22 July 2007
STANDARD Bank Group, a South African financial giant, has poured cold water over the ambitious proposal for Zimbabwe to get rid of its worthless currency and be brought into Southern Africa's rand monetary union.
The group said in a comminique that political reform was a prerequisite for Zimbabwe before any efforts to bail it out of its seven-year economic meltdown could be considered.
The communique to its subscribers said adopting Zimbabwe, despite the ongoing political crises, would be an ernomous expense to both the region and South Africa, given that the country's economic rot hinged on the "ongoing political decay".
"As the dire economic situation in Zimbabwe has political roots, any economic recovery plans that are proposed for the country would have to follow extensive political and economic reforms that return the economy on the path towards macro-economic stability.
"For the adoption of a state that has the characteristics of a war-torn country would be an enormous financial cost to the region and South Africa in particular, as it would imply a draw down of its foreign reserves and impact on its current account position."
The bank said any debate on bringing Zimbabwe into the CMA would best take place once there was some semblance of convergence between the country's financial indicators and those of the region, a situation which would require a resurrection of the real economy --which will only occur once property rights are restored.
The bank's call comes amid the Harare government's plans to further undermine property rights through a planned forcible seizure of at least 51% shareholding from all foreign-owned companies.
In 2000, the government violated property rights through its farm invasions and is currently cracking down on business under its price monitoring campaign.
Earlier this month, South Africa's Sunday Independent newspaper reported that the Southern African Development Community (SADC) was working on a plan to include Zimbabwe into the rand Common Monetary Area (CMA), currently comprising South Africa, Namibia, Lesotho and Swaziland.
Joining the CMA would imply the pegging of the Zimbabwe dollar to the rand.
For this to take effect, all Zimbabwe would have to do would be to effectively surrender control of its monetary policy and foreign exchange regulations to the South African Reserve Bank (SARB).
This would imply the complete elimination of quasi-fiscal activities, removal of price controls, exchange rate liberalisation and tightening of fiscal policy.
It was also speculated that the plan would see the central banks in South Africa and Botswana injecting huge amounts of funds into the Reserve Bank of Zimbabwe (RBZ) thus solving, among other economic problems, the prevailing foreign currency crunch.
But SADC has since distanced itself from the report, saying it was still working on a study on the Zimbabwe's economic situation hence had not proposed any support package yet.
SARB governor, Tito Mboweni, said Zimbabwe was a long way from being ready to join the rand monetary union.
South African media reports said Mboweni cited the need for a very high degree of macro-economic convergence which should include, among others, a massive reduction of the inflation rate.
All the CMA countries managed to make it to the union with a monthly inflation of less than 10%. Zimbabwe's is more than 4 530%, although independent analysts say it is much higher.
But Standard Bank said there was great need for economically supporting Zimbabwe.
"The sheer proximity of the sinking Zimbabwean economy and the fact that the region is experiencing the effects of a laggard neighbour supports the argument to provide financial assistance to Zimbabwe but only once credible political reforms occur.
"The coupling of South Africa's capital base and the skills of the Zimbabwe diaspora, which presumably returns following political and economic reforms, has the potential of stimulating a catch-up process in the country that would raise it and the region to economic prosperity over the long term".
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