The Other Side of Multi-Currencies: Exporting Public Financial Management Responsibility and Importing Cost.
Tamuka C. Chirimambowa & Tinashe L. Chimedza*
Rejection of the South African Rand: The Spectre Haunts Us.
The official adoption of the use of the multi-currency regime in Zimbabwe helped to arrest rampant almost unquantifiable hyper-inflation. However, the policy of the usage of a basket of multi-currencies albeit a euphemism of dollarisation in reality, seems to have reached its dead end.
The policy was supposed to be short-term and give policy makers a breathing space to come up with alternatives. The policy orientation of our leadership is reactionary and not futuristic and the continued use of the $US as a medium of exchange has become an albatross to our fiscal and monetary policy.
Fig 1.1 Daylight Robbery? Raiding $US and Replacing it with Bond Notes
The rejection of the Rand marked the end of the honeymoon of the multi-currency regime and what has followed has been a ‘liquidity crisis’. The use of plastic money and importing $15m a week has not helped and the introduction of the ‘bond economy’ is taking us back Gideon Gono’s casino economy era.
What is shocking is that under the guise of the multi-currency system and the ‘bond economy’ the ruling elites are actually engaged in a wholesale looting of US$ without the need of any legislation. Through the Real Time Gross Settlement System (RTGSS), requirements to surrender foreign currency, denominating bank accounts in both Bond Notes and $USD and then by limiting how much you can withdraw the ruling elites have plundered foreign currency accounts. This is daylight highway robbery sanctioned by the Treasury and implemented by the Central Bank with a minimum whimper from the National Assembly. This is the continuation of the ‘jambanja’ economy in which governments simply expropriates what it wants. When the late Professor Sam Moyo summed the ruling elites as ‘radical nationalists’ he did not imagine they will perpetually run amok unchecked through the citizen’s bank account.
On one hand the RBZ has been calling for a lowering of the interest rates while on the other hand the the banks have started calling for the raising of interest rates citing viability issues and the need to boost their capacity to support private sector funding. This points to a dire future for our financial system. By clinging to the Basket of Multi-Currencies (US$ Dollar) we are exporting public financial management and civic responsibility but at the same time importing an unsustainable cost structure. This calls for a revisit to the debate on the introduction of a proper local currency but most of the citizens are still traumatised by the 2008 hyper-inflation scenario. The situation has been worsened by the secrecy around the Bond Notes and skulduggery tactics by both the Treasury, the Reserve Bank of Zimbabwe (RBZ) and banks. This points to a weak public financial management system and the need for citizens to begin to think on how to use the constitution to enforce financial probity as well as making the banking system serve the public.
Importing Cost, Exporting Irresponsibility: the Bane of Foreign Currency Volatility
The use of a basket of currencies has introduced a semblance of normalcy in the currency markets but as President Mugabe admitted people are banking under the ‘bed’. He even suggested the unleashing of the army and police into private homes, revealing a fundamentally flawed logic which puts force and coercion at the centre of public policy. The brother Dewa Mavhinga now at Human Rights Watch (HRW) nailed it in when he used to argue about ‘moving from the logic of force to the force of logic’.
Fig 1.2 Unemployed Graduates: A Message for the Chancellor
Firstly, by using a basket of currencies we have imported stable currencies yet they also come with complex cost structures associated with their domestic economies. The Rand will carry the value and volatility of the South African economy, the US$ will carry the value and the volatility of the US economy and so goes for the other currencies. Secondly, by importing foreign currencies managed by foreign institutions we are exporting or effectively outsourcing public policy interventions to the source countries of the foreign currency. Thirdly, the Zimbabwean economy is now burdened with an investment terrain with foreign cost structures that make it highly unattractive as a destiny for capital of any kind (domestic &foreign). But the problem is deeply structural and it lies at two levels: (I) the non-productive economy and importantly (II) at the level of a public financial management system which is in shambles and is routinely mangled by these nationalist elites.
For God’s sake even some countries with raging civil wars and under sanctions have functional national currencies because they have a rudimentary public financial management system and the ‘dear leaders’ of those countries do not ride roughshod with a wrecking ball through budgetary limitations.
De-Industrialization: The consequences of poor public policy
Since about the mid-1990s Zimbabwe has been de-industrializing meaning that more industries are being closed, the existing ones are operating below capacity and the new industries have been so insignificant such that the contribution of manufacturing to GDP has been ‘shrinking’. The evidence of this de-industrialization is at different levels; (i) rising unemployment; (ii) stagnant and at times falling revenue to government, (iii) sluggish growth which at times was stuck in the negative, (iv) a rising import bill which means a persistent negative balance of payments, (v) collapsed public social services like health and ultimately a (vi) declining GDP per capita.
