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No quick fix for Zim
15/07/2007 13:56 - (SA)
Siyabulela Qoza
Johannesburg - Zimbabwe would need a "simultaneous package of political reform, currency revaluation, foreign investment and restoration of goods and services - primarily, food importation" to pull herself out of the economic crisis she is in, says Pan African Advisory Services chief executive Iraj Abedian.
He said such a package couldn?t be implemented piecemeal but given what is happening in Zimbabwe, this is unlikely to happen in the short term, as the government is unlikely to agree to political reform.
"What is happening in Zimbabwe does not make political or economic sense. It is financial suicide that is worse than what we have seen in times of war," he said.
Zimbabwean police were this week arresting business people who were not following government orders to cut the prices of basic commodities and fuel by half.
The price freeze led to panic buying, which left shelves across the country empty. Analysts say the price controls left businesses unprofitable because they were forced to sell their stock at lower than what they paid for it.
As a result, they do not expect the shelves to be stocked any time soon.
Bail-out talks
Abedian said the price controls, supply shortages and inflation did not leave much room for further constructive engagement and it is impossible for the region, which will have to accommodate Zimbabwean refugees, to help.
"When someone is sleep-walking towards a wall, you can help them. But if someone jumps off a cliff, then the gravitational force of price controls, supply shortages and inflation takes over and there is little you can do," he said.
As the crisis deepens, Zimbabwe is believed to be talking to countries and institutions to raise $2.5bn (R17.4bn) to help stabilise the economy.
It is believed that the Zimbabwe government is talking to South Africa about the bail-out.
Last month during a state visit to Tripoli, President Robert Mugabe was reported to have held meetings with Libyan leader Muammar Gaddafi about a $2bn loan.
"The bigger question is: What are the Zimbabwean government offering potential lenders in return for their assistance?" asked Yvonne Mhango, economist at Standard Bank.
"They may be mortgaging the country's natural resources. One of the most important conditions for advancing loans is a guarantee that the money will be returned."
'Enough is enough'
She said the Zimbabwean government is forced to look for loans because foreign reserves have been severely constrained by the economic slowdown, closure of credit lines and declining tax revenues.
Abedian said he would be surprised if there was any lender advancing credit to Zimbabwe.
He said Israel, which underwent a war, had to change governments and revalue its currency before being able to manage inflation.
Mhango said any recovery plan would be painful for Zimbabwe and the region.
She said it was unlikely that the Zimbabwean government would accept a proposal to peg the Zim dollar to the rand.
"Pegging the Zim dollar to the rand implies giving control of the central bank to South Africa. Mugabe is unlikely to give up the sovereignty of the central bank," said Mhango.
She said it was unlikely that South African authorities would consider allowing the pegging of the two currencies without the financial indicators converging.
Abedian added that Zimbabwean Reserve Bank governor Gideon Gono's attack on the government policy this week represented the first sign that some people within the top echelons are finally saying "enough is enough".
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