Biti's RBZ criticism good politics but bad policy

Biti's RBZ criticism good politics but bad policy

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By Kuthula Matshazi
Posted to the web: 18/02/2009 23:24:11
FINANCE Minister Tendai Biti was recently quoted in the media apportioning blame to the Reserve Bank of Zimbabwe for the country’s economic problems. He vowed that he would reduce its role to a minimum.

At a time when Biti’s MDC party has joined an inclusive government, it wants to make a mark by announcing policies that would seem to different from those of Zanu PF. Many, including Biti who subscribe to the lasseiz faire economic doctrine, argue that Zanu PF’s “large government” and the RBZ’s quasi-fiscal operations were responsible for leading the country to an economic depression.

This is only an economic argument which did not take into account so many other factors that led to the economic depression. There were political and social reasons too. A significant and central political reason was the political disagreement over the land reforms Zimbabwe had with Britain and by extension the Western countries, which resulted in the country being placed under economic sanctions by what many call the international community (read Western countries).

People should not mistake the West for the international community. The international community consists of all nations of the world. Zimbabwe already enjoys good relations with the international community except the West. That is why it is important for prominent news purveyors to get this distinction right.

Social reasons included funding of programmes such as supply of antiretroviral drugs, implementing the irrigation programme and buying food. This is not to suggest that these programmes were funded adequately but a lot of resources, which the RBZ was criticised for, went to such programmes.

Biti’s statement suggests that it was wrong for the RBZ to be involved in all these quasi-fiscal activities. Those were not normal times. People’s lives and the survival of the country were at stake. It was inevitable for the RBZ to be involved in such activities since Zimbabwe had been frozen out of credit by the Western countries.

If anyone has any doubt what lack of credit does to a country, then the current global financial crisis demonstrates clearly. The response by governments around the world has been to use the central banks to create money to infuse into the economy to jumpstart it. Even with such efforts, it is still not an overnight success.

Governments and central banks have become heavily involved in the economy. The neoliberal approach to economics that governments and central banks have a minimum role to play in the economy was a big lie. Unfortunately, it is one that seems to inform Biti’s economics. The concept of a “small government” was only a figment of imagination. It is not possible in this real world where people live. Government has a big role to play in the economy.

Before this global financial mess, there had been many market failures and central banks were issuing support funds to business. By then, business could argue their way out as to why it was necessary to be given that money. It was investment in productive sectors that would create wealth.

By arguing that the RBZ has a minimum role to play in the economy, Biti is going against a long standing principle that had been suppressed. Central banks have a huge role to play. Right now, the central banks are playing a central role in the economies around the world while Biti says he will minimise that of the RBZ. Interesting that the very people he calls investors whom he will be meeting are those very people from countries that now know the role of central banks as an economic engine and are using it massively to fund building roads, schools and paying for gambling habits of the markets.

It is, therefore, puzzling why Biti would harshly criticise RBZ Governor Gideon Gono for trying to keep the country afloat when it was frozen out of the credit market through economic sanctions. Gono largely used the RBZ for noble national causes. Sure, the central bank’s activities caused inflation but what other alternative was available? Fold hands and let the country grind to a halt? Certainly not!

If one were to make such an argument before the Western countries were in the exact predicament of credit crunch as Zimbabwe, that person would be considered as understanding archaic economics (I talk from experience). Now because it has happened in the West, many of the lasseiz faire followers are conveniently silent.

For Biti to go in front of the media and criticise the RBZ is good politics but bad policy. It is bad because he goes and talks to the media before even meeting Governor Gideon Gono or even understanding the circumstances that led to RBZ activism. It is bad policy to make such statements before consulting his other cabinet colleagues from other parties. It is bad policy to imagine that the RBZ has a minimum role to play in the economy, as the current global financial crisis has shown. It is bad policy to apply two standards: one that limits the role of the RBZ (whose role is being replicated by industrialised economies) and the other that allows investors and international financial institutions to call for a contraction of the RBZ role in the economy.

I think what could be good policy is for Biti to go to the international financial institutions and explain to them the circumstances of Zimbabwe. It is interesting that Biti said: "We must accept that the Reserve Bank is at the core of this economic decay”.

Though a contested statement, Biti should also remember that the most problematic issue Zimbabwe encountered; being frozen out of the credit market through economic sanctions, was the work of his own party, the MDC-T.

Biti should point out a fundamental and proven truth to the international financial institutions and other investors that credit is important to Zimbabwe’s import dependent economy to stimulate economic growth and productivity. He should then promise them that the resources provided to Zimbabwe shall be applied and managed effectively. The discussion should not centre on what role the RBZ will play. That is diversion. The RBZ has played its part as circumstances demand and many in these international financial institutions know it very well.

Kuthula Matshazi is a Zimbabwean journalist and host of African Perspective, a current affairs programme on CHRY Radio, Toronto, Canada. Contact: kuthulamatshazi@yahoo.co.uk
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