OR WHAT REAL ECONOMIC CRISIS LOOKS LIKE
[ SIDE BET : IF THIS HAPPENS HERE, AMERICA WILL FINALLY GO METRIC ]
MUGABE : MY PEASANTS “RICHEST in WORLD”
Zimbabwe’s central bank introduces 10 million Zimbabwe dollar note /
17 Jan 2008
Johannesburg/Harare – President Robert Mugabe’s government, stricken by chronic hyperinflation, announced Thursday it was to introduce a 10 million Zimbabwe dollar note. Economists said they believed it was the highest denomination of any currency in the world. Central bank governor Gideon Gono was quoted on state radio as saying that the bank would begin releasing a set of three new notes – 1 million, 5 million and 10 million – on Friday. The issue of new notes follows nearly three months of banking chaos as cash dried up and queues, sometimes hundreds of metres long, became a permanent feature outside commercial banks.
Zimbabwe is in its 10th year of economic crisis, marked by the world’s highest rate of inflation, the fastest shrinking gross domestic product in a country not in a state of war, the most rapidly collapsing currency and unemployment of over 80 per cent. Economists blame the reckless economic policies steered by the 83-year-old
Mugabe. Economists said the disappearance of cash was a result of inflation estimated at 50,000 per cent – the government has banned publication of official figures – that forces shoppers to pay with brick-sized bundles of near-worthless notes for a few simple groceries.
A year ago, the highest denomination was 10,000 Zimbabwe dollars, then worth about 7 US dollars. The new 10 million Zimbabwe dollar note is 1,000 times last January’s top note, and worth 3 US dollars. During the year there were three separate new issues of notes as inflation continued to soar. “As monetary authorities we once again assure the nation that we are in full control of the currency situation,” Gono said Thursday. Economists say that the hyper-inflation is a result of the government’s stated policy of printing cash when it runs out of money, and price controls that have caused the supply of goods in shops to disappear, only to resurface on the black market.
The government stopped issuing banknotes in 2003 when it replaced them with temporary “bearer cheques” stamped with an expiry date, although the bank renews their validity on expiry. Economists say it is apparent that state economic policy is shot through with confusion and indecision. In early December, Gono announced that the introduction was “imminent” of a new currency denominated 1,000th of the current system – 17 months after he last sliced three zeroes off the country’s money. However, the new notes failed to appear, and, without explanation, the bank brought out 250,000, 500,000 and 750,000 Zimbabwe dollar bearer cheques instead. The 750,000 Zimbabwe dollar note is barely enough to buy a copy of the state-controlled daily newspaper.
The new notes have made no impact on the queues. “Long ago they should have produced the 10 million note,” said an economist who asked not to be named. “This is economic policy-making on the hoof.” About 300 people milled about the entrance of the Beverley Building Society office in Harare’s Avondale suburb on Thursday morning. “The security guard says they start queuing at 1:00 am,” said a shop owner next door. “Only the first hundred or so manage to get cash. At 16:30, when the bank closes, they go away, but they come back the next morning again, because cash is so short they can only draw Zimbabwe dollars 5 million at a time.”
Zimbabwe bank issues $10million bill
but it won’t even buy you a hamburger in Harare / 19th January 2008
Forget the glitzy restaurants of New York and London: only in Zimbabwe would a hamburger actually cost millions of dollars. The central bank of the southern African country has a issued a 10million Zimbabwe dollar note. The move increases the denomination of the nation’s highest bank note more than tenfold. Even so, a hamburger in an ordinary cafe in Zimbabwe costs 15 million Zimbabwe dollars. The hope is that such a move will help end chronic cash shortages and disperse long, chaotic lines at banks and automated teller machines.
Reserve Bank Governor Gideon Gono said in a statement the 10 million Zimbabwe dollars notes will be issued along with 1 million and 5 million Zimbabwe dollars bills. Previously, the highest existing note, introduced last month, was for 750,000 Zimbabwe dollars. The new 10 million note is the equivalent of about £2 at the dominant black market exchange rate. A hamburger at an ordinary cafe costs about 15 million Zimbabwe dollars (£3). That hamburger has trebled in price this month amid shortages of bread, meat and most basic goods. Zimbabwe faces the world’s highest official inflation of an estimated 25,000 per cent. Independent financial institutions say real inflation is closer to 150,000 per cent. Acknowledging the inflation crisis, Gono said individuals would be allowed to withdraw an increased limit of 500 million Zimbabwe dollars (£100) in a single daily withdrawal, up from 50 million (£10). He said special arrangements were being made to pay soldiers, police and other uniformed services “because it is not desirable to see them queuing for cash”. Gono said with higher denomination bills businesses might be tempted to again raise prices of scarce goods. “If this happens the whole objective of solving the cash shortages and to bring convenience to the people will be defeated,” he said. In August 2006, the central bank slashed three zeros from the nation’s old currency.
WHITE FARMERS OUT
New Zimbabwe Law Allows for Eviction of Remaining White Farmers
by Peta Thornycroft / 07 October 2006
Zimbabwe’s parliament has passed a new land law that allows eviction of remaining white farmers. This is the latest chapter in a six-year controversial land-redistribution program. Only a few hundred of more than 4,000 white farmers remain on their land in Zimbabwe. Under the land redistribution program announced by President Robert Mugabe in 2000, commercial farms were seized, ostensibly for the resettlement of landless blacks. For six years, hundreds of white Zimbabwean farmers have been to court to try to avoid losing their farms, the businesses on their land and their homes.
