Of bail outs and why Zimbabwe requires one.

Wobbling along, alone, so goes the saying, in describing Zimbabwe’s fortunes. She faces another economic crisis in less than ten years, that manifests in economic jaundice but in truth is a politically rotten edifice.

Money supply increased by 57% in May 2019 on a year on year basis, the highest it has been in ten years. At $13bn, the stock of money has tripled in five years while production has contracted. Inflation is hyper, showing no signs of slowing down. By all measures, this was the calm before the storm. This was in May.

The latest Reserve Bank of Zimbabwe (RBZ) May 2019 data denotes exchange rate losses of $10b pushing Net Domestic Assets (NDA)to $23bn. A loss sitting on RBZ’s balance sheet that the Government of Zimbabwe (GOZ) will have to carry, doubling domestic debt. Effectively washing away the much touted budget surplus. This was in May, before winter frost bite and the GOZ panicked by introducing the Zimbabwe dollar. The official exchange rate was around 3.

Every time the exchange rate weakens, the bigger the exchange rate loss. And a much bigger deficit lies ahead. The supplementary budget in July forgot to address the glaring $10b loss in May. The authorities simply ignore this reality.

The present crisis has been conjoined with yesteryears of decay. At the turn of the century it was the crisis of land tenure that reduced land capital to zero and $8-$10b USD external debt. The national debt is now above 100% of national production. Unfavorable weather patterns and heightened social unrest is foreboding.

Whichever, whatever way one reads the tea leaves, Zimbabwe is in need of a bail out. But, is Zimbabwe ready?

The Greek crises lasted eight years. The process was arduous and draining. Such is the nature of reforms. The EU led rescue mission required no less than a $300b bail out. Greece is only a $200b economy. When Greece imploded, it’s governing politicians grew incredibly self righteous blaming capitalism and not themselves.

Greece required deep institutional and political reforms. Eight years of austerity and $300b dollars later, Greece is alive again. The coalition government was against EU political reforms and German led austerity measures. Yet, in the end, they acquiesced.

The analysts in Greece were all agreed that though the problem was economic, the broader problem was political and what was required were political reforms. Greece has gone through three successive bail outs, all of which required financial creditors calling and asking for political reforms. Greece profligacy, meant a loss of sovereign decision making. It wanted its own currency and Grexit. This was denied. This stopped Greece from potential hyperinflation. The German led reforms saved Greece from itself.

The UK has been under austerity measures since 2010. Austerity does not mean raising taxes and revenue, but cutting expenditure. It is not a six month merry go round publicity stunt. It is about cutting government expenditure and subsidies. Reforming excessive subsidies and government bureaucracy.

Egypt is another country that required successive bail outs in the last five years. More than $50b has been poured in, with IMF funding $12b. The IMF total package is expected to be $21b. The military regime in Egypt inherited a country of strategic importance to the US. Even at that, the military government has not stopped America pushing for further political reforms. The latest Carnegie Endowment for International Peace report makes the case for further political reforms.

Israel in the early 80’s went through its political reforms and bail out. Successfully ending hyperinflation and a crisis of government. A coalition government was formed and the US directly poured in 25% of GDP in bail out money. Estonia led its reforms through parliament making institutional reforms. Coupled with a bail out the changes drove economic development.

Within SADC, Swaziland required a bail out of $400m in 2012 from South Africa. SA insisted on political reforms, for such a small soft loan. Swaziland refused to cooperate. SA walked away.

My essay could be littered with all the bail outs in the last ten years from around the world. The conditions are the same. Political and institutional reforms. The same would apply to Saudi Arabia, if ever it were to require a bail out.

In 2009, the Global Political Agreement (GPA) gave birth to the Government of National Unity (GNU). As succinctly articulated by Professor Mutambara, Zimbabwe is yet to implement all of the GPA requirements.

Subsequently, Zimbabwe did not receive external bailout nor restructure its debt with the Paris Club. The bail out came from Zimbabweans, within and in diaspora. They poured into the system $2-$3b of their savings. They were lied to and did not insist on political reforms. They desperately wanted it to work.

Zimbabweans have lost their savings for a second time. And the diaspora is weary of putting its savings in Zimbabwe. This time around, what is required is deep institutional and political reforms. Zimbabwe, after 20 years of ignoring its external debt, must adhere to the demands of the Paris Club.

Zanu PF believes it can go it alone. Or wait it out and eventually emasculate MDC into a working deal but the situation is vastly different. It is Uncle Sam Zanu PF must negotiate with. It is Zimbabweans who have lost their savings twice in ten years. It is the diaspora in its millions that must be cajoled. All are uncompromising and fed up with Zanu PF. And rightly so. I reiterate; the 2009 GNU worked because Zimbabweans were fooled. This time that will not work as the citizens are wiser.

The presence of the MDC in government or in a transitional mechanism is not enough either. Buy in from across society is required. And an underwriter of the economic reforms must be credit worthy. It is not enough to dollarise. A third party, for example the IMF or South Africa must underwrite the process and act as guarantor. The next elections must be UN supervised and SADC must actively engage the Zimbabwean military and neutralize its participation in economic and civic matters.

Zanu PF is not interested in reforms, or at least will not voluntarily accept reforms. It suffers from the inside outside paradox. To those outside Zanu PF everything is a mess, whilst to those in the party it is all working perfectly. The two paradigms are never reconcilable. We can only observe exhibited behavior of those that experience both worlds. Which perhaps explains Mugabe and his about turn. He created a self serving repressive system which he now despises from the outside.

Entrepreneur with a deep interest in Economics and an even deeper interest in Zimbabwe.

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