/ 12 September 2011

‘Compulsory loans’ aim to keep money in Zim

Zimbabwe’s central bank said it is enforcing new currency controls to stop the flight of cash from the southern African nation’s broke economy.

The bank said in an order made available on Monday that property sellers will receive only the first $50 000 of their price. The rest will be held in a Reserve Bank account for a year, effectively making it an involuntary loan to the cash-strapped state institution.

Since Zimbabwe abandoned its own currency in 2009 and adopted the US dollar as legal tender, property sales drained the formal economy of cash. The bank said money sent out of the country weakened the nation’s ability to balance its books.

Zimbabwe has experienced economic problems and seen record inflation since longtime ruler President Robert Mugabe ordered farmland seizures in 2000.

The immediate effects of the controls mean sellers will receive the balance of the total price in four tranches over one year with interest of about 10%.

Bad policies
The change “enhances liquidity in the market” and does not affect foreign property investors and sellers who can prove properties were bought with hard currency brought into the country in the first place, the Reserve Bank order said.

In 2009, Zimbabwe’s coalition government cancelled stringent hard currency controls imposed over years of socialist-style management since independence in 1980. Those controls had led to an economic meltdown and record inflation in the local currency over the last decade.

Harare economist John Robertson said amid political and economic uncertainty many property sellers were trying to get their money out of the country.

Hard currency investment largely has dried up as President Mugabe’s party in a shaky coalition with the former opposition of Prime Minister Morgan Tsvangirai has stepped up its programme to take over a 51% stockholding for black Zimbabweans in foreign controlled mines and businesses.

“These policies have caused the scarcity of money. If we scrapped the takeovers the Reserve Bank wouldn’t have to do this,” he said. “Government expenditures should be paid from tax revenues and not compulsory loans”.

‘Daylight robbery’
Executives of the nation’s 200 real estate firms say the new controls will drive already depressed property sales into a greater slump that will put existing sales on hold, push some of them out of business and thwart the central bank’s objective to stop capital flight.

They say sellers have described the new controls as unfair — and even “daylight robbery” interfering with their plans to reinvest their own money in the local economy.

No figures are available on monthly property sales. Regular suburban homes in Harare sell for up to $300 000, with mansions and businesses exceeding $1-million. — Sapa-AP