Under a 2005 constitutional amendment, ownership of all white-owned land reverted to the state. However, the government did not have the power to evict farmers from state land they occupied, without lengthy legal battles. Now, under the new law, white farmers have 90 days from the date President Mugabe rubber stamps the law to leave their homes and businesses, without recourse to the courts. However, not all in the ruling ZANU-PF administration want the last white farmers to leave. The governor of the central bank, Gideon Gono, has been lending those still on their land money to grow crops. The two vice presidents, Joyce Mujuru and Joseph Msika, have repeatedly said recently that they want productive white farmers to remain. However, Lands Minister Didymus Mutasa told VOA last week that only he controls what happens to land, and he has made it clear to western diplomats in recent months he wants all white farmers off Zimbabwe’s land. Before the land-reform program, Zimbabwe was not only able to feed itself, but was a net exporter of food to the region, and commercial agriculture was the largest foreign currency earner and the largest employer. Now, Zimbabwe is bankrupt. It depends on food imports, and, last week, the United Nations World Food Program said it had run out of money to continue to feed hundreds-of-thousands of people in need.
“…Zimbabweans know how to riot – they turned out in the streets in
1997 and 1999…”
Mugabe makes more Zim millionaires
BY Ethan Zuckerman / January 18, 2008
Amanda Atwood was complaining a week back about Zimbabwe’s $750,000 notes: “most of us aren’t very comfortable operating in base 75,” and even those who learn to count with the bills discover that they don’t buy much – they’re insufficient to purchase a newspaper. Her post was titled, “Bring on the (hundred) million dollar bearer”. And Gideon Gono, the comically incompetent central bank governor, has done one better, introducing $10 million bills. They’ll buy a newspaper, and perhaps a kilo of sugar… though probably not for much longer. The bills are worth about $4 USD on the black market, but with inflation at over 50,000% a year, they won’t keep their value more than a couple of weeks.
I was struck by the image above, stolen from the BBC’s piece on the new bill. The bill is exactly the same color, layout and design as a $20 bill I’ve been carrying in my wallet since my trip to Zimbabwe 15 months ago. That bill has now expired – it wasn’t currency, per se, but a “bearer check”, entitling me to $20 from the Zimbabwe Reserve Bank if I redeemed it before July of 2007. When I wrote about that $20, it was worth about $0.025 USD – a silly amount of money to represent with a bill, but still a functional piece of currency. At the moment, that bill is worth $0.00000005 cents, or 5 hundred-millionths of a cent. It’s hard to know what advice one would give Gono at this juncture. “Stop printing worthless money” is the conventional wisdom… but that worthless money is what pays the salaries of government employees, particularly of the police and security services that allow Mugabe to remain in power. Weimar Germany ended hyperinflation by issuing a new currency that was pegged to a gold standard, where each bill could be converted into a bond valued at a certain quantity of gold. In such a system, you can’t keep printing money without having gold to back it, which forces control of the money supply. Other nations have “dollarized”, either pegging their currency to a more stable currency or literally beginning to use the other nation’s currency, as Ecuador did in 2000. But pegging your currency to another nation’s means you have no control over monetary policy… and means you actually have to have revenues to pay those salaries, as South Africa gets pretty upset if Zimbabwe starts printing rand.
At a certain point in hyperinflationary nations, people simply stop using currency and return to the barter system. This is hugely inefficient for developed economies – imagine paying your cable bill in bags of flour. (This isn’t entirely far-fetched. When my father worked as a small-town lawyer two decades ago, at least one outstanding bill was settled in cordword. But it’s pretty inconvenient.) That hasn’t happened entirely in Zimbabwe. Instead, Zimbabweans find themselves aware of prices in several different
currencies, purchasing essential goods like toothpaste from “runners”, who smuggle cases of goods in from Botswana or South Africa. Buying petrol requires either shopping on the black market, or having access to dollars, pounds or rand to buy the vouchers that can be exchanged for petrol. And, of course, people get it wrong, like a businessman who gave his employees sufficient holiday bonuses to let them travel to their villages and back… until the cost of busfare tripled, and his employees were stranded at home.
Zimbabwe bank to issue $10m bill
by Peter Biles / 18 January 2008
Zimbabwe’s central bank is to introduce new higher-denomination banknotes in an effort to ease the critical shortage of cash in the country. Zimbabwe has been in economic decline for the past eight years, with annual inflation widely thought to be in excess of 50,000%. The highest value note that will go into circulation on Friday is worth 10m Zimbabwean dollars. But that is worth less than US$3.90 (£2; 2.60 euros) on the black market. The introduction of the new banknotes, or “bearer cheques” as they are officially called, is a further attempt to stabilise the Zimbabwean economy.
There have been long queues every day at banks as people have struggled to withdraw cash. The government’s only response is to print more money – and that is seen as the main reason for the hyperinflation. There have been no official inflation figures published for the past three or four months. Zimbabwe’s Reserve Bank governor, Gideon Gono, has called on the business community not to increase prices every time new measures are taken to adjust the currency. The new higher denomination bank notes are certain to cause more confusion and they may only bring short term relief. In the meantime, many people have become dependent upon imported goods, there are still severe shortages of fuel and power supplies remain erratic.
