EDITORIAL COMMENT: Nothing learnt, nothing forgotten

EDITORIAL COMMENT: Nothing learnt, nothing forgotten
The Reserve Bank of Zimbabwe

The Reserve Bank of Zimbabwe

LIKE the Bourbons who, upon their early 19th Century restoration in France after the revolution, showed they had learnt nothing and forgotten nothing from the violent upheaval, Zimbabwe seems doomed to repeat its own mistakes from last decade’s crisis.

The Bourbons learnt nothing from circumstances that led to one of their predecessors being executed, nor did they forget, or change, their appalling conduct which sparked the revolution in the first place. No doubt petrified by the rapid worsening of economic conditions over the past year, Zimbabwe’s business leaders engaged President Robert Mugabe in dialogue last week.

The last time such a meeting took place was in 2007, just as last decade’s economic implosion intensified. At the time, the Mugabe government, which has a penchant for turning economic orthodoxy on its head with ruinous results, had imposed price controls which wiped shop shelves clean.

The central bank was maintaining a ridiculous exchange rate while printing money and driving inflation, already in the upper thousands, even higher. Fast forward to 2017. There are no food shortages, yet. But government is, once again printing money it could be argued via its issuance of Treasury Bills with reckless abandon. Government borrowing has fuelled much of the $7 billion in unsupported electronic balances held by banks.

Inflation, not quite in the 6 000 to 7 000 percent range it was ten years ago, is certainly on the march again. One only needs to look at the overheating equities market. Today, as in 2007, Zimbabwe is in the grip of a bank note crisis. Back then, the central bank responded by introducing bearer cheques a surrogate currency  in ever increasing denominations that rose to Z$750 000 by end of that year. As we write, the central bank is on the verge of issuing $300 million worth of bond notes another surrogate currency to take its total stock in circulation to $500 million.

As 2007 drew to a close, Zimbabwe had Z$100 trillion in circulation and the central bank injected another Z$33 trillion to ease a cash crisis. By the end of 2008, the country had issued a Z$100 trillion bank note, which could not buy a loaf of bread. The bond notes, introduced to ease the current crisis are officially pegged at parity with the United States dollar, although the market has its own rate. The bearer cheques were similarly pegged, but the market had its own idea of its value.

These similarities, which include tight terms of trade some businesses are imposing in light of inflation and the exigencies of current market conditions, provide an eerie reminiscence with 2007. Government’s response to these looming dangers does not convince us that we will avoid the meltdown witnessed a decade ago. Government refuses to curb its appetite to spend, nor will it do the needful to improve the climate for local and foreign investors. In fact, government refuses to learn the lessons of 2007 and will not forget, or change the reckless conduct that precipitated that crisis.

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