Zimbabwe "helicopter money" fears are genuine

by Justice Zhou

Let’s assume that Zimbabweans will one morning this month wake up to the clatter of government helicopters, flying over cities and villages while spraying bills of cash in a generous and random fashion never seen before in the country’s history.

Well, wouldn’t that be an amazing gift, a rare Christmas gift to a nation that has for years been deliberately forced to languish in dire economic misery by its political leaders?

What better way to arm cash-strapped consumers with disposable income and stimulate a severely illiquid and deflationary economy than to dole out easy money!

As authorities prepare to inject local US dollar “bond currency” into the economy, perceptions are growing that the government, through the central bank and treasury, wants to hand out a cash freebie that will only later turn out to be an electioneering scam.

Hence, the plan has met a firestorm of public outcry and stiff resistance from sections of the business community, as the country braces for polls in 2018.

There’s also no rejoicing for the "helicopter money" primarily because analysts fear the government has just begun embarking on yet another one of the self-destructive money-printing programmes which in the past only led to hyperinflation, sending the economy into a tailspin.

Some investors are already selling off their stocks in the main bourse as uncertainty and fears grow about the likely impact of this stopgap measure on the economy.

Central bank governor John Mangudya is battling to convince people that he isn’t Krampus, the bad Santa. Bond notes aren’t “helicopter money” and their quantity won’t be large enough to stoke abnormal price increases as some would have us believe, he implies.

Helicopter money refers, metaphorically, to an imaginary and unconventional measure meant to jumpstart the economy during deflationary periods. It involves the printing of large sums of money and dispensing them to the public in order to stimulate the economy.

However, with revenues depleting and sources of foreign currency fast drying up, there’s no way that the government will be able to raise large amounts of forex needed to support the printing of significant quantities of money that could stimulate economic turnaround.

The chances of getting loans from major international lenders are also remote, with both the IMF and World Bank playing hard ball as they call for wide-sweeping reforms before help can be offered.

Even if the new measures were like the quantitative easing (QE) programmes undertaken  by some central banks since the 2008 financial crisis,that would still require extensive purchases of assets from financial markets.

Zimbabwe doesn’t have sufficient foreign exchange reserve ammunition to carry out such a procedure, unless it wants to revert to the pre-2009 way of doing things, printing money at random and stoking hyperinflation.

The greenback has been gradually disappearing since Robert Mugabe claimed re-election as president in the 2013 elections, leading to a run on the banks that created severe cash shortages and worsened the existing liquidity crunch.

Having people sleeping outside banks just to withdraw a meagre US$20 surely speaks volumes about the enormity of the crisis.

As usual, authorities have been quick to lay the blame on others for the mess that apparently originates in the failures of the current government and its leader.

Foreign companies have been pinpointed for smuggling the greenback out of the country. It is for this reason that plans for the bond notes eventually came up, they say.

It hasn’t been easy to carry out open market operations and use money supply as a tool to rein in inflation and influence interest rates since Zimbabwe put its currency on hold, in favour of a multi-foreign currency system led by the US dollar.

Although bond notes would be printed abroad, backed by a US$200 million facility arranged with an international bank and deriving their par value from it, the central bank has an impression that it has printed them.

In other words, the tool used to manipulate liquidity has been partly restored but is still not effective enough to make an impact on an economy that is already melting down rapidly.

Frankly, a mere US$200 million won’t be sufficient to cause any changes to inflation or interest rates. But the concerns that still linger over the bond notes are genuine, especially where the question of whether our government can be trusted comes into play.

Policymakers suggest they have put together a more effective and indirect way of controlling the needless outflow of the US dollar, rather than enforce radical capital control methods, as the US dollar-denominated currency can't be used as legal tender outside the country's borders.

Others in the corporate world are calling for the blanket adoption of the South African rand as the dominant official currency, rather than the scarce US dollars. This is because Zimbabwe's biggest trading partner is South Africa, which could make it easier to deal with balance of payments problems.

But the concerns and resistance to bond notes are genuine in that the Zimbabwean government can't be trusted with issues to do with the printing of money, as history is the guide.

Nobody knows how it plans to finance its unsustainable budget deficit, which the treasury in September said could spiral to US$1 billion. Luckily, cash is the means by which it has mostly been financing its programmes.

Now, after exhausting all its efforts to persuade major lenders to offer it loans, and as exports revenues and foreign investment have not been forthcoming, there’s no doubt that Mugabe will once again try other bizarre methods to finance his political campaign projects ahead of the 2018 elections.

Printing and dispensing bond notes without any form of forex support to cover for imports and derive value from could be one of them, so people who resist the money could as well be in the right.

