Gono says 'devaluation will bless parallel market'

• RBZ cuts money supply to stem inflation

• Interest rates unchanged at 500%

• RBZ refuses to devalue currency

• Zim inflation hits new record

By Torby Chimhashu

ZIMBABWE'S Reserve Bank Governor Gideon Gono said Wednesday he would not devalue the shaky Zimbabwean dollar, confounding expectations from many struggling businesses in Zimbabwe.

"No devaluation from this governor," said Gono as he presented a long-awaited monetary policy statement to an audience of government ministers, unionists, businessmen and high-profile Zimbabweans.

Zimbabwe's dollar has been fixed at an official rate of 250 to the US dollar since July last year, but on the widely-used parallel market the US dollar trades at around 20 times that rate.

There had been wide expectations Gono would allow the official rate to slide. But the central bank chief said it was not his responsibility to inflict the pain on defenceless consumers that rising prices would bring.

"No amount of devaluation will lead to planeloads, truckloads of foreign exchange flowing into Zimbabwe in a sustainable way," he said, pointing out that he had already authorised more than eight devaluations since he took the reins at the central bank in December 2003.

The central bank chief also froze increases on interests rates saying reviews would be done on an on-going basis.

"Given the multiplicity of distortions whose continued existence threatens to wipe out any perceived benefits of further devaluation before such a move is even contemplated, the current exchange rate levels and management framework will remain in place until such time that the social contract will have materially transformed the business environment," Gono said.

He revealed that before he had even thought of presenting his statement, there were vultures within the thriving parallel market that had planned a "hike" of their rates in response to his new devaluation percentage.

"When even as the Governor and his team were in the middle of preparing this statement, vigilantes were already taunting that even the apri ori expected "new rate" was going to be beaten by their calculated parallel market forces the next day.

"So we ask ourselves, what then do you want the Governor to do? Continue to devalue and bless the parallel market? If so, devalue to what level?" asked the RBZ chief.

Gono said he was prepared to "swim in an infested crocodile river" with his team if that means solving the current economic malaise.

Analysts had urged Gono to devalue the local unit at the rate at which inflation has been peaking to bring a measure of stability to the unit against major currencies.

Since the beginning of the year, the dollar has plunged to new lows against the US dollar and other currencies.

In the run-up to his monetary policy statement, the Zimbabwe dollar took a bungy jump on the parallel market against the US dollar tumbling to levels of 1 against 6 500 from an opening of 1: 3 200 at the beginning of the new year.

But a defiant Gono said having devalued the currency eight times; it is time Zimbabwe counted the benefits and costs of such measures before thinking of further wholesome adjustments to the dollar.

While admitting that the foreign exchange market set-backs were a supply and demand issue, Gono said they were also linked to a critical balance of payment support, economic sanctions, smuggling, indiscipline and poor export performance.

The RBZ chief said Zimbabwe can only get out of the woods if there is buy-in and total commitment of Zimbabweans backed by genuine commitment on the part of social, economic and political leaders to a defined course of action.

He re-iterated the need to sell off non-performing parastatals as a way of removing the financial burden on the government adding that a strong privatisation drive would bring in foreign currency and go a long way in stablising the exchange rate.

By refusing to devalue the dollar, Gono has sung the same tune with President Robert Mugabe who has repeatedly shown hostility towards devaluation.

Mugabe argues that devaluation has far reaching ramifications on the ordinary people and therefore is tantamount to sabotaging the government and its people.

Former Finance Minister Dr Simba Makoni, who suggested devaluing the dollar in 2002, was fired by Mugabe.

Gono rebuffed suggestions that he averted a clash with Mugabe by strongly declaring that “the economy is not saved by monetary tools alone but by collective measures that involve everyone."

His new stance on the interest rates is likely to be good news to the banking industry which has complained of a high interest regime adopted by Gono since 2005.

Gono said the RBZ interest rate policy will continue to be guided by inflation developments and outlook.

"Within the framework of the Road Map to Recovery proposed in this Policy Statement there is need to use the month of February 2007, as the soul-searching period, marked by decisive collective implementation of measures that remove the devastating distortions which have hitherto stood in the way of all efforts to turn around the economy.

"At current levels of the Central Bank accommodation rates for secured and non-secured lending to banks, which are 500% and 600%, respectively, the interest rate framework is appropriately aligned to both developments and outlook on the inflation front.

"Further reviews will continue to be done on an on-going basis, in the normal course of open market operations of the Bank," said Gono.

In the policy statement, the RBZ re-affirmed its commitment to the
Agricultural sector where it will finish off bringing equipment for the industry this year.

He also renewed calls for engaging international partners for developing the country.

"Going it alone will not help the current nor future generations. We,
therefore, call upon the international community to accord Zimbabwe the giant leap of faith, particularly those of our friends to whom we look forward to engaging in mutually beneficial business relationships".

In an apparent sign of a truce with his boss, Finance Minister Herbert Murerwa, Gono revealed that the RBZ has stopped forthwith engaging in quasi fiscal activities although it will finish off the activities it had started.

"The RBZ will, with immediate effect, bring to an end such interventions and wishes to concentrate on core business activities. An agreement has been reached although some people were doing their work," Gono said.

He said a new company, FISCORP Private Limited, will be unveiled soon to administer and collect outstanding loans parcelled by the RBZ during the interventions in its quasi fiscal activities.

FISCORP will start operating on March 1.

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