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As Zimbabwe's money runs out, so does Mugabe's power
As Zimbabwe's money runs out, so does Mugabe's powerFri Nov 25, 2016 | 10:04am EST
President Robert Mugabe addresses to his supporters during an election rally in Chitungwiza, Zimbabwe June 26, 2008. REUTERS/Philimon Bulawayo/File Photo
An illegal foreign currency trader counts notes at a local bus station in the capital Harare, Zimbabwe, November 18, 2016. Picture taken November 18, 2016. REUTERS/Philimon Bulawayo
An illegal foreign currency trader counts notes at a local bus station in the capital Harare, Zimbabwe, November 18, 2016. Picture taken November 18, 2016. REUTERS/Philimon Bulawayo
Zimbabweans queue to withdraw cash from a local bank in the capital Harare, Zimbabwe November 2, 2016. REUTERS/Philimon Bulawayo
Locals walk past old currency notes on display along a street in the capital Harare, Zimbabwe, November 18, 2016. Picture taken November 18, 2016. REUTERS/Philimon Bulawayo
By Ed Cropley | HARARE
In Zimbabwe, where worthless $100 trillion notes serve as reminders of the perils of hyperinflation, President Robert Mugabe is printing a new currency that jeopardizes not just the economy but his own long grip on power.
Six months ago, the 92-year-old announced plans to address chronic cash shortages by supplementing the dwindling U.S. dollars in circulation over the past seven years with 'bond notes', a quasi-currency expected at the end of November.
According to the Reserve Bank of Zimbabwe (RBZ), the bond notes will be officially interchangeable 1:1 with the U.S. dollar and should ease the cash crunch. The central bank also promised to keep a tight lid on issuance.
After a 2008 multi-billion percent inflationary meltdown caused by rampant money-printing, many Zimbabweans are skeptical. The plan has already caused a run on the banks as Zimbabweans empty their accounts of hard currency.
Internal intelligence briefings seen by Reuters raise the possibility that the bond notes, if they crash, could spell the end of Mugabe's 36 years in charge.
A Sept. 29 Central Intelligence Organisation (CIO) report revealed the powerful army was as unhappy as the rest of the population with the new notes and had told Africa's oldest leader to "wake up and smell the coffee".
"Top security officers have told Mugabe not to blame them if Rome starts to burn," the report said.
Reuters was unable to determine the author of the report. It is also unclear if Mugabe has seen the report, whose final audience is not specified. Mugabe's spokesman did not respond to requests for comment, nor was the CIO available.
But the report offers a rare glimpse into the thinking of Mugabe's security forces - the backbone of his power – and their concerns about the implosion of what used to be one of Africa's most promising economies.
"Mugabe was openly told that the bond notes are going to cause his downfall," the report said.
WAITING FOR THE DROP
The notes' first test will come in the informal foreign exchange markets on the streets of Harare.
If they fall heavily in value, they are likely to unleash an inflationary spiral that could bleed the banking system of its last few dollars and wipe out Zimbabweans' savings for the second time in less than a decade, economists say.
The same happened in 2008: powerful individuals with access to dollars at the official 1:1 rate were able to buy bond notes at a discount on the unofficial market and then convert them back to dollars at face value.
"You start with one dollar, then you've got 10, then you've got 100, then you've got 1,000 – and it's not even lunchtime," said John Robertson, one of Zimbabwe's most respected private economists.
In Harare's chaotic Road Port bus station, the main terminus for those heading to and from South Africa, Zimbabwe's biggest trading partner, some bus operators are fearing the worst.
Required to pay nearly all their expenses - fuel, road tolls and police bribes in Zimbabwe and South Africa - in hard currency cash, they are particularly exposed.
"It's like being on death row. You don't know when the hangman is going to open your cell door," said ticket-seller Simba Muchenje, pulling a wad of worthless 2008 Zimbabwe dollars from his briefcase and tossing them onto the counter.
"It's just taking us back to the bad old days."
In interviews, none of eight money-changers trading South African rand and U.S. dollars said they would accept bond notes at their $1 face value because of fears of immediate depreciation. The rand and the U.S. dollar have become Zimbabwe's currencies since the local dollar was scrapped in 2009
"The banks may say 1:1, but here we say 2:1. We can't afford to pay the same as the banks. I'm running a business, not a bank," said Patience, a 32-year-old money-changer.
