How To Save Zimbabwe After Mugabe
March 31, 2008

By far the most impressive building in central Harare is the headquarters of the organisation most responsible for eviscerating Zimbabwe's economy. Inside its spotless tower block of plate glass, the Reserve Bank's sole function is to cause hyperinflation by printing the money that keeps Robert Mugabe's bankrupt regime afloat.

If, however, the weekend's election defies all expectations and causes Mr Mugabe's departure, the world will be left to pick up the pieces of a ruined state. For a moment, set aside all scepticism and assume that today is the morning after Mr Mugabe's resignation.

What must be done to revive Zimbabwe?

First, bear in mind the monumental scale of the task. In the past eight years, the economy has endured the devastation normally inflicted only by war or natural disaster. Today, the country's gross national product is about 40 per cent smaller than it was in 2000. To place this in context, America during the Depression lost 30 per cent of its GNP.

Moreover, Mr Mugabe has inflicted a depression on a country that was pretty poor to begin with. If they are to reduce poverty, African states must achieve annual GNP growth of at least seven per cent and sustain it for decades. Zimbabwe has been going in reverse for most of the past 10 years, digging a deeper and deeper hole.

Grasping why this happened - and its wider consequences - is crucial to identifying the steps needed for recovery. Zimbabwe's economy rests on three pillars: commercial agriculture, tourism and mining.

advertisementBy seizing white-owned farms and handing them out to his cronies, without troubling to provide them with finance, farming equipment, training or even title deeds, Mr Mugabe wrecked commercial agriculture.

By unleashing violence against his political opponents, he frightened away tourists. And by passing a law allowing the seizure of 51 per cent of their shares, he forced mining companies to abandon all exploration and investment.

So Zimbabwe's economic collapse came about as a result of government policy. Consequently, Mr Mugabe's tax revenues have been wiped out and he cannot pay his bills.

The response? The Reserve Bank simply prints money to keep him afloat. The entirely predictable consequence of churning out trillions of Zimbabwe dollars is that inflation has soared to 100,580 per cent and the currency's value has plunged.

The first step that must be taken is to stabilise the economy and curb hyperinflation. The Africa department of the International Monetary Fund, led by Abdoulaye Bio-Tchané, will take charge of this effort.

Reducing inflation means the government must stop printing money. This can only happen if someone else pays its bills. So the IMF will probably agree an immediate injection of funds to keep Zimbabwe going while the Reserve Bank turns off its printing presses.

This should curb inflation in a matter of months. But a full stabilisation package will have to go much further.

Under Mr Mugabe, Zimbabwe's government grew ever larger and made no effort to curb its spending. His successor will have to reduce the size of the civil service and privatise the publicly owned companies, which are little more than shells. In particular, he will have to slash military spending, which presently exceeds the health budget.

Mr Mugabe promised to do all this in 1999, in exchange for an IMF balance of payments facility of US$193 million. Few were surprised when he broke his promise and the IMF responded by ending its support.

Zimbabwe's next president should look at the letter of intent that Mr Mugabe signed with the IMF nine years ago. In return for funds going beyond immediate stabilisation, these promises will have to be kept.

Economic recovery will also require a new currency. The best illustration of the Zimbabwe dollar's headlong collapse is that eight years ago, Z$14 million would have bought a mansion in Harare. Three weeks ago, it was enough to buy one can of Diet Coke.

By yesterday, however, a can of Diet Coke cost Z$56 million.

With inflation under control and a new currency introduced, Zimbabwe's new government can look to longer term recovery. Commercial agriculture will be the key.

Some white farmers must be allowed to return and Mr Mugabe's disastrous land ownership laws, which make all agricultural land the property of the state, must be repealed.

With private title deeds restored, farmers will able to raise finance and resume production. If Zimbabwe can shake off its reputation for violence, tourists might return in large numbers to a country that boasts teeming wildlife and the Victoria Falls.

With inflation under control and predatory ownership laws repealed, the mines might also revive.

Outside donors, notably the British government and the World Bank, will have to provide the cash to restore Zimbabwe's tattered infrastructure. The inexpressible tragedy is that even if all this takes place - and it could take years - Zimbabwe will only return to the position it enjoyed a decade ago.

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Source: The Associated Press
 

 
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