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Zimbabwe set to tighten forex controls, say bankers

Zimbabwe’s government is expected to tighten foreign exchange controls in the next two weeks as the country battles with a growing shortage of hard currency, private banking officials said on Tuesday.

Bankers said the sector was rife with rumours of the step after criticism in the state media that the finance ministry and central bank had failed to curb the thriving black market, where the Zimbabwe dollar trades at a fraction of its official value.

”The market deduction of this criticism is that we should expect a new policy, but unfortunately I don’t think that policy will address the fundamental problems that we are facing (or) increase exports and earnings and set a realistic exchange rate,” one senior banker told Reuters.

”Instead of measures to reverse the current decline and incentives to grow the economy, I think we are going to get more controls on the little money we are still getting,” he said.

In June, the Zimbabwe dollar plunged by nearly 50% on the unofficial parallel market to between 600 and 800 to the US dollar. This compares with an official exchange rate of 55 against the dollar, which has been in place for two years.

Neither the government nor the central bank — which has traditionally always refused to be drawn into market speculation — has commented on the rumours.

Private banking officials, who all refused to be named, said they expected the new policy to order the liquidation of all private foreign currency accounts (FCAs), held by corporates and individuals.

They also expected the government to scrap a facility where some exporters can retain 30% of their foreign exchange earnings to finance vital imports, and to centralise the management of foreign currency at the Reserve Bank of Zimbabwe.

CRACKDOWN ON THE BLACK MARKET

The Reserve Bank was looking at allocating any available foreign currency in the following order ? 40% for fuel and electricity imports; 20% for essential imports such as maize and drugs; 20% for an export-revolving fund and the remaining 20% for general allocation, they said.

The banking industry also expects President Robert Mugabe to approve a crackdown on a black market that has mushroomed over the last two years, after the exchange rate was fixed.

Zimbabwe is mired in its worst recession since independence in 1980 and foreign currency reserves have shrunk dramatically, with the country now living from hand to mouth.

The government has not serviced its foreign debt — now estimated at $700-million — for about a year.

The crisis began in February 2000, when pro-government militants, led by veterans of the 1970s liberation war, began invading white-owned commercial farms.

Mugabe’s government has said it wants to correct imbalances in land ownership created by British colonialism, but the country is now facing a severe food shortage caused by the disruptions to farming, coupled with drought.

Farmers say they support land redistribution but are opposed to the methods employed by Mugabe, Zimbabwe’s ruler since the former Rhodesia gained independence in 1980. – Reuters

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