The failure of using effective public policy to craft and implement a development policy regime came to a head during Governor Gideon Gono’s era when he started playing a ‘Russian roulette’ with the economy. When one plays Russian Roulette the loaded gun, with a single bullet in the chamber, is held to one’s own head. In the case of Zimbabwe, Gideon Gono, cocked the gun and played the fatal game with the gun against the temples of citizens and him laughing hysterically all the way to his lavish properties in North Harare. The result was rampant inflation and traumatized citizens migrated from using the local currency as a medium of exchange to foreign currencies.
Fig 1.3 Laughing While Rome Burns: Public Policy Inconsistencies
The demise of the local currency was first registered by the citizens before the Minister of Finance then moved to announce the use of a ‘basket of currencies’. Under the present structure the government has basically used the Bond Notes as as surrogate currency in an attempt to re-domesticate monetary policy. This attempt is a cosmetic reform which is not paying attention to structural questions and in this case the flagrant mangling of the public financial management system has meant a loss of confidence in any local currency that maybe introduced by the government.In the real market there is already exchanges of the bond notes at a discount signifying the gradual descent to hyperinflation. Good money is already replacing bad money as the Gersham law says.
Russian Roulette With Kidnapped Heads: The Mafia is Taking us back to 2008
The brother at the RBZ has already started dishing out money while Chinamasa thinks ‘money grows on trees’ by printing treasury bills and multiplying public debt. It was revealed that CBZ for example now holds TBs worth $US600million, for the CBZ this is either a stroke of genius or they are being held by the collar to buy TBs because government is a significant shareholder. The major Achilles heel in all this is a deliberately weak public financial management system where the parliament and its committees have been reduced to a mere rubber stamp of the executive. There is very limited parliamentary oversight as the government will fully continues to indebt the nation under the guise of ‘national security’ and ‘sovereignty’. Already, the government has circumvented parliament by borrowing US$500 to finance command agriculture from the private sector without any legislative authority. When the brother Gideon was pressed for answers as to his non-stop printing of the currency his excuse was that the ‘security’ of the country was at risk.
Fig 1.4 Gono’s Casino Economy: are the Bond Notes taking us there ?
The RBZ’s policies and the Treasury’s speculative quasi-fiscal activities are taking us back to the Casino Economy. We have argued that a Casino Economy is never designed to benefit the citizens but its inventors, in this case the ruling elite, intent to pickpocket the citizen in broad day light. Already, the casino machines are beginning to jam as the citizens are steadfastly being bankrupted. The Bond Note project is busy laundering and mopping up people’s hard earned foreign currency under a very secretive exchange rate system. The RBZ chief claims that there is now about $102 million of the bond notes in circulation vis-a-vis the purported $200mn AFREXIM Bank loan facility. This loan too has been one of the many secrets that the executive has kept away from parliamentary scrutiny. When stories of an emerging parallel market rate and different pricing systems are told by the independent media, Governor Mangudya claims the reports are based on outliers and are a few. All this denialism ignores the fact that Zimbabwe’s economy is now highly informalised and when these so-called insignificant small businesses are put in a mathematical equation it translates into a huge amount.
A Man Must Lick His Lips in Dry Weather
Honourable James Maridadi’s recent contribution in parliament graphically exposes the schizophrenic nature of the Mafioso as the economy is losing out to Chinese companies operating in Zimbabwe without remitting anything to treasury. Statutory obligations are reportedly violated and in this particular story the prejudice to treasury runs close to a million US$. In a related story, a few years ago, another Chinese company, Jinan was reported to have siphoned US$500mn of diamonds money, and the authorization was reportedly given by Minister Sydney Sekeremayi. The same Jinan never contributed anything to the Zimunya Marange Community Share Ownership Trust citing that its agreement says it will remit 2% of net profits and all long along it has been making losses, albeit having declared a dividend of US$10mn, yet the Mafioso is quick to sloganeer ‘Zimbabwe shall never be a colony again”!
In short by sticking on to the basket of currencies operating alongside a secretive bond note regime we have given the Mafioso an opportunity to bankrupt us as they did with our public pensions and insurances in 2008. It is our contention that we need to push for financial probity within public institutions and insist on a functional public financial management system so that Zimbabwe can have a local currency otherwise locking ourselves to a basket of currencies is the easiest way of exporting responsibility and importing the currency volatility and cost structures of other countries.
West African local wisdom has it that: ‘a man who does not lick his lips should not blame the wind for drying them up’. We leave you with the wise words of none than our dear brother Wanachi:
The majority of Zimbabwean people, including you, have got this false notion that we can outsource our struggle to the opposition. That’s not possible. The opposition is as good as the people it purports to represent. And part of the problem is that the majority of Zimbabweans adopt an innocent bystander approach and think that there is a Moses amongst the opposition. There isn’t a Moses amongst the opposition. So, all of us, including yourself, must play a role in the struggle for our emancipation.
Zimbabweans need to realise that they are their own liberators and that responsibility cannot be exported.