, all wages and salaries by the government must be immediately paid in US dollars.

Then retailers and everyone must levy their charges in US dollars.
Allow everyone to import fuel. Fuel right now is the monopoly of a few….
How does one country become subjected to one monopoly and one person?

So, allow everyone to bring fuel and let those who have brought fuel charge in US dollars because people will now be paid in US dollars.

The same formula must apply to goods in the shops and once you do that you will see prices plunging down.
You will kill two birds with one stone. You will deal with the problem of runaway inflation. Our inflation right now is the second highest after Venezuela and then you deal with shortages and this can be done without hustle.

In the long to medium term, the government must attend to structural reforms. These are reforms around the wage bill where 80 percent of the government expenditure is going to ghost workers.

The government must reduce the wage bill to 30 percent of the total expenditure, from 25 to 30 percent of GDP to nine percent of GDP, which is important.

Attend to structural reforms, including dealing with the debt question. Have a programme for debt cancellation and forgiveness, which unfortunately can never happen in a Zimbabwe led by Mnangagwa.

That's why we need a political solution because only Nelson Chamisa has the national goodwill to persuade the international community to cancel and forgive our debt in this country.
When you attend to those structural reforms, it means that you restore relations with London, European Union, Washington, Beijing and New Delhi.

This means that you can make an application now to join the Rand Monetary Union because the long term future of our currency in Zimbabwe depends on us integrating into the region and joining the Rand Union or alternatively pushing Sadc so that we have both a free trade area and a monetary union.

That is the way forward, but as I keep on emphasising its politics, politics, politics, we have to resolve politics.

Source - online
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