REASSURING WORDS
Given Zimbabwe's recent history of hyperinflation, the RBZ is keen to allay fears the printing presses are about to go into overdrive, and that the bond notes are a roundabout route to a new Zimbabwe dollar.
"The introduction of bond notes does not mark the return of the Zimbabwe dollar through the back door," it said in a statement on its website.
Instead, the bank has presented the notes as a 5 percent "export incentive" - a top-up added by the central bank to the accounts of those receiving foreign exchange either from overseas remittances or via farming, manufacturing and mining exports.
They will also be backed by a $200 million "loan facility" from Afreximbank, a Cairo-based lender owned by the African Development Bank and dozens of African governments and central banks. Afreximbank declined to comment.
Given monthly exports of roughly $250 million, the 5 percent 'top-up' suggests a monthly liquidity injection of just $12.5 million, or $1 for every Zimbabwean.
In public statements, the RBZ has given assurances it will not exceed the $200 million issuance ceiling.
But it has not clarified how bond note balances will be recorded in U.S. dollar accounts, nor how ATMs will distinguish between greenbacks and bond notes when they issue cash.
"Upon withdrawal, banks have an option to pay in any one of the legal tenders," the RBZ said.
RBZ Governor John Mangudya missed a scheduled interview with Reuters and did not respond to emailed questions.
NO DOLLARS, NO FUN
Few Zimbabweans interviewed believed the RBZ would stick to the issuance limits, especially while a large current account deficit continues to suck dollars out of the country.
After the bond notes’ announcement, #ThisFlag and #Tajamuka, social media campaigns targeting the new system, drew the biggest anti-Mugabe protests in a decade before being crushed by riot police and the CIO.
Meanwhile, tens of thousands across the country lined up through the night to empty their accounts the moment their pay or pensions arrive, exacerbating the liquidity crunch. Banks have responded with daily withdrawal limits: $100 one day, $50 another, none another. Customers have no idea until the banks open their doors at 8 a.m.
"Sometimes you get to the end of the line and there's no money," said industrial fitter Edmund Panganai, 40, outside a CABS building society branch in Harare. Every month, it takes him at least seven nights of queuing to get his hands on his pay.
In Harare, where most U.S. dollar bills are stained deep brown with grime, a crisp 2009-edition $100 note is now worth as much as $115.
Conversely, the plastic and mobile money introduced to ease physical cash shortages is depreciating, forcing vendors to charge a 10-15 percent premium.
One prostitute, who had been relying on e-wallet payment systems such as Ecocash, run by mobile firm Econet Wireless (ECO.ZI), said she and other sex workers were turning away customers without hard cash.
"Ecocash? No thank you. Dollars, dollars, dollars," said Patience, a 22-year-old working a Harare street corner. "No dollars, no fun."
ARMY RATIONED
Combined with unemployment at 90 percent and a government budget crunch that has seen delays in payment of state wages, the discontent is also pervading the army.
The Sept. 29 CIO report said soldiers had applauded the social media protests because they had led to an improvement in daily rations.
"Before the demonstrations government had stopped supplying them with breakfast. At lunch they were being fed with sadza (maize meal) and cabbage without cooking oil. Mugabe instructed for the army officers to be given descent [sic] meals so they will rally behind him," the report said.
Other intelligence reports from late September and early October suggested Mugabe was having doubts about the bond notes. Reuters was unable to confirm this.
"The issue of the bond notes is giving Mugabe sleepless nights," one said. "Mugabe is serious [sic] thinking of delaying the introduction of the bond until January next year."
Another report said army officers were frustrated with pay delays and withdrawal limits.
"They are very angry as they are failing to access their money from the banks and do not want to be issued with bonds," it said.
"These junior and middle-ranked officers reckon that Mugabe has failed, hence he needs to step down for new blood to replace him."
VETERANS AT WAR
In July, veterans of the 1964-1979 liberation war that brought Mugabe to power broke ranks, accusing him of "dictatorial tendencies" and blaming him for the "serious plight" of the economy and discord in the ruling ZANU-PF party.
"We are dedicated to stop this rot," they said in a statement.
As fears over the bond notes have grown and the battle to succeed Mugabe has intensified, they have continued to flex their muscle.
"Once you go wrong with us, you automatically go wrong with the whole state apparatus," veterans leader Chris Mutsvangwa told Reuters.