Shopping for nothing
“Rumours of imported toothpaste being sold at absurdly low prices (can anything counted in millions be considered ‘low’?), had me scurrying to a supermarket today with a few bricks of cash wedged into a suitcase sized handbag. Usually, my toothpaste purchases involve deals with ‘runners’ who cross into South Africa or Botswana for a living. The price I pay then is a combination of the price it costs in South Africa; the price of transport which has to factor in inflationary fuel costs; the price of the bribe to avoid a long queue; another bribe to the customs official to dodge duty OR, if that isn’t paid, the astronomical duty the runner needs to pay; an further indeterminate price – a figure from fresh air-based on the runner’s future projection for how much Rands or Pulawill cost him when bought on the local forex blackmarket; and then finally the runner’s profit margin. Toothpaste ends up extortionately expensive, but I need it, and I need the services the runner supplies, so I grit my toothpaste-requiring teeth and buy it. What was galling for me the last time was that my runner arrived with a bulk batch of the WRONG brand. I had no choice but to buy it, but I feel irritated every morning when I brush my teeth with toothpaste I dislike. Hence my feverish rush to the supermarket today. Of course the ‘cheap’ ‘toothpaste was completely sold out. I could see where it was by the brand name labelling the empty space on the shelf. I also noticed however, that the price was not very cheap at all, and totally different to the price paid by my friend less than a week before. This means that the first batch sold at a lower price had already sold out once, and been replaced with the next batch at an inflationary higher price, and that had sold out already too. So my trip, using valuable scarce fuel, was wasted and cost me money.
As usual I am observing the inflationary rise in prices in the space of a week, and I am also noticing the scarce supply of toothpaste in our town and I am thinking this is something to blog. But top of my mind, if I am honest, is envy for the lucky fresher-breathed sods who beat me to it and snapped up a tube or two. I wish my rumour grapevine was a little more efficient! Rather than writing this blog I wish I was right now brushing my teeth with a better brand of toothpaste! But you know what… ? Beggars can’t be choosers and I’m lucky to have the foul stuff I’m using at the moment. Other Zimbabweans can’t buy food, and I really shouldn’t be so caught up with things so trivial.”
BRIBES and OTHER FEES
A long expensive journey home / February 14th, 2008
“I occasionally use a ‘runner’ to buy things I need that are no longer available to buy in Zimbabwe. A group of us place an order, and the runner nips across the border to South Africa or Botswana and buys it for us. Fees vary from runner to runner, but it’s usually about 20% of the value of the goods (although I have heard of some people paying cheaper rates). Given my recent first-time experience at paying a bribe, I asked him how runners fared with their regular cross-border ventures. He told me when they left South Africa, they made sure they had plenty of Rands, in small denominations, easily accessible in their pockets. Bribe payments begin right from the start of their journey. Apparently the South African police routinely stop the buses and vehicles heading towards the Zimbabwean border. Lengthy ‘harassment’ (his word) over paperwork or the amount of goods in the vehicle ensues. The driver does a quick whip around, and all the passengers chip in a few Rand which is handed over and the problem goes away. I had noticed, on a trip I made to South Africa last year, that the police did seem to be stopping all the vehicles with Zimbabwean number plates and lots of passengers. My fellow passenger and I assumed this was to do with the refugee crisis, but neither of us could understand why they would stop people LEAVING the country. Surely this is what they want to happen if it was a refugee issue? Now I wonder if we were witnessing bribing on a grand scale going on. The runner told me that when the vehicle reached the border post bribing increased further. If the queues were very long, a bribe helped people to jump to the front. He pointed out that this is very important if cross border trading is your job: “Time is money”, he said. He told me that those passengers travelling on dubious documents faced heavier bribes than he did to persuade the officials to turn a blind eye. What was interesting about this nugget of information was his comment that the border officials – on both sides – wanted Zimbabweans with suspicious paperwork to leave the country and go back to Zimbabwe. This meant the bribes paid while leaving the country tended to be ‘reasonable’. I was told that officials know that the crisis in the country will drive the people back to South Africa, most likely using the same suspicious paperwork. At this point the bribes become very steep because the desperate person trying to find a way back to the land of employment will pay almost anything to get in: “It is better to get a little money on the way out, so you can make a lot of money when they return”, he said. “You don’t want those people to be stuck in South Africa”.
The bribes don’t stop there. Once through the border, the intrepid Zimbabwean traveller faces endless harassment by the Zimbabwean police: the runner told me that the police tended to stop all the vehicles laden with passengers and goods. “What are they after?”, I asked. It turns out the Zimbabwean police will make passengers slowly unpack their entire possessions on the side of the road, demand customs clearance payments (even though they have no mandate to do customs work) and threaten to seize goods. Again, R10 from each passenger smoothes the way and makes harassment and hassle disappear. So, to answer ,my question, they are ‘after’ a bribe. The runner I was talking to took pains to explain to me that this was one of the reasons why the goods he brought in cost so much more than if they had been bought in South Africa. He said he could pay as much as R500 in a trip, through bribes to border officials on both sides, and the police on both sides. This is a cost passed on to Zimbabwean customers like me.”
