I HAVEN’T read Reserve Bank governor Gideon Gono’s book, Zimbabwe’s Casino Economy.
Still I doubt that I would have found in it a solid explanation for dollarisation of the Zimbabwean economy, and especially its timing. So let me pass my ignorant verdict: it is a despicable policy decision which will haunt Gono for the remainder of his tenure. It is the bitterest New Year gift to Zimbabweans ever recorded. His enemies are celebrating.
It’s now accepted: we live under abnormal circumstances and bizarre decisions will be made. I have been sympathetic to Gono’s situation. Many a time, I have found myself defending his decisions without much thought. Here is a man who is passionate to make things work in this country, yet at every turn it looks like political leaders make it their vocation to undermine his efforts. I see him as a victim of bad politics. I doubt that in Gono’s shoes Alan Greenspan would have fared any better.
Thus I don’t agree with those who say Gono should be fired for ruining Zimbabwe’s economy. This exposes lack of appreciation of the systemic interplay and the ineluctable dynamic of politics and economic policy. It’s like saying President Mugabe should fire his “worst cabinet ever” without bothering about who selected it and why he has kept it for so long.
The worst of the lot say Gono should simply quit, to quicken the end. They have been predicting this end since the February 2000 referendum.
Gono’s blunder on dollarisation is the culmination of a series of economic policy decisions in which he and the government appear to have been led down a garden path.
First it was ESAP launched in 1991. A reluctant government and a hostile labour movement led by Morgan Tsvangirai were forced into ESAP in the name of free markets and foreign investment. The austerity measures called for led to unprecedented retrenchments in the private sector as companies slimmed down.
At “peak” performance of the economy and about the time ESAP was abandoned in 1995/6, almost 75% of workers in industry had been retrenched. Only agriculture still employed around 400 000 workers who earned miserly wages. Throughout this period, the government was under attack for executing ESAP half-heartedly, that is, subsidising service charges by parastatals and not cutting its recurrent expenditure sharply enough by retrenching civil servants and the uniformed forces.
The unexplained irony is how the same businesses which had retrenched the most in the name of a more robust economy were suddenly able to gang up with their former workers against a proposed tax to pay gratuities to war veterans amid declining food security and alleged looting of the War Victims Compensation Fund.
The ESAP period also witnessed the most acrimonious disputes over land reform as it became evident that the willing seller, willing buyer model had failed. The die was cast in 1995 when Mugabe declared that his government would take land without paying compensation and that he would “not be taken to court by a settler” over the land, describing farmers as “hard-hearted as Jews”.
This should have been enough. But Mugabe further ostracised his government from civilisation by declaring in 1995 that gays had no rights in Zimbabwe and that they were “worse than pigs and dogs”. The verdict was that he had to go.
Thus grew calls about property and human rights. White commercial farmers quickly realised that with the courts sidelined, their only redress was political. It was a momentous decision and the consequences haunt us to this day.
Enter Gono and devaluation from 2004. The exchange rate was about 4000 to the US dollar and inflation at 620%. Once the convulsions his entry caused in the financial sector subsided, he became the darling of business. Finally we had a devaluation man Mugabe could trust.
The trouble with devaluation is once you start, it is never enough for business and there is no ending. Gono was wheedled down the precipice with promises of greater exports and more foreign currency inflows. So long as business benefited, there was nothing wrong with devaluation, although in reality it means you have to print more money to meet daily transactions, especially under a sanctions-induced cash economy.
But once it became known that Gono also printed money to meet government expenses, it became a crime of a quasi-fiscal nature. For his part, Gono didn’t know when to stop and soon abandoned all pretence that it was the role of the Reserve Bank to defend our currency. And once it was in freefall, business trashed it as worthless, and so began calls for Zimbabwe’s ultimate strangulation: dollarisation, as inflation fed on itself and raced past 230 million percent mid last year.
I doubt that anyone believed Gono would fall so easily into this trap. You don’t dollarise to a currency with whose country you are literally at war without a formal truce. You expose the nation’s underbelly.
Full or partial dollarisation is not the issue. Dollarisation, argued the prophets, should kill three birds with one stone: cut inflation through price stabilisation; stamp out bank queues; and generate forex for government. I don’t know how much forex he is getting; inflation is a worthless vacuum.
The most visible sign of success has been on banks where it has wrecked the most grievous havoc — the steep pauperisation of the majority of the population who don’t generate foreign currency; small-scale traders and dealers recovering from the ravages of Murambatsvina, and government employees, from civil servants to the uniformed forces.
There are no bank queues because effectively dollarisation has demonetised the local currency and no retailer or dealer wants it unless it is twice or three times its face value and secondly, whatever amount one can withdraw, it can purchase only US$1. That is because Gono doesn’t know and can’t control the exchange rate. The same cabal which controls the exchange rate is taking all our cash for a song because they are doing us a favour; buying a currency which nobody wants. So banks can keep the sextillions.
The big question is how Gono is going to appease the millions who have been rendered redundant and are turning to violent crime and daylight prostitution in the Avenues? How does he expect industry to operate without workers? Is it not logical that for an economy under sanctions the key to salvation lies in import substitution rather than killing local industry through massive imports of trinkets?
It is easy for Gono to make sanctimonious statements about pushing people who were making illicit lucre from “burning” US dollars. But given widespread allegations of how the RBZ raises forex, this is called opening a Pandora’s Box.
Moreover, in our extraordinary circumstances, it is dishonest to expect everybody else to stick to orthodoxy. We are all impacted on by the acts of politicians, economic sanctions, foreign currency dealers, teachers, banks, the Reserve Bank and retailers. Amidst all the chaos, something works. But to me dollarisation should be the last and I hope Gono can see the fire ahead. Short of a miracle, it is a blow the Zanu PF government is unlikely to survive.