It helps to be an optimist if you are Governor of the Reserve Bank of Zimbabwe, but Gideon Gono is perhaps reading too much into his early successes.
“I would like to say in the first instance that the Zimbabwean economy has been going through a rough patch in the past years, arising from the land issue and the manner in which the agrarian reform was tackled.
“But in the same breath I can attest to the world that the Zimbabwean economy is now on the mend. We have bottomed out and it’s definitely looking up. The worst is over,” says Gono.
Using a strong dose of what he describes as “unconventional” monetary policy, he has brought Zimbab-we’s inflation rate down to 449% last month, from a record 623% in January 2004. To do this he effectively raised interest rates for consumers to about 120%, while dropping them to about 30% for companies to give them access to cheaper finance that they could use to increase their production. By putting more products on the market and reducing demand, Gono eased inflation.
Gono also tackled the other major cause of inflation, a shortage of foreign currency in an economy that is between 60% and 70% dependent on exports. “With no international support in terms of balance of payments, we are in survival mode,” he says.
He tackled the black market by abolishing a fixed exchange rate in favour of twice-weekly auctions of the foreign currency available to the Reserve Bank. This has stabilised the exchange rate at about Z$5 300 to a US$. The exchange rate had hit 10 000 to one on the black market by the end of last year.
Gono has also been trying to increase the Reserve Bank’s access to foreign currency by asking Zimbabweans outside the country to send money back home through official channels, a scheme called Homelink.
On Saturday, a scheduled presentation by Gono to some Zimbabweans living in South Africa was disrupted by a group of Movement for Democratic Change (MDC) supporters. The MDC is the official opposition of Zimbabwe’s ruling Zanu-PF.
The disruption of the meeting points to the big weakness in his efforts to stabilise the Zimbabwean economy — his success on the economic front is dependent on the level of political stability in the country.
But he dismisses this premise on the grounds that it is conventional thinking in a situation that demands unconventional solutions.
“It is an ideal factor to have a meeting of minds of the main political parties … but it is not absolutely essential for a turn-around in the country. You can have a very vibrant economy and not have people so agreed. We cannot perpetuate the suffering of the economy on the altar of political objectives,” he explains.
But Zimbabwe is scheduled to hold a general election next year and the memory of the violence that accompanied the country’s last poll is already casting a pall. In addition, government politicians in Zimbabwe have already started to suggest populist measures to win votes such as price controls, which wrecked manufacturing industry in the runup to the 2002 presidential poll.
Gono refused to be drawn into commenting on the political situation in Zimbabwe, insisting that as Reserve Bank governor, his remit only extended as far as monetary policy.
As the monetary authority he welcomed the government’s plans to issue 99-year leases on farms seized under Zimbabwe’s “land reforms”.
“On the back of that lease, people now have land they can offer as security and the financial services sector can lend to those farmers,” he explains.
But initial reports that the government was planning to nationalise all land in Zimbabwe has been another knock for investor and business confidence in the country.