A Long, Hard Slog in Zimbabwe
As Hyperinflation Puts Even Bus Fare Out of Reach, One Man’s Trek
Embodies Plight of Foot Commuters
by Craig Timberg / February 7, 2008
A slender moon shadow stretches out on the road before Willard Chitau as he takes his first quick, purposeful steps toward his workplace. It is 4:27 a.m. Nine miles to go. Buses have begun to stir, spewing their smoky diesel fumes into the darkness. But like many Zimbabweans, Chitau can no longer afford the ever-rising fares in a country where hyperinflation, estimated at more than 26,000 percent, is the world’s worst. A single round trip to his job at a lumber yard costs 10 million Zimbabwean dollars, nearly a week’s salary. “Five million this way,” Chitau says as he points his slim left arm forward, toward Harare, the crumbling economic heart of Zimbabwe. “Five million this way,” he says as he points backward, toward his one-room home in Epworth, a sandy slum far beyond the city’s tree-lined suburbs. So Chitau, 33, desperate to support his wife and two young children, has joined Zimbabwe’s growing legions of foot commuters. They make journeys that almost anywhere else would be epic. Here they are routine. Along the way they trace the decline of a nation, passing clinics short of drugs, schools short of teachers, stores short of food. They walk on crumbling roads whose darkened streetlights are remnants of an era, just a decade ago, when Zimbabwe was one of Africa’s most prosperous nations instead of one of its most troubled. Chitau did not always live so far from work. During Operation. Murambatsvina — President Robert Mugabe’s 2005 slum clearance campaign, which left 700,000 people homeless, jobless or both — police forced Chitau to tear down his house in a dense Harare neighborhood much closer to the lumber yard, he said. So he sent most of his belongings to his family’s rural village and settled into the small, dark room in Epworth. There he sleeps with his wife, 4-year-old son and 3-month-old daughter on a concrete floor, a single wool blanket beneath them. A warm morning bath, which would consume precious firewood, is beyond their means. So is breakfast or even a cup of tea to cut the early morning chill. The economy has been in free fall since Mugabe encouraged the invasion of white-owned commercial farms by landless black peasants in 2000. Although many Zimbabweans say land redistribution was needed to right historic wrongs, the way it happened was chaotic and often violent; it devastated successful businesses while triggering hyperinflation and leaving many poor blacks — the supposed beneficiaries of the program — without steady paychecks. An estimated 3 million people have since fled the country.
Sometimes Chitau finds odd jobs for extra cash, or his wife helps by selling vegetables. When there’s enough money, he even takes the bus some mornings. But today the monthly rent is due. Because prices go up here unevenly, it’s only 9 million Zimbabwean dollars, about $1.50 in U.S. currency, but that still means a struggle for a man paid in local bills worth less than $9 a month. “I need to search for money very hard so that I will survive,” Chitau says, his swift, smooth stride unbroken. Cars pass. Buses pass. Cyclists wearing suits and ties pass. A barefoot man who has broken into a jog passes, too. But mainly it is Chitau who overtakes other pedestrians as the miles slip by. The only thing that can slow him down is rain, he says. The shoes he wears most days look as though they have sloshed through a hundred storms. The brown leather is softened, largely detached from the rubber soles. The laces are gone. But this morning is dry and clear, with a fat crescent moon and a spray of stars twinkling overhead. After nearly half an hour of walking, as the faintest light begins to warm the eastern horizon, Chitau steps past Sophia Manjiva, 45, a single mother clutching a closed umbrella who says she is pleased to have company. She has heard many tales of robberies along this dark road.
Manjiva says her monthly pay as a maid in a private home is 20 million Zimbabwean dollars — less than $4 in U.S. currency. With that she feeds, clothes and schools her two youngest children, ages 10 and 13. As hyperinflation erodes her pay, making even staples like cooking oil and cornmeal difficult to buy, Zimbabwe’s deteriorating infrastructure complicates her work. Chronic power blackouts and water shortages mean that several times a day she must fetch water from a well near the house she cleans, then carry full buckets back upstairs, she says. That’s after walking 2 1/2 hours to work and before walking 2 1/2 hours back home. “I get tired, but there is nothing to do,” Manjiva says as Chitau begins to open up the distance between them. At 5, the sky turns a soft blue, streaked by pinkish clouds, as a diffuse pre-dawn glow lights the faces of rows of sunflowers gazing east. White-robed members of Zimbabwe’s popular Apostolic churches kneel in prayer on the dewy grass. Birds begin chirping tunes that, under the circumstances, sound improbably upbeat. Yet the growing light reveals unmistakable signs of frustration with Zimbabwe’s decay.
Epworth’s most singular natural feature — stacks of rounded, beige boulders — bear snatches of spray-painted graffiti: “Vote MDC.” The initials refer to the Movement for Democratic Change, the fractured opposition party that in March will seek, for the fourth time, to defeat Mugabe’s ruling party after 28 years of unbroken control. But Chitau doesn’t want to talk about politics when the feared Central Intelligence Organization remains a well-funded marvel of efficiency amid collapsing government services. Arrests, beatings and humiliating sting operations are common tactics against those who complain too loudly. “It’s my country, but I’m afraid” to talk about Zimbabwe, he says. Shortly before 6, Chitau reaches Harare’s outskirts, where the names of the suburbs — Chadcombe, Cranborne, Queensdale — echo the country’s British colonial past. Sand gives way to dark soil, shacks to large, tile-roofed homes.
