9 November 2012

Zimbabwe: Banks Being 'Coerced' Into Buying Govt Debt

Threats to commercial banks to either agree to buy Treasury bills or face being forced to do so, are being criticised as unwelcome deliberate coercion by the government.

The government has re-launched its Treasury bill market, where it auctions Central Bank 'securities' to commercial banks in return for a loan to finance government expenditure. October saw the first such Treasury bill market being launched since the local currency was dollarised.

But there has been reluctance by commercial banking groups to pay out these loans at the price the government is asking. Economist Tony Hawkins explained that the argument at the moment is about the cost of money. He said: "The banks are reluctant to lend to government at the price government wants which is at interest rate of 4% and less, and the banks are saying no, they want 8 or 9%."

Finance Minister Tendai Biti and Central Bank Governor Gideon Gono have both warned the banks that they might be forced into accepting the arrangement if a compromise is not reached. Hawkins said this is "basically coercion."

"The government is basically forcing the banks rather than letting the banks reach a voluntary arrangement. They (government) is saying: 'If you don't lend voluntarily we'll make it compulsory," Hawkins explained.

He said he hopes some kind of compromise can be reached because forcing the banks to buy in when they are reluctant could spell bad news for Zimbabwe's still battered economy.

"That would take us back to where the trouble started when banks were forced to hold government securities that turned out to be worthless," Hawkins said.

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