Mugabe’s bond notes trigger Zim-dollar fears

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HARARE – There is palpable fear among ordinary Zimbabweans that the country has plumbed the debilitating economic depths of 2007/2008 when shops were empty and inflation hit world-record levels, resulting in untold pain and suffering for the majority of citizens.

As a result, the talk among most ordinary folk in Harare yesterday, who have some money in banks, was how quickly they could withdraw all their funds — intentions that triggered a fear of a run on banks which could worsen the economic crisis.

At the same time, and as Zimbabwe lurches towards its latest full-blown economic disaster — spawned by the continuing lack of political legitimacy and sound governance in the country — analysts and opposition parties alike told the Daily News that it was time that President Robert Mugabe and his “economically-illiterate” lieutenants vacated office.

This comes after the hardworking governor of the Reserve Bank of Zimbabwe, John Mangudya, announced on Wednesday that he would introduce new local “bond notes” within the next few months, to ease the country’s acute shortage of cash — while staunchly denying that he was returning the much derided Zim-dollar back.

The bond notes in denominations of $2, $5, $10 and $20 would be an extension of the bond coins currently in circulation — to be backed by a $200 million loan facility from the Cairo-based African Export Import Bank.

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However, former Finance minister and People’s Democratic Party (PDP) leader, Tendai Biti, insisted yesterday that the RBZ move was a cynical plot to return the Zim-dollar via the backdoor.

“The return of the Zimbabwean dollar marks the gross admission by this regime that it has failed and failed in absolute terms and that it will drag everyone along in the plunge to abyss that now awaits this economy.

“It is a cynical, disrespectful and contemptuous move that has absolutely no logic, sense or justification on any rational ground whatsoever,” he said, adding that to the extent that Zimbabwe’s productive capacity was near to zero, this meant that the country could not afford as yet to bring back its currency.

Opposition leader and former prime minister Morgan Tsvangirai said the introduction of the bond notes reflected “economic illiteracy”.

“Bond coins, bond notes and zvihuta (quails) is a telling concoction of failure. It can only confirm a bond leadership in government. How do you back bond notes with a loan?

“This Zanu PF government is like a father who cuts a child’s legs because he cannot afford school shoes!” Tsvangirai’s spokesperson, Luke Tamborinyoka, said.

Tapiwa Mashakada, the MDC shadow minister for Finance, said Zimbabweans were “kissing goodbye” the last vestiges of macroeconomic stability.

“It is very crystal clear that the government is warming its printing press at Fidelity Printers. History repeats itself. Zimbabwe has back-slided to its 2008 economic comatose position again.

“These are the consequences of a stolen election, corruption, illicit financial outflows, lack of fiscal discipline, externalisation, a growing public debt and the decimation of production,” he said.

“The economy cannot be rigged. Confidence is at its lowest level. Very soon the Zanu PF government will start printing money again. There will be a run on deposits, followed by capital flight,” he said, adding that the next looming disaster was government not able to pay salaries and other transfers.

“Faced with this crisis, government is likely going to completely de-dollarise by December 2016. This will plunge Zimbabwe back to the era of hyperinflation,” Mashakada predicted.

Biti concurred with Mashakada that the only feasible thing that could be done to mitigate the economic crisis was to dissolve government and Parliament.

“Indeed the reintroduction of the Zim-dollar will have catastrophic consequences to the remaining constructs of Zimbabwe’s pseudo economy. It is a decision that will see many of the remaining companies reach breaking point and simply shut down.

“Few are prepared to relive the nightmare of the meltdown period of 2007 and 2008. The move will also engineer a fresh wave of externalisation, under-banking, tax avoidance and evasion,” Biti said.

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He added that with a mere $303 million in reserves, representing only four weeks of import cover, Zimbabwe did not have the requisite export base to support a local currency.

He also took issue with Mangudya’s announcement that with effect from May 5,40 percent of all new US dollar receipts would be converted to rand in order to promote wider usage of currencies in the multi-currency basket.

“The directive that 40 percent of bank deposits will now be converted to the South African Rand is blatantly unconstitutional and must be challenged in the courts.

“It amounts to a devaluation of the US dollar by at least 20 percent in real terms given the volatility of the Rand. The move will leave a desperate work force already hit with low disposable income further impoverished,” Biti said.

McDonald Lewanika, a London School of Economics graduate, said part of the challenge was that confidence in the state and the RBZ was low.

“My sense is that this may spiral into another crisis as in the previous years where the face value of the bonds may be rejected or lowered, with hard cash having a greater value on markets parallel to the ones that the RBZ administers.

“Unfortunately, this interim measure while it may temporarily stem the flow, it is akin to peppering a crack with the possibility of it cracking wider open with greater consequences,” he said.

Economist John Robertson said the government had failed the people of Zimbabwe.

“Look, I have always said Zimbabwe’s economy has better prospects with a change of government. That is all the country needs. Now that they want to re-introduce the local currency, people will probably begin to grasp the situation,” he said.

The veteran economist said printing more money was not going to rid Zimbabwe of its seemingly never-ending economic problems.

Analyst Issis Mwale was also of the view that Mangudya was not being “entirely truthful” about the true nature of the bond notes.

“I had the liberty of going through his statement and my worry comes on the bit that he says he will reconfigure the RTGS system to accommodate a bond currency. This makes it obvious that he is sneaking back a local currency.

“Yes, it may not be the Zim-dollar, but it is a local currency that is coming back, however he puts it,” she said.

Last week, the Daily News reported that as Zanu PF bigwigs continue to bludgeon each other politically, the lot of the majority of Zimbabweans was getting worse by the day — with many living in squalor and abject poverty.

It said a visit to many high density areas in the capital Harare left one sad beyond words.

Dry taps, rivers of sewage and heaps of uncollected garbage were a common sight that many people under the age of 30 took as the “norm”.

Economic and political analysts who spoke to the Daily News yesterday said the country’s dying economy, as well as the on-going cash crisis were a symptom of deep-seated problems emanating from Zanu PF’s failed rule of the past three and half decades.

“What we are going through is largely a political process and unless and until we sort out our politics, there will be no economic recovery. To project what the future holds for Zimbabwe, there is need to take a look at the political dynamics in the governing party.

“It is clear we are in the last stages of the Mugabe era and if one takes a microscopic view of the political dynamics as amplified by the media, you will see it’s is all coming to an end,” prominent academic Ibbo Mandaza said.

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