HARARE – Morgan Tsvangirai’s MDC yesterday warned that government’s decision to introduce bond notes to avert the current cash crisis could lead to civil unrest.
MDC shadow finance minister, Tapiwa Mashakada, told the Daily News yesterday that if government does not urgently address the cash shortages by coming up with economically-sound solutions, “it will be a powder keg of political instability in the country” as it will lead to hyperinflation and food shortages.
Reserve Bank of Zimbabwe (RBZ) governor John Mangudya has said bond notes will not empty goods from shops or cause a rapid rise in prices, neither will they result in the resurgence of the much-dreaded foreign currency black market.
“Workers will start to go for short-term wage agreements in order to keep pace with the purchasing power parity of bond notes which will result in riots and economy strife in the country,” Mashakada said, adding that in those circumstances, government will respond with “brutal force”, which according to Karl Max, is “the midwife of political revolt”.
He also described government’s move as “partial de-dollarisation” which will achieve a decline in imports.
Mashakada insisted the move will inevitably lead to price distortions and capital flight given what happened to Latin American countries that attempted it such as Bolivia, Costa Rica and Chile.
The central bank wants to introduce bond notes to the tune of $200 million to deal with cash challenges which have seen banks limiting cash withdrawals by depositors.
Mangudya noted that the current economic fundamentals are different from those of the 2008 hyper-inflationary period when domestic production was almost non-existent and any new money that was injected into the economy became inflationary.
Economic experts say at their maximum of $200 million — guaranteed by the Cairo-based Africa Export and Import Bank (Afreximbank) — bond notes would only constitute four percent of the total banking sector deposits.
The RBZ chief said this measure was an important step in stabilising the economy and to safeguard against externalisation and capital flight.
Statistics from the central bank show that at least $1,8 billion was externalised last year, a situation that has worsened the current cash crisis.
“Under the multi-currency system, which the country will continue operating, the level of inflation has generally remained low, averaging –0,2 percent in 2014, –2,4 percent in 2015 and currently at –2,5 percent as at March 2016.
Mashakada said the solution to the crisis lay in government abandoning its indigenisation policy in order to attract foreign direct investment.
“This will encourage foreign direct inflows and increase the supply of the US dollar. Once industry is capitalised, capacity utilisation will increase and exports too. When the companies start to produce, imports will fall and the trade balance will improve,” he said.
Zimbabwe already has a family of bond coins that are in denominations of 1 cent, 5c, 10c, 25c and 50c which were introduced by government in December 2014 to provide loose change to Zimbabweans who were rounding off prices to the next dollar.
The central bank boss’ statement comes as the country’s bankers recently embraced the notes and encouraged the transacting public to also use them in support of economic turnaround efforts.
“The Bankers Association of Zimbabwe (Baz) therefore endorses these measures — by central bank, and would like to assure the banking public that they have been introduced by the Reserve Bank of Zimbabwe, not only to deal with the current cash shortages in the economy, but also to stabilise and stimulate the economy through the promotion of exports,” Baz president Charity Jinya said.
Tsvangirai has called on Zimbabweans to reject the Zimbabwean version of the US dollar, warning that the country would “return again to the empty shops” of 2008. In a short video clip posted to social media platforms last week, Tsvangirai said: “We have all walked that road before.”
Rejecting claims by the central bank governor that the new bank notes were merely meant to encourage exports, Tsvangirai said that President Robert Mugabe’s government would “abuse” civil servants by paying them in the new form of cash.
“All patriotic Zimbabweans must reject this,” Tsvangirai said. “These bond notes are an attempt to rig the economy.”
Former Finance minister Tendai Biti has warned that the bond notes will have cataleptic consequences to the remaining constructs of Zimbabwe’s pseudo economy.