Zimbabwe riots are proof of broken economy

by Justice Zhou

The anti-government protests and riots that have just broken out in Zimbabwe are not surprising to those of us who, while carefully watching from a distance, saw them coming.

From social media activism to peaceful marches to violent protests, scores of Zimbabweans have united to duly vent their frustrations at Robert Mugabe’s failed economic policies, calling for his immediate retirement.

It can only be daft and dishonest, therefore, to keep insisting this isn’t a broken country—with a broken economy— given the rate of unemployment and endemic corruption and bad policies.

It’s common cause for politically-correct individuals to cry foul whenever constructive criticism is levelled against some of our corrupt leaders, which is quite sad.

Journalists and others who take the time to bring to light what is actually going on in our country are continuously being vilified for their honesty and courage, in the court of political-correctness.

Even where they have used appropriate terms to describe this sorry situation, they have been called all sorts of names, sometimes made to feel as if they were not Zimbabwean enough.

But there’s no point in denying that our country is broken when there’s plenty of convincing proof that every aspect of it is, unless one wants the status quo to remain.

To my mind, the current wave of civil unrest attests to that fact. And there doesn’t seem to be anything that would stop these protests until the tendency to overstay in power and bad governance are nipped in the bud once and for all.

Zimbabwe has for a long time been an economic disaster waiting to happen. Arguably, the source of what fuels the  latest bout of economic troubles bedevilling the southern African state can be traced back to the 2013 elections.

Truth be told, Mugabe has the overwhelming blessing of leaders from the regional SADC bloc to keep his octopus-like grip on power, which has not helped matters either.

It would be hard to disagree with this fact, given the actions and behaviour of some of these countries’ leaders, which border on their unwavering support for his lengthy reign.

By so doing, they appear to be complicit in encouraging a cult of personality and abetting one of the world’s heartless despotisms.

Following that so-called victory in 2013, Mugabe had promised to turn around the economy and create millions of jobs, but nothing has materialised as has widely been expected.

Instead, the economy is once again in a tailspin as companies shut down and cash shortages and hunger rear their ugly heads.

Rather than focus on fixing the deepening crisis and mending relations with the developed world, Mugabe’s primary objective has been to launch useless attacks on the opposition and rant at western governments.

We have not seen any of the corruption probes being carried out  or anyone arrested despite his revelations that billions worth of diamonds have been looted.

All we now get from policymakers to remedy the meltdown is the cocktail of the same toxic policies that already were tried and proved unworkable in the past.

For instance, last month the government announced a ban on certain imports, saying the measures were meant to protect and develop local industries.

One can understand the hubris behind the curbs on the cheap “supermarket” goods that, apparently, have flooded the country; it makes lots of economic sense.

Zimbabwe can’t afford to keep being bombarded with products that it can make on its own, at a time when it is exporting less.

This probably could be part of the reason there has been a massive flight of the US dollar from the country, which has worsened the cash and liquidity crunch.

However, the idea of capital controls and plans to introduce bond notes, the controversial local replica of the US dollar, aren’t promising ones.

Lesser exports and a ballooning import bill mean that the hope of ever dealing with the yawning trade and current account deficits will remain up in flames.

Ideally, supply side policies would be required to improve economic efficiency, making exports more attractive and capable of competing with imports, in turn improving the current account position.

Zimbabwe still needs a lot of imports, ironically, not necessarily the ones that are currently being dumped on its shores.

It needs massive investment to import plant and equipment and other capital stock needed to develop its industries or to build new factories.

But here’s the catch. Brighter investment prospects have not been forthcoming under Mugabe’s hostile rule, given the wide-ranging risks to investors and the country’s gloomy profile.

At the same time, it looks like protectionism and other half measures such as banning the same goods that have offered a lifeline to informal cross-border traders is ill-advised, if not daft.

Hence, one can understand the anger by largely poor cross-border traders in Beitbridge, who recently took to the streets against the ridiculous ban, going as far as setting alight a warehouse in which some of their unfairly seized goods were being kept.

There can be no doubt in my mind that the goods confiscated by border authorities would have eventually landed in the hands of corrupt fat cats.

Unfortunately, we still face a situation where you have a failed kleptocracy that even has the nerve to blame everyone but themselves for the rot they ought to bear responsibility for bringing about.

There can be no such thing as a “third force” or illegal sanctions, that we always lay the blame on whenever Mugabe’s absurd policies have failed us, it's a myth.

If a government and its leader are clueless, having completely no idea how to deliver on promises, people have every right to show them the exit door.

This country has been looted, fractured and is broken by any other name, far from the jewel nation it was initially meant to be, and there’s definitely no way that we can continuously be in denial about this.

The current wave of disobedience has been a long time coming. The time for the government to own up is now; it can’t be business as usual when things have gone from bad to worse.