Tuesday, August 22, 2006

Zim: How NOT to run an economy

From today, old notes will no longer be legal tender, so Zimbabweans are rushing to spend their cash or deposit it in a bank.

But in typically iron-fisted fashion, President Robert Mugabe's regime is treating people carrying cash as criminals. Police at roadblocks, border posts and airports are searching the bags to see that no one is carrying more than Z$100 million.

Huge stashes of cash are being seized, particularly from rural peasants bringing their money to the cities to deposit in banks. More than 3,200 Zimbabweans have been arrested at roadblocks and Z$700 billion has been confiscated, according to the state media. Hundreds of businesses are also under investigation.

In a macabre twist, mourners transporting their dead to funerals are forced to open the coffins to prove that they are not smuggling illegal sums of cash along with the remains of their loved ones.

At Harare airport last week police seized several large containers that were filled with more than Z$1 trillion. The money was being smuggled back into the country by three large financial institutions, according to the state-owned Herald, to be exchanged for new currency.

Rampant inflation has rendered the once proud Zimbabwe dollar nearly worthless. Supermarket shoppers must push a trolley-full of currency to buy a trolley-full of basic groceries. Calculators, cash registers and checkbooks fail to cope with the number of noughts needed as prices for daily goods run into millions, houses and cars cost billions and company budgets are in the trillions. Taking off three zeroes will make the Zimbabwean currency easier to deal with until inflation adds the zeroes back on.

At the official rate of exchange Z$250,000 is worth US$1. But realistically the Zim dollar is worth much less because no dollars are available at the official rate. On the illegal but thriving parallel market it takes Z$600,000 to buy US$1.

"Our Zim dollar is useless," said Iddah Mandaza, a Harare factory worker. "It costs Z$600,000 to take a bus to work. We pay millions to buy a bit to eat. This striking off the zeroes is not going to change anything. We all know that. It will be easier to carry money around but it is not going to stop inflation and it is not going to make shortages of food and fuel disappear."...

The urban rich and the cross-border traders are busy finding ways to avoid being caught out by the remuneration. Many fear it is the rural poor who will be left holding the bag of unusable Zim dollars on the deadline today.

"The poor and the poorly educated will be hurt most," said John Makumbe, a Zimbabwean political science lecturer. "They are being treated like economic saboteurs. Their money is being seized if they travel with more than Z$100 million, yet they often have school fees to pay of Z$300 million. These are supposed to be Mugabe's strongest supporters, yet they will bitterly remember the day that the government confiscated their cash."

"There are growing fears that there will be riots over the currency change. Mugabe's fiercest opposition is the economy. He can rig elections, he can control the press, but he cannot rig the economy. The economy refuses to obey his orders," Makumbe said.

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