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Zimbabwe Monetary Policy Comes Under Fire - 2004-04-26


Zimbabwe's central bank has pulled in as much foreign currency in the first three months of 2004 as it did in the whole of last year. The rise in Zimbabwe's foreign currency reserves is due to a campaign to reduce hyper-inflation and stamp out illegal money trading, but the effort has also hurt Zimbabwean exports by making them more expensive.

Central Bank Governor Gideon Gono has cleaned up many gray areas in Zimbabwe's unpredictable and volatile economy. He has stopped banks from speculating in foreign currency, and managed to limit damage to depositors while closing some financial institutions that had broken the rules.

Last week he surveyed results of his monetary policy announced in December. It looks like good news for foreign currency reserves, and Mr. Gono has been praised profusely by the government and its media press.

But private sector economist Peter Robinson says the only difference is that foreign currency earned by Zimbabwe has come into official channels. He says last year it came in through the illegal parallel market, and was used more efficiently by the productive sector.

Mr. Robinson says one result of Mr. Gono's monetary policy is that exports are declining every day, and he accuses the central-bank governor of ignoring, what he describes as, desperate cries from exporters.

The exporters are required to sell a quarter of their export revenues to the government at the official rate of 824 Zimbabwe dollars to one U.S. dollar, and the rest on auction at about 4,500 Zimbabwe dollars to the U.S. dollar.

The open-market rate is more than 6,000 to the U.S. dollar.

Mr. Robinson says unless Mr. Gono does away with the limits and allows the Zimbabwe dollar to float to its real value, the economy will suffer because export earnings are plummeting. He says declining exports will mean less foreign currency available in Zimbabwe than ever before.

Already, there is a shortage of foreign currency that severely limits imports of raw materials and other products needed by the private sector.

Many commentators, mostly quoted in the private-sector press, acknowledge that the central-bank governor's policies have led to a six-percentage point reduction in Zimbabwe's inflation rate of nearly 600 percent. Reducing inflation to 200 percent by the end of the year was one of Mr. Gono's primary goals.

But they charge the policy is aimed at grabbing headlines and helping the ruling ZANU PF party in next year's parliamentary elections, and is hurting the economy in the medium to long term.