Mbeki team meets Mugabe

Zim Independent


Dumisani Muleya

SOUTH African president Thabo Mbeki's mediation team on the Zimbabwe
crisis recently held a crucial meeting with President Robert Mugabe in a bid
to kick-start multi-party dialogue.

High-level government sources said Mbeki sent a delegation led by his
Local Government minister Sydney Mufamadi to meet Mugabe and government
officials to discuss modalities of the mediation process designed to find a
negotiated settlement to current political and economic problems.

Mbeki was in March appointed by an extraordinary Sadc summit to deal
with the Zimbabwe situation and is expected to report back every three
months. His first feedback is expected by June 30.

The sources said Mbeki has appointed Mufamadi, Director-General in the
Presidency Reverend Frank Chikane, Deputy Foreign Affairs minister Aziz
Pahad, Foreign Affairs Director-General Dr Ayanda Ntsaluba, and his legal
advisor, Mojanku Gumbi, to form the Zimbabwe mediation team.

The sources said Mufamadi's delegation came to Harare during the first
week of May and held secret meetings with Mugabe and top government
officials to brainstorm on the talks, now already informally underway.

"Mufamadi and his delegation came and held secret talks with Mugabe on
a range of issues relating to the negotiation process and procedures," a
source said. "This was part of the ongoing consultations on the talks."

Consultations between Mbeki's team, Zanu PF officials and opposition
Movement for Democratic Change (MDC) representatives are gathering momentum
as Sadc races against time to deal with the hitherto intractable Zimbabwe
crisis.

Recently Mbeki said there was not much time to do everything necessary
to ensure free and fair elections next year.

Sadc executive secretary Tomaz Salomao last month came to Harare to
assess the country's economic situation. Sadc leaders in March said after
their meeting in Tanzania they would help Zimbabwe to resolve the current
economic problems by proposing an economic package.

Civil society groups will also be included in the negotiations as
Mbeki seeks to go for a broad consultative process which addresses a gamut
of issues confronting the nation.

Mbeki said yesterday in Cape Town that talks between the ruling party
and the MDC were going on "very well".

"I can confirm that the discussions are proceeding very well," Mbeki
told South Africa's parliament. He did not give details.

However, the Zimbabwe Independent can reveal that Mufamadi met with
Mugabe and discussed modalities of the negotiations process, focusing on how
to deal with the main agenda items, constitutional and electoral law
reforms, and an end to political violence.

The talks are aimed at ensuring free and fair presidential and
parliamentary elections next year.

The MDC has said that it will not contest the elections unless there
are constitutional and electoral law changes. The two MDC factions appear to
be working together and speaking with one voice on the issue of
negotiations.

Mbeki's team has also held several meetings with representatives of
the two MDC factions, who include Professor Welshman Ncube
(Secretary-General - Arthur Mutambara) and Tendai Biti (Secretary-General -
Morgan Tsvangirai). The two groups have produced a joint report on the
agenda, although they are still waiting for their principals to give them
further instructions on how to proceed.

Zanu PF, sources said, has appointed a four-member team which includes
Justice minister Patrick Chinamasa, to negotiate on its behalf. Chinamasa
and Ncube held informal talks between 2003 and 2004 on behalf of Zanu PF and
the MDC, respectively, in a bid to break the political deadlock which mainly
stems from disputed elections.

The two negotiators produced a draft constitution - which Mbeki has
publicly confirmed - from the government-sponsored draft constitution that
was rejected in a referendum in 2000 and the National Constitutional
Assembly document produced around the same time.

However, the draft by Chinamasa and Ncube was sunk by factional fights
in the ruling party and opposition. Mugabe and Tsvangirai had initialled
each page of the draft and were ready to approve it. Mbeki also had his own
copy. The Independent revealed the secret talks and draft produced at the
time.

Mbeki, who has successfully mediated in a number of conflicts on the
African continent, has failed since 2000 to resolve the Zimbabwe impasse.
Foreign Affairs secretary, Joey Bimha, said yesterday Harare will back Mbeki
on Sadc's initiative.

Latest on NMB forex fraud

Zim Independent


Shakeman Mugari

THE NMB Bank fraud scandal deepened as further details on the
off-shore account used to siphon US$4,7 million out of the bank emerged.

Sources this week said the fraud, which went undetected for two years,
was discovered in March this year. The sources said the bank's international
division noticed that its foreign currency deposits were shrinking at an
alarming rate.

The Zimbabwe Independent can reveal the fraud involved a
Switzerland-based bank called AKB Private Bank with its head office in
Zurich.

The central bank and the police fraud squad believe that the money was
transferred into an AKB Private Bank account belonging to a Zimbabwean
company called Cardinal Finance under account number 16701690347.

The money was siphoned through 65 transactions, all of which were
approved by senior executives in the treasury department.

Seven senior officials in the treasury department were suspended last
week to facilitate investigations.

In 2005 the key suspect in the fraud, Shame Mandara, made two
transactions amounting to about US$300 000 using the Cardinal Finance
account. Sources said the other 63 transactions were done between July 2006
and March this year before the scandal was unearthed.

