New Economic Thoughts: Zimbabwe, Africa and the World
Tuesday, 4 November 2014
Stop the IMF in Zimbabwe!
The International Monetary Fund (IMF) has visited Zimbabwe several times in 2013 and 2014, advising government on how to manoeuvre out of its current economic mess. That institution must be saluted for that gesture, for many institutions would stand and watch when such a self-injuring government as Zimbabwe’s continues with its errors, deliberate or otherwise.
Unfortunately, the IMF-Zimbabwe Government alliance has been far from public scrutiny, leading to possible laxity. This paper unscrambles the IMF’s Staff Monitored Program (SMP) and presents a report on what that prescription is likely to cause to Zimbabwe- the economy and the people.
The argument is that the IMF’s policy agenda and methodology are both misplaced as they prime debt repayment to please the insatiable appetites’ of western capital at the expense of anguish and pain on ordinary Zimbabwean citizens.
It further questions why the IMF is giving different pills to Zimbabwe compared with what it gave to Greece and USA during their economic crisis periods? One of the recommendations this paper advances is based on Hernando de Soto Polar’s idea of converting dead capital into productive capital, and grow the economy.
To make this discussion easy, it is best to start by painting the state of the Zimbabwean economy using a story. It is like a person suffering from many ailments at once, malaria, hunger, sore-eyes and a cough. The universal and clinically recommended way to manage this multiple set of ailments perhaps is to arrange the conditions by their nature of threat to life, and start with the life threatening ones. The other conditions would be stabilised and attended to once the patient moves from the critical care unit to a general ward.
In the case above, feeding the person and giving them anti-malaria medication would most likely save their soul, and focusing on the cough would be tantamount to condemning that person to death.
That is the footprint of the IMF in Zimbabwe.
The IMF African Department Director, Antoinette Monsio Sayeh visited Zimbabwe from October 21-24 and met several people and institutions. After her mission, she issued a statement thus:
" .... I highlighted four issues that are key to helping fast-track the country’s policy reform agenda and to gathering support toward a strategy for clearing the outstanding arrears: balancing the primary fiscal budget; restoring confidence and stability in Zimbabwe’s financial sector; addressing the country’s debt challenge; and enhancing the business environment with a view to attracting investments.....”
Put simply, the main agenda is to “help” Zimbabwe clear its outstanding arrears using a methodology of structural adjustment, technically called primary fiscal budget management or just cutting government expenditure and collecting more revenue.
Both the IMF targets and methodology are largely heartless and misplaced as they treat the people of Zimbabwe as nerveless and or useless iron objects.
Here are the two main reasons the IMF's model is wrong.
a)The recommendation to balance the primary fiscal budget by mainly cutting the government’s wage bill in order to stabilise and grow the economy will most likely yield the opposite, further sink the economy.
Economists at the IMF and within government would be so careless to miss this basic economic theory behind our reasoning. It is called the paradox of thrift. It states that the prescription of “saving to grow” works for individuals and not whole economies.
In Zimbabwe’s case, if the government cuts its wage bill by retrenching some workforce; that would have a likely effect of reducing the aggregate income whose knock-on effect is reduced aggregate demand.
When aggregate demand falls in an economy, other things being equal, that economy shrinks further. The spiral continues until it reaches the trough or lowest point at which that economy can’t sink any further.
Retrenchments will likely result in more social support pressure as the retrenched families join the social welfare list needing government help like the Basic Education Assistance Module (BEAM) among other social welfare interventions. Ordinary citizens and the already fragile industry will struggle to pay rents, interests and buy basic commodities/inputs. This is the big risk of the IMF's prescription of balancing the primary fiscal budget.
The evidence of our analysis is there for all.
The move by government to generate more revenue through increased toll-fees, hiked duties and taxation as well as the introduction of pre-paid water meters received and continues to receive public outcry and litigation. That reaction ought to have informed the IMF of the unholiness of its template.
As a public relations stunt, the Government constantly sings the tune,
“Zimbabweans are resilient” and the IMF swallows that line.
We challenge both the policy actors in government and the IMF on this. Which one of you can last a month on $400?
This is the psychological trap that the Zimbabwean government uses to freeze and trick the IMF.
Those people you see in Zimbabwe are as human as other beings in Greece, the USA or Nigeria. They deserve peace, love and happiness and not the patronising label of “resilience and peace” in hunger.
b)The payment of arrears to international financiers is a good proposal assuming that fiscal space exists. However, the IMF very much knows that, in the short run, the government of Zimbabwe cannot pay for various reasons main of which is the government’s own record of pillaging. The auditor general’s subsequent audit reports reveal how this government constantly abuses its resources without concern.
So why should ordinary citizens re-pay, and keep on paying what the government keeps on abusing? It’s absurd! This scenario reveals four fools, and not in any order: the citizens, the government, the private sector and the IMF.
By placing arrears payment ahead of growth, would it be remote that their unstated aim is to retrench government workers, save some money and use that money to pay the international financiers so that they sink Zimbabwe into bigger debt?
This displays the IMF’s duality and unfairness from a global perspective. The pills they are giving Zimbabwe are different to what they gave the US and or Greece when these countries had their credit bubbles in 2010.
This is why the IMF must be stopped!
The Zimbabwean economy is so informalised to an extent that its degree of favourable response to such policy prescriptions is very low. Less than 20% of its able workforce is employed in the formal sector, and does it make any economic sense to further contract that sector without further hurting the very tax base that is contributing to the much needed revenue?
Why are both the government and the IMF ignoring Zimbabwe’s 80% workforce in the informal sector? Zimbabwe has massive dead capital in the informal sector and in the Diaspora. That is Zimbabwe’s touchstone!
The second reason why the IMF needs to be stopped is its heartless proposal to remove bread from the mouths of hungry Zimbabwean children to bring extra red-wine to the noses of financiers in London and New York.
It is prudent at this point to acknowledge that indeed Zimbabwe owes lots of money, and the gist of this discussion in not to promote national decadence, but to challenge the IMF to consider the ordinary people, and not punish them for the errors, deliberate or not, of the leadership in Zimbabwe.
Zimbabwean citizens and private sector institutions need tax relief and fresh capital.
If the IMF fails to come to the side of ordinary citizens in its economic modelling, then it has to know that both the IMF and the government of Zimbabwe will be complicit in blood sucking vulnerable citizens, and further compounding Zimbabwe to a short-medium term future of pain and sorrow.
The morality and legitimacy of the IMF in Zimbabwe is under constant threat.
In conclusion, it is important to repeat that the IMF and other international interventions are needed in Zimbabwe. The Zimbabwean economy is very vulnerable, its bureaucrat’s clueless and ordinary citizens almost reaching a breaking point. The best intervention for the IMF and the Ministry of Finance is to offer four complementary remedies, a) tax relief to households, b) targeted support and formalisation of the Diaspora and the small to medium sector, c) support substantial public works like railway, road and housing construction to anchor the SME growth, and d) deploy the African Development Bank as a fiscal agent to strictly stabilise Zimbabwe’s return to credit.
It is possible!
Itai Zimunya – works with the Open Society Initiative for Southern Africa and participates in the Institute for New Economic Thinking.
New Economic Thoughts: Zimbabwe, Africa and the World: Stop the IMF in Zimbabwe!
