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| Zimbabwe:
IMF demands arrears payment before aid talks September 20, 2001 by Joseph Ngwawi THE International Monetary Fund (IMF) has told the Zimbabwean government to pay off part of its US$38 million arrears to the Bretton Woods institution before a resumption of crucial talks on economic aid, it was learnt this week. Banking industry officials who last week met an IMF delegation that has been in Zimbabwe in the past fortnight said the team cited Harare's mounting debts to the IMF as the main obstacle to the resumption of talks on balance-of-payments support. The IMF suspended economic aid to Zimbabwe in 1999, citing the lack of political will to resolve the country's deepening economic crisis. Since then the government has defaulted several times on its commitments on previous IMF and other foreign loans because of a critical shortage of foreign currency. The arrears on Zimbabwe's debt to the IMF stood at US$38 million at the beginning of last month while total arrears on the country's foreign obligations had ballooned to over US$695.2 million by the middle of August 2001. The sources told the Financial Gazette this week that the IMF team, in Harare for annual Article IV consultations that are not linked to aid, was adamant that it would only consider opening discussions with the government after the latter showed commitment to clearing a portion of the arrears. "They have made clear that only after that will they start talking about further economic assistance to the country," said a senior banker, who was part of a group of Zimbabwean bankers who met the IMF team last week. The IMF delegation also met government officials, who this week declined to comment on the Bretton Woods institution's conditions, and representatives of the main opposition Movement for Democratic Change. The delegation, comprising incoming assistant director on the IMF's Africa desk David Coe and his predecessor Paulo Neuhaus, also held discussions with Reserve Bank of Zimbabwe governor Leonard Tsumba. Other sticky issues that came up during the IMF visit to Zimbabwe included the need by the Harare authorities to end political violence, uphold the rule of law and implement a legal, transparent and rational land reform programme. Longstanding differences such as the question of Zimbabwe's distorted exchange rate and the slow pace of privatisation of loss-making government companies are also still an impediment to the resumption of IMF aid to Harare. In a statement released this week at the end of its visit to Zimbabwe, the IMF team criticised the government for pursuing a loose monetary policy that has led to runaway inflation and a sharp depreciation of the local dollar on the parallel market. Zimbabwe's annualised inflation was pegged at an all-time high of 76.1 percent last month. "The team recommended an immediate tightening of monetary policy to reduce inflation, which has been particularly harmful for small savers, pensioners and the poor," read part of the statement. The IMF's suspension of balance-of-payments support to Zimbabwe has blocked billions of dollars worth of aid from other donors and worsened crippling hard currency and fuel shortages that are threatening to bring Zimbabwe's manufacturing base to its knees. Foreign exchange shortages have spawned a thriving parallel market that has starved the official inter-bank market of funds. Economists this week said the government needed to borrow at least US$1 billion to kill the parallel market, adding that political commitment would be necessary to win crucial economic aid from the international community. Consultant economist John Robertson said inflows of substantial foreign capital would go a long way in reducing the government's domestic debt and improving the shortage of funds on the foreign exchange market. "The funds will have to be leaked into the market at a pace that can be accommodated by the money market while at the same time the government gradually adjusts the value of the dollar and corrects the interest rate policy," Robertson said. But economist Ternard Kwashirai said the success of any government action to destroy the parallel market would largely depend on the authorities' ability to instill confidence into a market that has thrived on speculative behaviour in the past two years. "They
will have to do a lot more than just addressing the supply side of the market
because, as long as the market is not confident about government policies, we
are going to have these problems for some time," he said. |