Chitau closes in on a group of women carrying empty bags and baskets. They, too, are coming from Epworth, but their destination, the bustling Mbare market near downtown Harare, is even farther than Chitau’s lumber yard. They earn the equivalent of two or three U.S. dollars a day, the women explain, by buying vegetables at Mbare, then carrying them back to Epworth to sell. The bus would cut their profits by half or more. A few minutes later, Chitau indulges his one daily luxury, buying a cigarette from a street vendor squatting by the side of the street. The cost is 400,000 Zimbabwean dollars, or about 7 cents. “By smoking, I can’t feel as hungry,” Chitau explains as he inhales deeply from the cigarette and briefly slackens his pace. A few steps later, he tosses the burned-out butt. Tea is still four hours away. It will be seven hours until lunch, when a plate of sadza — the snow-white cornmeal mush that is southern Africa’s staple food — will be his first meal since last night, he says. His pace quickens again. The sun is up now, casting long shadows as Chitau passes the two-hour mark in his journey. He crosses an intersection where the traffic light, like most in Harare, is not working. A passing van — such vehicles are used almost universally as taxis here — slows to let out a passenger. Its radio is tuned to the 7 a.m. newscast, which like all radio and television reports in Zimbabwe carries only government propaganda. The announcer complains that sanctions imposed on Mugabe’s government by the United States and European countries are undermining Zimbabwe.
As the van pulls off, Chitau bears left from Chiremba Road onto Robert Mugabe Road, a commercial strip where businesses are struggling to stay open. Among the estimated 20 percent of Zimbabweans who have jobs, many have simply stopped coming to work now that the value of their salaries has fallen below the cost of commuting. Chitau arrives at his lumber yard at 7:13 a.m., after 166 minutes of nearly continuous walking. As often happens on rainless mornings such as this, he is early. Chitau can savor the next 47 minutes until his workday begins. He says, “Now I must rest.”
Inflation now incalculatable
from The Worker Reporter / January 2008
ZIMBABWE’S inflation has reached levels where it is now difficult to
calculate it, the Central Statistical Office (CSO) has revealed.
After more than two years of allegedly cooking the books on inflation
and the cost of living, the government last month threw in the towel
on the calculation of official figures reflecting the country’s
accelerated economic decline, with the CSO professing that it could no
longer calculate inflation, cost of living and related figures.
The CSO operates on a standardised system based on consumer baskets
and extrapolations of the average living costs of families in the
cities and rural areas.
With Zimbabwe’s economy entirely in the hands of cross border traders
and the black market, the government statistician’s traditional
“family basket” has been left empty.
Last month, the office came under fire from economists and scholars
after it produced consumer price index and cost of living figures that
were based on products that were not readily available in the shops.
The last calculations estimated inflation at 8,000 percent.
Independent calculations place Zimbabwe’s rate of inflation between
14,000 and 15,000 percent. With no cash in the banks and no food in
the shops, economists in the country are at wit’s end on how to come
up with credible figures to reflect the state of the economy.
The Great Wall that separates pro-government economists from those
considered to be ardent critics of government has been dwarfed by the
shortages, as they now concur that price controls imposed by
government in June have imposed a freeze on production as well,
raising the demand for grocery imports from South Africa, Botswana and
other neighbouring countries.
A chief economist with a prominent Zimbabwean bank recently said
price controls had increased the rate of inflation due to an increase
in demand for commodities that have vanished from retail outlets, most
of which are now available at inflated prices on the black market.
“I’m not at liberty to disclose the details, but price controls have
contributed to an increase in the rate of inflation. I am informed
that several committees have been appointed by government to assess
the impact of price controls on inflation, but so far, indications are
that increased dependence on the black market and demand for foreign
currency to import commodities missing from our retailers has driven
Panic buying and the sharp decline in production triggered by strict
controls on profit margins has left many supermarket shelves gaping,
therefore enlarging the market for imported commodities like cooking
oil, soap and even toiletries.
The CSO’s inflation and cost of living figures are based on a consumer
basket that is filled in local supermarkets that are easily accessible
However, with local supermarkets empty and people buying a loaf bread
for $1,5 million on the black market instead of the government’s
$200,000, inflation would easily be in the six digit region.
Locally available products like sugar and maize meal are occasionally
sold at a few shops where people stand in queues for long hours, while
they are readily available at high prices on the black market, where
prices are regulated by demand, availability, and the whims of
Government imposed a blanket freeze on price increases on June 18 2007
in response to increases in the prices of commodities.
Then, state-run newspapers excitedly declared war against the retail
and manufacturing sector, cheering president Robert Mugabe and Reserve
Bank of Zimbabwe governor, Gideon Gono into the suicidal clampdown on
The government imposed price freeze distorted the demand and supply
patterns in the country’s business sector, driving the bulk of trade
to the black market and resulting in some companies cutting down on
production, while other closed down to avoid incurring losses.