The veterans enjoy warm ties with the army and security services, and want Vice-President Emmerson Mnangagwa, a former security chief nicknamed "The Crocodile", to take over from Mugabe, political analysts say. On the other side is a faction attached to Mugabe's 51-year-old wife, Grace.
Mugabe responded to the growing pressure on Nov. 19 with an address in which he admitted fallibility and gave a rare hint at retirement.
"If I am making mistakes, you should tell me. I will go," he said, before adding: "Change should come in a proper way. If I have to retire, let me retire properly."
http://www.reuters.com/article/us-zimbabwe-mugabe-insight-idUSKBN13K1J2
- on Sun Nov 27, 2016 2:17 am
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The Un-Bonding of Zimbabwe's Financial Confidence 11/14/16
The Un-Bonding of Zimbabwe's Financial Confidence
3:00:00 PM
By Tinashe Nyamunda, Academic
Zimbabwe Independent News
November 14, 2016
Nyamunda is a post-doctoral fellow, University of the Free State, South Africa. He is co-editor with Richard Saunders, of Facets of Power. Politics, Profits and People in the Making of Zimbabwe’s Blood Diamonds.
A POLITICAL storm is brewing in Zimbabwe over the introduction of US$75 million worth of bond notes, initially scheduled for the end of October, which the Reserve Bank of Zimbabwe (RBZ) has since postponed to this month — or even December (as it is unsure of public response).
This is sparking protests from different political movements and pressure groups in Zimbabwe — such as the Pastor Evan Mawarire-led #ThisFlag and Prosper Mkwananzi’s #Tajamuka/Sesijikile. The government is also facing legal challenges from former vice-president and leader of the newly-formed Zimbabwe People First (ZimPF) party Joice Mujuru, prominent Harare businessmen Frederick Mtandah, and lawyer Fadzai Mahere. Many see the notes as unbacked bond paper with currency denominations printed on them. They believe their value will rapidly collapse. This is despite the US$200 million facility that the RBZ claims to have accessed from the African Export Import Bank (Afreximbank) to back the new bond notes and hold their value.
But, as economist John Robertson has argued, “money is all about trust”. Zimbabweans do not trust the bond notes after nightmares caused by the country’s hyperinflation in the mid to late 2000s before the introduction of the multi-currency regime. For that reason, their introduction is seen as an act of a desperate and predatory government seeking to return to worthless Zimbabwean dollars. Many believe that this will only result in ordinary people suffering, while providing new avenues of accumulation for the political elite.
Contentious History
The financial history of Zimbabwe, of which studies are only just emerging, has always been contentious. Following the colonisation of the country in 1890, the British South Africa Company arranged to have its own currency and state and public bank in 1899, but the imperial government refused to ratify their Bill. It was only in 1932 that a Coinage and Currency Act was accepted to allow fully sterling-backed local currency to be created and managed by a Currency Board (created in 1938).
Because of the full sterling cover, Southern Rhodesia’s (colonial Zimbabwe’s) currency was effectively British. However, it was designed to favour mainly white agrarian and, later, foreign manufacturing capital in an economic system that relegated Africans to providers of ultra-cheap labour.
Even then, the resident colonial government still demanded financial control. It was ultimately given assent to create a central bank for the Federation of Rhodesia and Nyasaland (1953-1963) and, in 1964, (Southern) Rhodesia created its own Reserve Bank. This became independent of London and was eventually inherited by the post-independence Zimbabwe government.
Rhodesia was expelled from Britain’s collapsing sterling area as a sanctions measure against Ian Smith’s Unilateral Declaration of Independence (UDI) on November 11 1965. This only provided what the colonial government had always wanted: freedom to steer its economic development through independent financial means that allowed it to sustain white political and economic dominance.
Although the Rhodesian state, through financial and economic measures administered mainly by its Reserve Bank and Ministerial Economic Development Committee, managed to resist British and international sanctions, its capacity to continue financing its rebellion was eventually so stretched that it led to the political compromise at Lancaster House, and the birth of Zimbabwe in 1980.
Reconfiguring the Financial System
The Zimbabwe government inherited a vibrant and diversified financial system which was designed to support white agrarian and foreign capital interests, while excluding Africans. It faced the task of redressing these inequities and reconfiguring the financial system to make it inclusive. Because change was deemed too radical to upset a delicate economy: the new government failed to restructure the economy beyond token measures, such as providing small and medium enterprise financial support through a perennially undercapitalised Small Enterprise Development Corporation, formed in 1983.
