By Dr Tapiwa Mashakada, MDC Shadow Minister of Finance
The current financial crisis is only a symptom of deep seated structural problems embedded in the body politic of Zimbabwe. These range from inconsistent and misaligned macro-economic policies and toxic politics.
The currency crisis, if not addressed, will be the powder keg of political and economic instability in Zimbabwe. Government did not consult stakeholders to hear and know their view on the matter. Ideally, the Reserve Bank should have first presented the issue before the Parliamentary Committee on Budget and Finance which in turn would have sought the views of the public on this important national development moreover, the RBZ neglected to consult the TNF which is the cog of a Social Contract in Zimbabwe. In the circumstances governnent should but heed the dissenting voices of the generality of the masses.
If the governnent wishes to commit the Ostrich’s offence and proceed with bond coins, the market will reject its usage as legal tender. This will be a suicidal move. The political and economic consequences will be dire. Bond notes will trigger another black market of foreign exchange. Government will be tempted to print more bond notes to pay civil servants and this is sure to trigger price hikes and ultimately hyperinflation.
Imports will be harmstrung as importers have to apply for foreign exchange and import licences, a thing which had stopped in 2009. Government is unwittingly turning back the clock to 2008. Zimbabwe imports 60% of its goods from South Africa compared to exports of 40%. While bond notes will reduce the trade deficit which now stands at $3 billion dollars, the unintended consequences include slump in domestic production which will lead to empty shelves, fuel and food shortages. We have walked this road before.
The printing of Zim dollars disguised as bond coins and their circulation alongside the US dollar known as “partial de-dollarization”. The market will be faced with 2 choices – Zim dollar and foreign currencies. In practice there is no choice. Its a one way decision. The market will go for the greenback. Stupid.
Government is gambling with unorthodox policy prescriptions.Partial de-dollarization was attempted in Latin America by countries that had, like Zimbabwe, previously dollarized, examples are Bolivia, Costa Rica, Ecuador and Chile. The moment they started partial de-dollarization, exports fell and this was followed by price distortions and capital flight. This resulted in serious balance of payments problems.
In our case, partial de-dollarization will lead to unintended consequences such as shortages of basic commodities and hyperinflation. Workers will start to go for short term wage agreements in order to keep pace with the purchasing power parity of bond notes. With such a scenario, riots will begin and there will be socio-economic strife in Zimbabwe. Government will respond with brutal force which according to Karl Marx, is the midwife of a political revolution.
In order to avert all this, government should shelve its bond notes plans and go back to the drawing board.
MDC-T is working on a national convergence of ideas to seek for a long lasting political solution to Zimbabwe’s economic quagmires.
Zimbabweans are not short of ideas. We have proffered many alternatives to government on how to increase liquidity. The first thing is to restore confidence by deleting the indigenization act. This will encourage FDI flows and increase the supply of the US dollar. Once industry is capitalized, capacity utilization will increase and exports too. This way the country gets more foreign currency. When the country starts to produce, imports will fall and the trade balance will improve. But all this is not obvious to Zanu PF which is stuck in its maze of warped dirigistic policies.