“Price controls are not sustainable in the practical sense because the
scarcity of commodities in retail outlets will get worse and the cost
of getting these goods on the black market will go up,” said economist
Mr John Robertson, adding, “Many prices rise because of scarcity, and
price controls do nothing to overcome those shortages.”
He said the increase in the importation of foodstuffs from countries
like South Africa, Botswana and Mozambique would drive foreign
exchange rates up, therefore inflating the cost of food.
“Before the price cuts, individuals were spending money on importing
industrial goods and other materials, but now the money is being spent
on importing food and this has pushed the cost of foodstuffs further
“The money to buy traded goods will be bought on the black market, and
predictably, the rate will go up by margins around 200 per cent or
Sources within CSO said that figures had been difficult to obtain as
far back as May, when the shortages worsened, but the department had
been pressured to release moderate figures.
The goods that are usually used for indexing are not readily available
in local retail outlets that are easily accessible to the average
family therefore the index would be unrealistic and distorted.
CSO has said it will wait for the goods to be available and then start
calculating the economic indicators. This leaves the calculation of
these figures in the hands of experienced accounting firms like
PriceWaterHouse Coopers and Ernst&Young.
Brief History of the Union Movement in Zimbabwe
By Godfrey Kanyenze and Blessing Chiripanhura, September 2001
The union movement in Zimbabwe dates back to the period of
colonisation (1890) and the establishment of capitalist relations of
production. The central role played by capital in the colonisation of
the country, and the creation of a capitalist mode of production in
Zimbabwe does underlie the privileged role capital was able to carve
out for itself in the country. The British South Africa (BSA) Company,
under Cecil John Rhodes, came to Zimbabwe in search of a second gold
rand, following the extensive discovery and exploitation of the
mineral in South Africa. The country only became a British Colony in
1923, after 33 years of company rule.
During the initial phase of colonisation, the focus of economic policy
was on the mining sector. The settlers had been inspired to move to
the north of the Limpopo River by the hope of finding a second Gold
Rand. When it became clear the expected huge gold deposits were not
there, the value of the BSA Company s shares on the London Stock
Exchange collapsed. As a way of minimising the loss, the BSA Company
shifted its attention from mining towards agriculture (see Rukuni and
Eicher (eds, 1994).
Faced with serious labour shortages, the colonial regime resorted to
coercive ways of recruiting labour. At first, taxes were introduced as
a means to force locals into wage employment. A hut and poll tax were
introduced in 1894. However, the tax instrument failed to ensure a
steady flow of labour. Since taxes could be paid in kind, locals
resorted to this method of payment. In addition, they sold their
produce to raise the money required by the tax authorities. Faced with
low wages and poor working conditions, workers responded by deserting
their employers. Worried by the resistance of locals to wage
employment, employers had to recruit from other countries such as
Malawi, Zambia, Mozambique and even as far north as Ethiopia.
To create a stable workforce, additional measures were taken in the
form of the Masters and Servants Ordinance of 1901, which made it a
criminal offence to break a labour contract. In addition, Pass Laws
were passed in 1904 to limit the movement of workers as well as to
help in enforcing employment contracts. These laws effectively put
workers under the control of their employers.
When it became clear that these measures were inadequate, more brutal
instruments were used, notably, land expropriation. Although various
pieces of legislation were enacted to deprive Africans their rights to
land, the most far-reaching were the Land Apportionment Act of 1930
and the Land Tenure Act of 1969. These measures were meant to deprive
the blacks of their sole source of livelihood, land, and make them
dependent on wage employment. In addition, the separation of the
husband from the rest of the family was calculated to keep wages low.
The Industrial Conciliation Act (ICA) of 1934 legalised the formation
of white trade unions while making black unions illegal. This meant
that black workers were still governed by the Masters and Servants
Ordinance of 1901. The Act also had the effect of barring blacks from
skilled jobs as they could not take up apprenticeships. The Act made
provisions for the setting of wages for white employees, while those
for blacks were left to the whims of the employer.
Following unrest emanating from widespread poverty, the Howman
Commission was appointed in 1944. The Commission found that blacks
were generally very angry with the way they were being treated. It
recommended the establishment of a wage board for black workers and
the need to pay a wage that is sufficient to meet the needs of the
family and not a single person. Failure to address these issues
culminated in the 1948 general strike which started in Bulawayo. The
striking workers agreed to go back to work following promises by
government to establish a National Native Labour Board. The Board
published Labour Regulations in January 1949, which recommended the
introduction of a minimum wage, job grading and measures to improve
The strike had a strong impact. In an address to the Legislative
Assembly, the then Prime Minister, Sir Godfrey Huggins observed that:
“We are witnessing the emergence of a proletariat and in this country
it happens to be black. They are demanding a place under the sun and
we have to face up to it,” (quoted in ZCTU, ibid).
Notwithstanding such a forward-looking approach, the Hudson Commission
which was appointed to examine the causes of the1948 general strike
came up with measures to tighten control over workers. As a result,
the Subversive Activities Act of 1950 was passed. This Act gave the
State powers to arrest and detain workers leaders and to control
strikes. Realising the futility of suppressing the growth of trade
unionism, government amended the Industrial Conciliation Act in 1959.
The Act legalised the formation of trade unions, albeit under strict
conditions. Trade unions could only be registered if they were
representative, non-political, financially healthy and with the
consent of the employer.
