Zimbabwe’s About Turn

By Chidem Kurdas

In developed counties free markets are widely blamed for economic ills as governments take over banks and pundits favor nationalization. By a sad irony, the situation in Zimbabwe is so dire that even President Robert Mugabe appears to be making a concession toward the only way out—reestablishing free markets.

Zimbabwe has the world’s highest inflation rate, a collapsing currency, food shortages, a growing cholera epidemic and an economic slump that’s lasted more than a decade. It was once a relatively prosperous country. Mr. Mugabe seized white-owned farms and imposed price controls, among other interventions. He planned to nationalize foreign-owned firms, including banks and mines, and turn them over to Zimbabweans.

Opposition party leader Morgan Tsvangirai, a market reform advocate, announced today that he will join the Magabe government. Some reforms were already unveiled on Thursday with a new national budget—an end to price controls and freedom to use foreign currencies instead of the near-worthless Zimbabwe dollar.  Click for Reuters article

It is not clear whether Mr. Mugabe will cooperate with Mr. Tsvangirai to try to get the economy working. The new unity government could be a mere political ploy that Mr. Mugabe will use to hang on to power, something he has managed to do despite the immense domestic crisis and international opposition to his rule.

Under the horrendous conditions, market reforms may have little chance. Foreign investment is desperately needed, yet why would investors risk their capital while Mr. Mugabe continues to favor the nationalization of key sectors?

He might blame the reforms for continuing chaos and clamp down again. Sky-high prices? Caused by speculators. Collapsing currency? Ditto. Rampant poverty? Those banker types took all the GDP away as bonuses. Oh no, sorry, that’s not Zimbabwe. Just some confusing similarity.

3 thoughts on “Zimbabwe’s About Turn

  1. Interesting comments from Zimbabwe’s central banker.


    Q “In November you shut down Zimbabwe’s stock exchange. Will you open it again?”

    A “The stockbrokers were creating a money supply that wasn’t there. I printed Z$1.5 quadrillion, but the exchange was operating with Z$100 sextillion. So I said, “Who is doing my job?” Unless there is more discipline and honor, the exchange will stay closed. I can’t be bothered. I don’t know when it’ll open.”

  2. There needs to be a lot more than just reforms and “some cooperation” in place to get Zimbabwe’s economy “on track”. Thats for sure!

  3. At this stage, if mass famine can be staved off, that’s already a big gain. Allowing farmers freedom in selling their output may help with that. Until the reforms announced this week, the marketing of corn and wheat was a government monopoly under the Grain Marketing Board, which set low prices. The result was that farmers withdrew from the market and shortages developed. Economics 101. It goes to show what bad policy can do to a country.

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