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When economic disaster strikes

June 11, 2008

By Business Correspondent

HARARE – Zimbabwe’s currency is worthless from hyperinflation, its financial institutions in total disarray while its world-class farming estates lie idle and the tourist infrastructure is grossly underutilized.

Zimbabwe, the spirit of whose citizens has been shackled by the short-sighted economic and other policies of incompetent cabinet ministers, has for long been riding on the highway to total disaster.

According to information gathered by The Zimbabwe Times, Zimbabwe is a perfect example of the sort of economic and political disaster that can destroy any country that pursues populist Marxism and engages in the short-sighted and ad hoc plugging of holes by policy makers.

The country now boasts of an unprecedented inflation of 1 700 000 percent for the month of May.

With inflation at 4 percent it takes 18 years for currency to lose half of its value. By using the rule of 72 recommended by the International Monetary Fund we can calculate that with inflation at 100 000 percent it takes about 6 hours and 20 minutes for $100.00 to be reduced to $50.00.

And with inflation at 1 700 000 percent if you delay your shopping by half an hour you have effectively lost 50 percent of the value of your money.

If you go out to buy a loaf of bread and you are ten cents short, by the time you have rushed home to collect the 10 cents and returned to the shop, the price of bread will probably have doubled.

The International Monetary Fund has declared the situation in Zimbabwe an economic crisis.

“The economic crisis calls for urgent implementation of a comprehensive policy package comprising several mutually reinforcing actions,” the IMF said in its 2007 recommendations for redressing  Zimbabwe’s economy.

The reforms included structural reforms, public enterprise and civil service reform, agricultural sector reforms and the strengthening of private property rights.

Zimbabwe last month introduced a new half-a-billion dollar bank note in a desperate bid to tackle cash shortages being fed by rampant inflation.

The parlous situation is aggravated by President Robert Mugabe’s fight against the laws of supply and demand, and recommendations by the IMF.

Mugabe has been threatening to imprison shopkeepers who increase commodity prices. Inability to adjust commodity prices to reflect costs is tantamount to forcing shops to close, forcing them out of business and rendering supply even more incapable of meeting demand.

The country’s chronic economic crisis has condemned millions to grinding poverty with an estimated 80 percent of the population now effectively living below the poverty threshold amid acute shortages of basic consumer goods in the shops.

Economist John Robertson says while President Robert Mugabe has been printing off new currency at increasingly rapid rates to help pay governement costs, such production has only served to hasten the decline of the value of the Zimbabwe dollar, while driving up commodity costs and inflation.

“They’re printing money so fast but it’s getting to the point that it is not fast enough,” Robertson said.

“The crunch is going to come when local money is eroded to the point it is no longer acceptable in commercial activities or as earnings, especially by longtime Mugabe loyalists,” said Robertson.

Already, many ordinary transactions are being conducted in U.S. dollars, both openly and in secret. Even cultural traditions have not been spared the ravages of hyperinflation. Payment of lobola (marriage dowry) is increasingly now being demanded and tendered in foreign currency.

Manufacturing companies running at below 30 percent capacity, report escalating absenteeism among workers who can no longer afford soaring transport costs.

Mugabe claims the seizure of commercial farms starting in 2000 has benefited poor and landless blacks. Most of the more prosperous farms seized have, however, been allocated to Zanu-PF loyalists, while the rural peasants continue to wallow in abject poverty.

With the recent suspension by government of distribution of relief food supplies by aid organisations the poor will become poorer while the four million beneficiaries face starvation.
 

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