These details came as it emerged that NMB chief executive David
Hatendi rushed to Switzerland on Sunday to try and negotiate for the early
repatriation of the money, much of which is said to belong to exporters.

Hatendi is expected back today but the sources said they did not
expect AKB Private Bank to give him any useful details because of tight
banking regulations in Switzerland.

The sources said the fraud centred on the RBZ's foreign currency
remittance system for exporters. A source said the suspect would claim that
the monies were being transferred under the RBZ's remittance scheme. He
would claim that the remittance had been approved by an official from the
RBZ called Zunza. No such person works at the RBZ.

"He would wait until the bank has remitted the foreign currency
belonging to exporters to the RBZ, then he would use the same dealer notes
to make further claims," said an RBZ official who is involved in the
investigations.

The money would be transferred into Cardinal Finance's account in
Zurich. NMB would in return get the equivalent in Zimbabwean dollars from
two local companies called Haus (Pvt) Ltd and Forthfort Enterprises Ltd. The
bulk of the Zimbabwe dollar component came from Forthfort Enterprises which
has an account with Standard Chartered Bank. Haus has an account with
Stanbic Bank.

Australia defends NGOs financial support

Zim Independent


Pindai Dube

The Australian ambassador to Zimbabwe has defended his government's
decision to offer financial support to civic groups and non-governmental
organisations opposed to President Robert Mugabe's despotic rule saying it
is necessary to put a stop to human rights abuses by the Zanu PF regime.

On Monday the Australian government announced the release of about
US$15 million to help those fighting against human rights violations by
state agents and organs.

The announcement came at the same time as the cancellation of the
Australian cricket tour of Zimbabwe in September to protest state-sponsored
violence.

The Zanu PF government accused Australia's prime minister John Howard
of racism and politicising sport.

In an interview with the Zimbabwe Independent on Tuesday in Bulawayo,
the Australian ambassador, Jon Sheppard, said his government will not cease
funding President Mugabe's critics in the country until there was an end to
human rights abuses and a return to the rule of law.

"There is nothing wrong with us funding all civic groups and NGOs in
their war against human rights abuses as the protests are legitimate. The
Zimbabwe government might be crying foul but they should stop harassing
citizens. Even the United Nations is not impressed by the sad situation
obtaining in this country," Sheppard said.

"The world cannot continue watching the people of Zimbabwe being
brutalised every week. As long as there is no stop to human rights abuses by
the Mugabe regime, my government will continue stretching a helping hand to
those who are fighting for good governance."

Information minister Sikhanyiso Ndlovu this week accused Howard of
using sport to "demonise" the government, while his deputy Bright Matonga
said Canberra should not be judging this country.

Ndlovu told ABC Radio that Howard had Gestapo-like tendencies and was
"the international Gestapo".

"Everybody knows those kinds of statements are not to be taken
seriously. It is so obviously not true," Downer told reporters in Adelaide.

"I think making those kinds of statements, coming from the mouth of a
minister of a government, tells you a great deal about what sort of
government we are dealing with here.

"This is a dictatorial regime, which has plunged its country into
almost total poverty and has abused severely the human rights of anybody who
dares oppose or criticise the government.

"I think it is a tragedy what has happened in Zimbabwe and I think the
sooner that the regime of President Mugabe comes to an end the better."

Last week in Harare police assaulted members of the Law Society
including its president Beatrice Mtetwa. The lawyers said they intended to
present a petition to the Minister of Justice to protest the arrest of human
rights lawyers Alec Muchadehama and Andrew Makoni.

A high powered delegation of the presidents of law societies in the
region flew into the country last Thursday to call on the government of
President Mugabe to respect the rule of law.

Taming inflation:learning from Brazil's experience

Zim Independent


By Caio Megale

ZIMBABWE'S current economic environment bears stark resemblance to the
situation in Brazil 20 years ago. At the time, Brazil experienced high
levels of inflation significantly above double-digits per year for
practically the entire second half of the 20th century.

In the 1960s and 70s, inflation in Brazil was controlled at relatively
palatable levels of around 20% per year, and economic growth was
significant, financed by a high degree of indebtedness. Brazilians generally
accepted this gradual rise in prices because overall economic growth was
relatively good.

In fact, inflation was seen as the undesired consequence of economic
development. To protect the salaries of workers, the government introduced
indexation, whereby wage contracts were adjusted to match inflation.
However, after the 1970s, economic growth stalled and inflation skyrocketed
from around 300% to 2 000%. At this point inflation became a tremendous
problem and economic policy-makers realised they had to tackle the problem.

There are a number of costs of high inflation. High inflation
decreases the predictability of economic variables. With no predictability
you cannot invest and the potential growth of the country collapses.
Inflation is also a powerful income concentration instrument. Real wages are
eroded and poor people do not have access to financial protection. In the
end,their economic situation worsens under inflation.

Brazil's experience in combating inflation provides us with important
lessons. First, we have to bear in mind that any disinflation plan involves
important costs, mainly in terms of social wellbeing. Thus, the perception
that inflation is a major obstacle to the country's development must be
accepted by most of society, and all efforts must be made to overcome this
obstacle.