Under this Act, three categories of workers were recognised, namely
the skilled, who were whites, semi-skilled who were coloureds and the
unskilled, who were black. In this way, the Act maintained the
segmentation of the labour market along racial lines. Under the Act,
trade union funds were not to be used for political purposes, trade
unionists were denied the right to affiliate with any political party
or political organisation, people arrested under the Unlawful
Organisations (political parties) Act could not hold posts in the
trade unions, donations from outside organisations had to be approved
by the Minister of Labour and the right to strike was denied. Under
such onerous conditions, few black trade unions bothered to register
such that by 1960, only two were registered.
However, inspite of the existence of such draconian labour laws, trade
unions played an active role in the nationalist struggles of the 1950s
and 1960s. In any event, it was not easy to separate trade unionism
and political activism. Because of the thin line separating the two,
trade unions were incarcerated during the 1960s and 1970s. Sachikonye
summarised the impediments faced by trade unionists during the
colonial era as follows:
* police harassment (there were 68 unionists in detention in
* absence of continuity in leadership due to harassment;
* the privileged but divisive status of the white labour
* divisive role of international labour bodies;
* the creation and presence of an industrial reserve army to pull
down wage costs;
* internal power struggles in unions; and
* financial problems due to an erratic and optional check off
system (1986: 251).
At the time of independence in 1980, there were as many as 6 national
trade union centres, namely, the African Trade Union Congress (ATUC),
the National African Trade Union Congress (NATUC), the Trade Union
Congress of Zimbabwe (TUCZ), the United Trade Unions of Zimbabwe
(UTUZ), the Zimbabwe Federation of Labour (ZFL) and the Zimbabwe Trade
Union Congress (ZTUC). The first historic event after independence was
the bringing together of the 52 existing unions to a Congress on
February 28, 1981 where the Zimbabwe Congress of Trade Unions (ZCTU)
was formed. At this Congress, unionists that were closely associated
with the ruling party, ZANU (PF) took over the reigns of the labour
movement. Thus, during the first 5 years of independence, the
relationship between ZANU (PF) and by extension, government and the
ZCTU was largely paternalistic. It was only after the collapse of the
corruption-ridden executive of the ZCTU, and its second Congress held
in 1985 that a more independent leadership, largely drawn from the
larger and more professionally run unions that the relationship
between the ruling party and the ZCTU was reduced to arms-length.
Thereafter, the ZCTU steered a more independent and increasingly
confrontational position. The divide between the ZCTU and government
widened when the former opposed attempts by the latter to introduce a
one-party state in Zimbabwe in the late 1980s following the merger
between the two major parties, ZANU (PF) and ZAPU in 1987. The
relationship was particularly strained following the introduction of
the Economic Structural Adjustment Programme (ESAP) in 1991. As the
hardships arising from the market-based reforms deepened, government
increasingly resorted to draconian measures to shore up its waning
political support. As issues of governance deteriorated, the ZCTU
increasingly became the torch-bearer for alternative governance.
Together with 40 other civil society groups, the ZCTU spearhead the
formation of an alternative party, the Movement for Democratic Change
(MDC), whose top leadership came from the labour movement. The MDC was
officially launched as an opposition party on 11 September 1999, 8
months before the June 2000 Parliamentary elections. In the June
elections, the labour-backed MDC garnered 57 seats, while the ruling
party ZANU (PF) settled for 62 seats, with one seat going to ZANU
(Ndonga). Clearly, therefore, the ZCTU played a key role in changing
the political landscape of Zimbabwe.
by Michael K. Salemi
Inflation is a sustained increase in the aggregate price level.
Hyperinflation is very high inflation. Although the threshold is
arbitrary, economists generally reserve the term hyperinflation to
describe episodes where the monthly inflation rate is greater than 50
percent. At a monthly rate of 50 percent, an item that cost $1 on
January 1 would cost $130 on January 1 of the following year.
Hyperinflations are largely a twentieth-century phenomenon. The most
widely studied hyperinflation occurred in Germany after World War I.
The ratio of the German price index in November 1923 to the price
index in August 1922–just fifteen months earlier–was 1.02 × 1010. This
huge number amounts to a monthly inflation rate of 322 percent. On
average, prices quadrupled each month during the sixteen months of
While the German hyperinflation is better known, a much larger
hyperinflation occurred in Hungary after World War II. Between August
1945 and July 1946 the general level of prices rose at the astounding
rate of over 19,000 percent per month, or 19 percent per day.
Even these very large numbers understate the rates of inflation
experienced during the worst days of the hyperinflations. In October
1923, German prices rose at the rate of 41 percent per day. And in
July 1946, Hungarian prices more than tripled each day.
What causes hyperinflations? No one-time shock, no matter how severe,
can explain sustained (i.e., continuously rapid) price growth. The
world wars themselves did not cause the hyperinflations in Germany and
Hungary. The destruction of resources during the wars can explain why
prices in Germany and Hungary would be higher after them than before.
But the wars themselves cannot explain why prices would continuously
rise at rapid rates during the hyperinflation periods.
Hyperinflations are caused by extremely rapid growth in the supply of
“paper” money. They occur when the monetary and fiscal authorities of
a nation regularly issue large quantities of money to pay for a large
stream of government expenditures. In effect, inflation is a form of
taxation where the government gains at the expense of those who hold
money whose value is declining. Hyperinflations are, therefore, very
large taxation schemes.
