Africa, Development & Aid, Economy & Trade, Financial Crisis, Food and Agriculture, Headlines, Poverty & SDGs, Trade & Investment, Trade and poverty: Facts beyond theory

ECONOMY: Usual Suspects Eyeing Zimbabwe for Massive Deregulation

Faith Manuel*

CAPE TOWN, Oct 21 2008 (IPS) - As the global financial crisis unfolds and more questions are asked about excessive deregulation, the World Bank and others are preparing economic policy prescriptions that will throw open Zimbabwe’s economy to the whims of the world markets.

Prof. David Moore, Zimbabwe expert and lecturer in the Development Studies programme of the University of Johannesburg, South Africa, warned that whatever the outcome of the current impasse over cabinet positions, Zimbabwe should be careful to adopt economic policies that will ultimately put it at the mercy of international markets.

Zimbabwe’s current political woes started after the government adopted a structural adjustment programme backed by the International Monetary Fund (IMF) in 1990. The resulting socio-economic downturn culminated in large-scale job losses and a massive rise in the bread price, among others, which provoked social upheaval and, eventually, an electoral challenge to the ruling ZANU-PF.

It seems like déjà vu as various actors are gearing up with similar policies for the country’s ‘‘economic revival’’. According to Dr. Dale Doré, various world donor bodies are ready to ‘‘assist’’. He is a Zimbabwean expert in the field of agricultural economics and a member of the United Nations Development Programme’s (UNDP) recovery strategy research team for Zimbabwe.

‘‘The World Bank, on its own, has a consultative process underway, both with the donors and with Zimbabwean stakeholders,’’ he told IPS.

‘‘They will all come to the party once the economic policies are in place. At the moment they have a ‘wait and see’ attitude and will need to be convinced that Zimbabwe can deliver on the policies. Mugabe’s strong residual powers make them doubtful that a new Zimbabwe can be trusted. Actions will speak louder than words,’’ according to Doré.

On the issue of conditions attached to aid, Doré argued that it was not a matter of Zimbabwe being forced to implement policies in exchange for aid: ‘‘No pre-conditions will be set. Most Zimbabweans themselves are keen to charter a new course, based on internationally accepted norms of sound macro-economic management.’’

Doré’s view is that, having burnt their fingers by the imposition of structural adjustment programmes in the 1980s and 1990s, the Bretton Woods institutions now want national debate on economic policies. These institutions are the World Bank and the IMF, so named after the place where their founding meeting took place after the Second World War.

According to Doré, the UNDP’s report for a post-crisis Zimbabwe has been widely distributed to party and government circles within Zimbabwe. The report, called ‘‘Comprehensive Economic Recovery in Zimbabwe: A Discussion Document’’, has been accepted by the World Bank and major donors as the basis for further discussion.

It is also being used by some in Zimbabwean business, labour sector and civil society to articulate the post-crisis needs of Zimbabwe. These new policies, as outlined in the UNDP document, are at odds with the government’s current policies, ‘‘which is why we need a new government in place,’’ said Doré.

‘‘The country will need international assistance for stabilisation, specifically from the IMF,’’ he concluded.

Prof. David Makinda, professor of finance and banking at the University of South Africa, believes the stabilisation of the Zimbabwean economy will be a process of bringing down high inflation to moderate levels without major macroeconomic imbalances and at minimum social costs.

‘‘A coordinating forum between government, labour and the private sector would be required. There should be urgency in launching the stabilisation programme, as experience has shown that the longer the government waits to fight inflation, the more costly will be the policies required to stabilise the economy.

‘‘Bearing in mind that inflation is a monetary phenomenon, it would be desirable for the central bank to be independent and not be subject to political manipulation,’’ he argued.

Makinda, who has just returned from Zimbabwe where he made a presentation on the way forward for Zimbabwe's economy, believes the first step towards stabilisation is price liberalisation, followed by exchange rate liberalisation and the restructuring of the Reserve Bank and the financial sector.

According to Eric Bloch, Zimbabwean economist, there will be no economic policy change as long as the allocation of cabinet posts is not finalised. He also estimates the inflation rate at thrice the figure, around 750 million per cent, and warns that things will probably get worse.

Bloch believes it is not enough to have a declaration of intent. His viewpoint is that international trust should be regained through showing genuine intent to respect the rule of law and property rights. His position is that, ‘‘we need access to capital markets, we need international support, but we must have genuine intent to put the necessary groundwork in place to regain trust.

‘‘Without good governance structures in place, nobody will come to Zimbabwe’s table.’’

Bulawayo businessperson Eddie Cross agrees. He believes that, should an agreement be reached eventually, the first step would be to restore fiscal discipline, float the Zimbabwean dollar, unify exchange rates and interest rates and lift both exchange controls and price controls.

"We should also allow trading in all currencies until inflation falls back to single digit levels." Other policies, such as the indigenisation policy requiring 51 percent control of all business by Zimbabweans, will have to be revisited, Cross said.

‘‘The whole process will require funding and we can only do this if we get the politics right,’’ according to Cross.

But Moore issued a warning about the wholesale adoption of policies that many are linking to the current global crisis: ‘‘Globally the economic situation is already problematic. A country which, some say, has an economy the size of Bloemfontein (a small city in South Africa), has to be very cautious.’’

*The second in a series of two articles. Follow the link below to read the first.