The two-week visit by a seven-member delegation from the International Monetary Fund (IMF) which ended on Wednesday marked a turning point in relations between Zimbabwe and the Bretton Woods Institution which began to sour in 1998.
Though some people have written off the visit as a waste of time with too much pain for very little gain, observers say the visit was important on two critical points. It ensured that the door to the IMF remained open, and as long as it was open Zimbabwe would continue to receive advice and recommendations on how to turn around its economy which has been on a free-fall since it embarked on its controversial land reform programme in 1997.
Zimbabwe was on the verge of being expelled from the IMF. The IMF started procedures to expel Zimbabwe on December 3 unless it improved its economy. At the time, Zimbabwe owed US$273 million. The figure has since gone up to US$290 million.
According to the IMF team that was in the country from 17 March, Zimbabwe’s economy had shrunk by 30 percent over the last five years while inflation had doubled every year ending at 600 percent last year. Inflation currently stands at 602.5 percent. Poverty had doubled since 1995 while school enrolment declined to 65 percent in 2003.
Though the latest visit is part of the routine IMF annual assessment exercise, economists said it was significant because the new governor of the central bank Gideon Gono was now repairing relations with the IMF. The IMF itself does not offer large sums of money but good relations with the Bretton Woods institution open doors with other donors who take their cue from the IMF and provide substantial amounts.
Bulawayo-based consultant Eric Bloch said: “Contrary to what most people believe that the visit is a waste of time because there is unlikely to be any resumption of aid, it is important on two aspects. It keeps the door open. If a country is expelled from the IMF that door is shut and it will take considerable time to get it reopened. And secondly, while the door remains open, the country continues to receive advice and recommendations from the IMF.”
Relations between Zimbabwe and the IMF began to sour in 1998 after the country insisted it would go ahead with its land reform programme after an international donors’ conference had flopped. Zimbabwe also insisted it was not going to pull out of the Democratic Republic Congo, where it had been invited to bail out President Laurent Kabila. The war was costing the country millions.
Violence in the run up to the 2000 general elections as well as the farm invasions by landless peasants led by war veterans worsened the relations. Zimbabwe stopped paying its debt and has been in continuous arrears to the IMF since February 2001.
The IMF removed Zimbabwe from the list of countries eligible for the Poverty Reduction and Growth Facility on September 24, 2001. It suspended Zimbabwe from receiving any technical assistance on June 13, 2002 and on June 5, 2003 Zimbabwe lost its voting rights.
Gono has committed himself to paying off the arrears and repairing the relations. But while stacking his credibility and commitment to pay, he said international creditors must display sensitivity and understanding, and where possible to offer further support on terms and conditions that did not militate against the current turn-around programme.
“While seeking ways to repay everything that we owe, precipitous actions against us will not produce mutually beneficial outcomes from a debtor/creditor relationship point of view,” he said in his monetary policy statement. “As new governor, I am stacking my credibility and commitment to pay, with an appeal for constructive engagement, debt rescheduling and better understanding.”
And he has started paying. According to the IMF team that was in the country, Zimbabwe had already repaid US$6 million and had pledged to pay US$1.5 million every quarter to reduce its arrears. This is not much but for a foreign currency starved nation struggling to pay its fuel and electricity bills, this shows its commitment to honouring its debt once the economy improves.
Gono only seems to be seeking IMF goodwill. “At the moment, we are saying no to technical assistance,” he told the business community in Bulawayo recently. “Let outsiders stand by and watch. Let us feel the pain ourselves and see those who will say we are implementing things that come from Mars.”
Observers say while Gono is committed to paying off the debt, he is likely to face a tough time because the government is relying too much on his monetary policy, which alone cannot turn the economy around. “It can only slow down the collapse, but it will not turn around the economy,” Bloch said.
He said there was need for harmony between the monetary policy and the fiscal policy as well as an improvement in the political environment for the economy to turn around. The IMF team that was in the country said the same thing.
It said there was need to consistently focus monetary policy on taming inflation and reducing pressure on the exchange rate, taking into account the vulnerability of the banking system.
There was also need to gear fiscal policy to support monetary tightening, and to use the exchange rate decisively to reinvigorate exports and contain import demand.
It also called for the resumption of tripartite discussions on Zimbabwe’s economic challenges in a concerted and comprehensive way involving all social partners.
Local economists said the government continued to overspend. The budget deficit which had been predicted at 7.5 percent of gross domestic product could shoot up to 12 to 15 percent. This kind of deficit was unsustainable.
There was also need to for incentives for exporters to bring in more foreign currency because the current auction system was not good enough. Companies that are releasing their results for December are saying the exchange rate offered at the auction cannot meet the costs of ongoing operations.
On the political front, the government, or the ruling ZANU-PF, has done very little to improve democracy in the country. Instead, it continues with its confrontational stance in which everyone who does not agree with it is an enemy.
The violence that erupted during the Zengeza by-election held last weekend, in which at least one person was killed, testifies to the lack of political tolerance in the country. Information Minister Jonathan Moyo demonstrated the confrontational attitude that could be costing the country dearly when he lambasted the Bush administration for saying the by-election was not free and fair.
“The Bush noise over the outcome of the Zengeza by-election is because of one reason only: the defeat of a puppet party by an intelligent electorate that is now refusing to be used as a playground for delinquent opposition legislators who would rather run away to sell vegetables in London and wash white bodies in British mortuaries than represent their constituencies in Zimbabwe,” Moyo said in apparent reference to exiled former MDC legislator Tafadzwa Musekiwa who abandoned the Zengeza seat to go into exile in Britain claiming his life was in danger.
It is not clear whether Moyo’s sentiments are in tandem with the tone set by President Robert Mugabe in his State of the Nation address on December 2. Mugabe seemed to be more accommodative as he sought to root out corruption and get the country back onto the path to recovery.
“The smart-partnership binding government, business and labour should be reinvented to supercede the current negative culture of name-calling, finger-pointing and duplicitous behaviour,” he said. “We are all witnesses to the futility and high cost of trying to build an economy in a social environment poisoned by pointless conflict.”