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Zimbabwean Currency Devalued - 2003-02-21


In an effort to ease economic difficulties the Zimbabwe government has devalued their currency for the export industry. One U-S dollar will now be worth 800 Zimbabwe dollars. The government has also agreed to inject 50 billion Zimbabwe dollars into the economy to stimulate production and bail out ailing companies. However, economists say the move is still not enough to revive the Zimbabwe economy.

The new measures announced Wednesday by Dr. Herbert Murerwa, Zimbabwe’s Finance Minister, are part of the proposals of the so-called Tripartite Negotiating Forum (TNF). Though the government has agreed to devalue the dollar for exporters, companies still must remit 50 percent of their foreign currency earnings at the official rate of 55 Zimbabwe dollars to one US dollar. In other words, only 50 percent of a company’s foreign currency earnings will be changed at the new rate of one-to-eight hundred.

Witness Chinyama, an economic commentator, says that the new plan will likely keep companies in the doldrums. He says that a blended rate of the two exchanges rates, that is the 55 and the 800 would come to 427 Zimbabwe dollars. This means that the dollar has in fact been devalued to 427 Zimbabwe dollars and not 800. Mr. Chinyama says that companies will therefore be forced to return to the black market where the rate is 1,500 Zimbabwe dollars to 1 US dollar. He says companies involved in the tobacco, gold, and platinum industry are likely to be the beneficiaries of the measure. In his statement Minister Murerwa says the reserve bank of Zimbabwe will increase its monitoring of exporters so that all monies are remitted to the government.

Minister Murerwa also says that new fuel prices will be announced. According to his statement the new prices will be determined through the TNF. Companies will also be allowed to import some fuel products. Currently the government-owned National Oil Company of Zimbabwe has a monopoly in this sector. Zimbabwe is currently facing serious fuel shortages. This problem has largely been blamed on the shortage of foreign currency.

Minister Murerwa also announced that the government is making available 50 billion Zimbabwe dollars to resuscitate collapsing companies. The money will be put in a revolving fund administered by the reserve bank. But economic analyst witness Chinyama says the measures fall short of addressing the critical problems. He says that rising inflation and the increasing price of raw materials will undermine the new measures.

Zimbabwe’s inflation rate is currently pegged at 200 percent and is reported to be rising by one percent every day. Minister Murerwa did not address all the concerns of the TNF. Of major importance is the need to reverse Zimbabwe’s collapsing food production and also stabilize the political scene. A remedy has yet to be proposed for the fall out from the government’s land reform program, which has largely destroyed the country’s commercial agriculture, and ability to feed itself.

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