During the German hyperinflation the number of German marks in
circulation increased by a factor of 7.32 × 109. In Hungary, the
comparable increase in the money supply was 1.19 × 1025. These numbers
are smaller than those given earlier for the growth in prices. In
hyperinflations prices typically grow more rapidly than the money
stock because people attempt to lower the amount of purchasing power
that they keep in the form of money. They attempt to avoid the
inflation tax by holding more of their wealth in the form of physical
commodities. As they buy these commodities, prices rise higher and
Hyperinflations tend to be self-perpetuating. Suppose a government is
committed to financing its expenditures by issuing money and begins by
raising the money stock by 10 percent per month. Soon the rate of
inflation will increase, say, to 10 percent per month. The government
will observe that it can no longer buy as much with the money it is
issuing and is likely to respond by raising money growth even further.
The hyperinflation cycle has begun. During the hyperinflation there
will be a continuing tug-of-war between the public and the government.
The public is trying to spend the money it receives quickly in order
to avoid the inflation tax; the government responds to higher
inflation with even higher rates of money issue.
How do hyperinflations end? The standard answer is that governments
have to make a credible commitment to halting the rapid growth in the
stock of money. Proponents of this view consider the end of the German
hyperinflation to be a case in point. In late 1923, Germany undertook
a monetary reform creating a new unit of currency called the
rentenmark. The German government promised that the new currency could
be converted on demand into a bond having a certain value in gold.
Proponents of the standard answer argue that the guarantee of
convertibility is properly viewed as a promise to cease the rapid
issue of money.
An alternative view held by some economists is that not just monetary
reform, but also fiscal reform, is needed to end a hyperinflation.
According to this view a successful reform entails two believable
commitments on the part of government. The first is a commitment to
halt the rapid growth of paper money. The second is a commitment to
bring the government’s budget into balance. This second commitment is
necessary for a successful reform because it removes, or at least
lessens, the incentive for the government to resort to inflationary
taxation. Thomas Sargent, a proponent of this second view, argues that
the German reform of 1923 was successful because it created an
independent central bank that could refuse to monetize the government
deficit and because it included provisions for higher taxes and lower
What effects do hyperinflations have? One effect with serious
consequences is the reallocation of wealth. Hyperinflations transfer
wealth from the general public, which holds money, to the government,
which issues money. Hyperinflations also cause borrowers to gain at
the expense of lenders when loan contracts are signed prior to the
worst inflation. Businesses that hold stores of raw materials and
commodities gain at the expense of the general public. In Germany,
renters gained at the expense of property owners because rent ceilings
did not keep pace with the general level of prices. Costantino
Bresciani-Turroni has argued that the hyperinflation destroyed the
wealth of the stable classes in Germany and made it easier for the
National Socialists (Nazis) to gain power.
Hyperinflation reduces an economy’s efficiency by driving agents away
from monetary transactions and toward barter. In a normal economy
great efficiency is gained by using money in exchange. During
hyperinflations people prefer to be paid in commodities in order to
avoid the inflation tax. If they are paid in money, they spend that
money as quickly as possible. In Germany workers were paid twice per
day and would shop at midday to avoid further depreciation of their
earnings. Hyperinflation is a wasteful game of “hot potato” where
individuals use up valuable resources trying to avoid holding on to
The recent examples of very high inflation have mostly occurred in
Latin America. Argentina, Bolivia, Brazil, Chile, Peru, and Uruguay
together experienced an average annual inflation rate of 121 percent
between 1970 and 1987. One true hyperinflation occurred during this
period. In Bolivia prices increased by 12,000 percent in 1985. In Peru
in 1988, a near hyperinflation occurred as prices rose by about 2,000
percent for the year, or by 30 percent per month.
The Latin American countries with high inflation also experienced a
phenomenon called “dollarization.” Dollarization is the use of U.S.
dollars by Latin Americans in place of their domestic currency. As
inflation rises, people come to believe that their own currency is not
a good way to store value and they attempt to exchange their domestic
money for dollars. In 1973, 90 percent of time deposits in Bolivia
were denominated in Bolivian pesos. By 1985, the year of the Bolivian
hyperinflation, more than 60 percent of time deposit balances were
denominated in dollars.
What caused high inflation in Latin America? Many Latin American
countries borrowed heavily during the seventies and agreed to repay
their debts in dollars. As interest rates rose, all of these countries
found it increasingly difficult to meet their debt-service
obligations. The high-inflation countries were those that responded to
these higher costs by printing money.
The Bolivian hyperinflation is a case in point. Eliana Cardoso
explains that in 1982 Hernan Siles-Suazo took power as head of a
leftist coalition that wanted to satisfy demands for more government
spending on domestic programs but faced growing debt-service
obligations and falling prices for its tin exports. The Bolivian
government responded to this situation by printing money. Faced with a
shortage of funds, it chose to raise revenue through the inflation tax
instead of raising income taxes or reducing other government spending.
About the Author
Michael K. Salemi is an economics professor at the University of North
Carolina in Chapel Hill.
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– Salemi, Michael, and Sarah Leak. Analyzing Inflation and Its
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