For peasant farmers, insufficient support was provided through some government programmes and a Land and Agricultural Bank. For over 10 years, the rhetoric of indigenisation was kept at bay as the government benefited from its reconciliation with former colonial capital, while appeasing the populace through unsustainable health and education subsidies. Along with reduced support of the productive sectors, this resulted in serious budget deficits and an imbalance in its international trade account.
The Economic Structural Adjustment Programme (Esap) of the early 1990s, with its emphasis on reducing the bloated civil service and privatisation of parastatals as the main condition of the International Monetary Fund (IMF) and World Bank loans, provided to offset these deficits, only opened up the economy to cheap foreign imports — triggering a rapid de-industrialisation, unemployment and inflation.
Declining economic conditions brought protests from civil society groups of peasants, African businesses, students and workers’ organisations, the newly-formed (in 1999) Movement for Democratic Change (MDC).
Thereafter, the increasingly desperate, corrupt and power-hungry Zanu PF began making a radical shift. Under the weight of its costly excursions into the Democratic Republic of the Congo, the government undermined the monetary system by printing money for unbudgeted war veteran gratuities as a way of buying their support as one of the most influential and vocal civil society group challenging Zanu PF’s legitimacy.
The government then embarked on a chaotic, fast-track land reform programme, which upset the very backbone of the country’s financial system, descending into an unprecedented financial and economic crisis.
Financial Crisis
The financial implosion resulting from Zimbabwe’s deepening political crisis brought the Reserve Bank of Zimbabwe back into the centre of political discourse by giving it quasi-fiscal responsibilities to resuscitate the economy, especially with the appointment of Gideon Gono as governor in 2003.
Gono embarked on disastrous policies, including placing mainly newly-formed indigenous banks and financial institutions under curatorship. He also put the money-printing press into overdrive to settle government debt, resulting in hyperinflation. Despite his unorthodox efforts to revalue the Zimbabwe dollar under various guises such as currency revaluations, introducing bearer and agro cheques between 2005 and 2008, and the Foreign Exchange Licenced Warehouse and Retail Shops system to contain the black market in the currency trade, the public rejected the Zimbabwe dollar in early 2009.
The deepening crisis in Zimbabwe manifested itself in many ways, including through financial implosion. The economic effects of Zimbabwe’s political challenges resulted in the country recording hyperinflation estimated at 89,7 sextillion percent when it was last recorded on November 14 2008 (among the worst in global history). Thereafter, the Zimbabwean market rejected Zim dollars, forcing the government to legalise a multi-currency system dominated by the US dollar, bringing an end to the hyperinflation, which had resulted in the shortage of goods in shops, dislocation of business, the erosion of people’s incomes and the loss of foreign and domestic investment.
The adoption of a multi-currency system, which coincided with the signing of the Global Political Agreement between the main contesting political parties (two MDC formations and Zanu PF) eliminated the inflation problem and even increased the public and economic confidence. These developments bond(ed) or reunited the nation to a degree as the parties worked for the country’s economic recovery, even as power struggles caused many disruptions.
A brief recovery saw employment prospects and real incomes increase, while business slowly improved, but a new problem emerged. The country could no longer print its own money and had to rely on foreign currencies acquired only through trade, and its negative balance of payment account injected deflationary and liquidity problems which were only offset by donor funds supporting the health and education sectors.
Liquidity Crunch
In 2013, Zanu PF won elections which were celebrated by African observers for being relatively free of political violence — although opposition parties and Western observers cited many irregularities which, in their view, made the exercise unfair.
But the results were upheld, heralding the return of a legitimately voted government. Normal administrative business could resume and donors could withdraw their funds to allow government to take over its full responsibilities. But this injected a severe liquidity crunch in an economy that produced well below what it consumed as imports.
The multi-currency basket had been funded by the foreign currency that people held onto during hyperinflation (and which they were not legally allowed to use); by expatriate banks using their nostro accounts to bring in US dollars; by South African rand flowing as a medium of trade among cross-border traders in Zimbabwe (until the rand was also rejected by the public when its value collapsed in 2015); by donor funding and, although remittances had declined after 2009, Zimbabweans in the diaspora who were adjusting to the effects of the global economic recession, but still supplied currency as remittances.
But production for exports remained far below the required revenue for imports and even those notes imported from the US haemorrhaged out as Zimbabwe became what former finance minister Tendai Biti has termed a “supermarket economy” of net consumers dominated by informal traders whose source of goods is foreign markets such as South Africa, Dubai and China. Meanwhile, with a return to supposedly legitimate governance, donor funding dried up.
