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Zimbabwe: New Monetary Policy Ideal But...
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Financial Gazette (Harare)
8 May 2008
Posted to the web 9 May 2008
Charles Rukuni
Harare
MEASURES taken by the central bank last week to revive the country's ailing economy, especially the liberalisation of the exchange rate, have been widely welcomed but are not likely to yield the expected results because of mismatches between the monetary and fiscal policies.
Bulawayo-based vice-president of the Zimbabwe National Chamber of Commerce (ZNCC) Obert Sibanda, said although some of the measures had come a little late, he was happy because this was what business had been calling for all along.
He, however, pointed out that the measures were not likely to solve the country's current economic problems because they were being implemented piece-meal.
"The monetary policy on its own cannot solve our current economic problems. This needs a holistic approach.
"But I am glad because the central bank is now accepting reality," Sibanda said.
Business consultant, Luxon Zembe, said the liberalisation of the exchange rate was a major step in the right direction but it needed to be complemented by other measures such as the lifting of price controls and limits on cash withdrawals.
He said the success of the exchange rate liberalisation would depend largely on supply and demand and the gap between the inter-bank and parallel market rates.
The central bank liberalised the exchange rate last week allowing banks to reach their own rates. They immediately agreed on $160 million to the greenback way above the parallel market rate, which was about $100 million.
The parallel market is still trailing behind the bank rate but is fast catching up.
Zembe said what was needed was a constant flow of hard currency into the banks because as long as people were assured they could buy or sell money to banks, most people would go to the banks rather than to the parallel market.
The problem, however, was where this money was going to come from.
He said there was no production to guarantee this constant flow. One of the measures that central bank governor Gideon Gono had introduced -- that foreign currency not utilised within 21 days would be liquidated -- was a disincentive, he said.
Gono said the measure was aimed at ensuring that there was support to the economy's productive sector through greater circulation of foreign currency, but Zembe said the governor had not taken into consideration the production cycle.
He said business needed at least 60 days to complete its production cycle given the bottlenecks such as shortages of electricity, water, raw materials, and in some cases lack of communication.
"This measure is only going to benefit the central bank itself because it is one of the major consumers of foreign currency," Zembe said.
"If the exchange rate is left to market forces this means that once a company loses its foreign currency it may not be able to buy the same amount of foreign currency with the Zimbabwe dollars dumped on it," he added.
Zembe said the availability of foreign currency on paper meant that any company with Zimbabwe dollars could go to the market and buy foreign currency, but most companies did not have Zimbabwe dollars because they were exporting their goods because of price controls. They could not sell their products locally because this would be suicidal.
The new measures should therefore have been accompanied by the lifting of price controls as they are responsible for the current shortage of goods in shops.
He also said while it was safer to change currency at the bank, people would only do so if they were assured of getting cash.
The central bank increased maximum daily withdrawal rates from $1 billion to $5 billion a day but this was considered still too little especially for business.
"This is ridiculous because you cannot buy anything with $5 billion. You cannot run a business when you have to go to the bank everyday to withdraw cash.
"So if people cannot get cash from the bank, they will take their money where they can get cash, and that is the parallel market," said Zembe.
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He said the central bank should "walk its talk". It cannot argue that it is against controls and price distortions when it controls how much money one can withdraw from one's own account.
"We are a cash economy so we need to come up with measures that respond to the reality on the ground.
"You cannot go to the bank everyday to withdraw money that does not even meet your daily needs," he said.
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| Copyright © 2008 Financial Gazette. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections -- or for permission to republish or make other authorized use of this material, click here. | |||||||||||||||||||||||||||||
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