Perhaps the biggest cause of the liquidity crunch was the lack of confidence in Zanu PF’s election victory that led to many investors disinvesting in Zimbabwe, while corrupt government officials worsened the situation through externalising their ill-gotten riches to offshore accounts. The threat by Indigenisation and Economic Empowerment minister Patrick Zhuwao (President Robert Mugabe’s nephew), later rescinded, to nationalise/indigenise all banking institutions also dampened confidence.
The Bond Notes
The effects of late or non-payment of civil service salaries and other obligations prompted the government to introduce bond notes as an interim solution. This was phased, starting with bond coins of denominations of one, five, 10 and 25 cents, released in January, and a 50-cent coin released in March 2016.
The public was sceptical, correctly predicting that it was a way to test the re-introduction of a local currency.
Although these coins have circulated with much ease alongside higher denominations of US dollars, introducing bond notes of equivalent denominations is likely to result in people hoarding their hard currency in liquid form. Many fear that government will go after people’s foreign currency savings held by banks.
Given that even the availability of the Afreximbank facility is being questioned and the suggestion that government is desperate to pay off debt and civil service salaries, many people believe that the printing press will again be abused, re-igniting the turmoil of 2008.
Even before the introduction of these notes, there have been many protests against the idea — intertwined with numerous others against the government, which has failed to provide the 2,2 million jobs it promised in its 2013 election manifesto and other policies through which Zanu PF was supposed to prompt economic recovery.
All US currency holders of the Zim should be very alarmed by this because their being falsely informed by an untold amount of nefarious currency websites, blogs and conference calls that they will be able to soon redeem their currency for unrealistic and unsubstantiated values, i.e.1 Zim = 44,800 USN, which has been stated on a website blog called Dinar Chronicles, that is fraudulently being reported and confirming that these are the newest sovereign rates as recent as late Sunday, November 13, 2016. Instead, like many readers of this blog currency holders are pretty much unaware that it's being operated by a Philippine based self-proclaimed and so-called currency guru and intel provider named Patrick DaCosta, because the real truth about the on-going national political scene is that it has been dominated by factional fights and succession politics while the economy continues to contract under the weight of a worsening liquidity squeeze, forcing the need for bond notes. If these notes are introduced, they are likely to galvanize opposition to the government.
I believe that's slander Mr./Ms. Tinashe Nyamunda. ~ Dinar Chronicles
If the opposition is to mobilize around this, it can be a powerful issue in the next election, especially if it triggers inflation and resuscitates the parallel black market for hard currency. Moreover, there is fear that the accompanying exchange controls which will allow a few access to nostro accounts and foreign currency will again provide an opportunity for the Zanu PF elite and their clients to accumulate, engendering even more bitterness from the public.
Inasmuch as the government has never really cared about the plight of its people and used various mechanisms to retain power despite their poor economic record, the introduction of bond notes will produce one of two scenarios: either further protests under severe government repression, or as a game changer in Zimbabwean politics.
However, if, by 2018, Mugabe is no longer in the picture, for whatever reason, the effects of bond notes will reset the game in unpredictable ways.
Even if the US$200 million offshore facility is regarded enough to back the bond notes (which many argue it will not be,) given the propensity by the government to settle debt by printing, the weakness in bond notes lies in the public’s perception of them. More than any technical mechanisms of managing currency, money is really about public confidence in it.
‘Not Real Money’
The people I have spoken to all argue that bond notes are “not real money”. They cannot be used in international trade and in a “supermarket” economy heavily reliant on imports; it is difficult to see how they will be kept at a par with the US dollar.
Social media has found numerous and inventive ways to explain this government desperation. Most argue that the government is trying to print currency denominations on bond paper, the value of which will not be worth the paper it is printed on. The running joke is that if the state can get away with printing bond paper as currency, they might as well draw pieces of roasted chicken on them and convince the public that it is actually edible.
This is only likely to cause indigestion in an already upset economy, triggering another financial crisis for the most vulnerable of society. The ultimate effect of bond notes in popular imagination is that they are likely to un(bond) the nation politically, economically and socially.
- on Tue Nov 15, 2016 8:15 am
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- Topic: The Un-Bonding of Zimbabwe's Financial Confidence 11/14/16
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- Views: 1626
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