Another important lesson is that one should not succumb to the
temptation to carry out social justice during the implementation of a
stabilisation plan. The stabilisation plan must be neutral from an income
distribution standpoint. Otherwise, stability will bring a distortion of
relative prices, and pressure to realign prices will tend to bring the
inflationary process back.

The common reaction of authorities is to stabilise prices to protect
the population from spiraling costs. In Brazil, each new attempt to
stabilise prices was followed by periods (increasingly shorter) of some
stability, before inflation returned with even greater vengeance.

Lasting stabilisation was only achieved with the implementation of the
Real Plan in 1994. A combination of bold measures, well-grounded on economic
theory, with the lessons learned from a series of ill-fated experiments,
enabled Brazil to reduce inflation, which, at that moment, exceeded 1 000%
per year. Before the 1994 Real Plan, the Brazilian government introduced
monetary reform that established a new currency in February 1986. This
reform was accompanied by a series of measures such as freezing of prices
and salary increments.

Between March and June 1986, inflation came down strongly from over
400% per year to between 10-15% per year. However, two crucial errors were
made: for all practical purposes, salaries were not frozen, and the clear
signs of excess aggregate demand in the following months were not combated.
Bonuses were granted to the lower classes via a 16% hike in the minimum
wage, and the dates of the collective labour agreements were reestablished.

In addition, salaries were corrected based on 60% of the accumulated
variation of the cost of living in the 12 previous months, and a trigger was
implemented to automatically correct salaries whenever accumulated inflation
totalled 20%. This currency reform failed, prompting government to introduce
other packages in the ensuing years. They all had similar diagnosis and
consequences.

One such plan was launched in March 1990 by the economic team of
President Fernando Collor, the first president elected by popular vote in
Brazil in almost 30 years. Although it failed, the Collor government
achieved important steps in the structural reform of the Brazilian economy
that were crucial to the success of the Real Plan in later years: it
launched the process to privatise state-owned companies and promoted a broad
opening of the economy to foreign trade.

Learning from past failures, the Real Plan embarked on a new
anti-inflation strategy.

While many past plans started with price and wage freezes that were
announced by surprise, the Real Plan did not make use of any direct control
of prices or surprise announcements. In fact, the main innovative
characteristic of the Real Plan was its transparency following the
catchphrase of the economic team at the time of the launch of the plan:
"announce only what will be done and do only what was announced". Also key
to the plan's success was the role of the Minister of Finance in protecting
the economic team from political interference, as political pressure had
been the main cause of previous failures.

The first phase of the Real Plan consisted of controlling government
spending. The Brazilian leg transfer funds to fulfill the budget. With the
fiscal side heading towards equilibrium, the next step was to move towards
the full indexation of the economy. The first step was to create a unit of
account that would serve as an indexer for all prices in the economy.
Dollarisation of the economy thus was prevented because agents did not need
to flee to the dollar to protect their assets given the legal mechanism of
indexation. The strategy was to create a proto-currency that would work only
as a unit of account.

The exchange rate of this proto-currency (called URV, or Real Unit of
Value) in relation to the legal currency would be calculated as a function
of a basket of general-use price indexes, in accordance with a previously
announced formula. The conversion of prices was voluntary and the government
concerned itself only with establishing clear rules for the conversion of
some services (school tuitions and rents, for example), the prices of public
tariffs and wages, which were to be converted from legal currency to URVs
based on the real average of the four months prior to the implementation of
the plan.

In other words, the need for the plan to be neutral from the
distributive point of view was maintained. All of these points were
exhaustively presented to the public in a way that there were no surprises
to the stakeholders.

Over the first three months that the URV was in effect the public
became increasingly used to the new unit of account, even though to settle
their purchases they used a currency that lost value on a daily basis. After
three months, economic agents were required to display the price of their
products in both the legal currency and URVs.

The economy was then full indexed, on July 1, 1994, the old currency
ceased to exist and the central bank began to issue a new currency, called
the real, which was worth exactly one URV. In that instant inflation fell
from 30% per month to less than 20% per year.

What have we learned from Brazil's anti-inflation plan period?

First, society must be keenly aware of the consequences of high
inflation. Government, business, and the average person must all agree that
inflation is an ill that must be tackled and they all must be prepared for
any bumps along that road in order to succeed.

Secondly, do not attempt to carry out social justice programs during
an anti-inflation plan. Efforts to increase wages, for instance, will only
jeopardise the success of the plan.

Thirdly, taming inflation is not the solution of all problems. It's
just one but very important step along the economic recovery path.

Zimbabwe should learn from Brazil.

* Dr Caio Megale is partner and chief economist at Maua
Investitmentos, Brazil. He is the 2005 recipient of the Brazil Development
Bank Economy Award.

Lessons on high inflation for Zimbabwe

Zim Independent


ZIMBABWE currently has the highest rate of inflation in the world at 3
700%. The high rate of inflation has contributed to the contraction of the
economy, which has declined by about 30% since 1999. This IMF paper by
Sharmini Coorey, Jens R Clausen, Norbert Funke, Sònia Muñoz, and Bakar
Ould-Abdallah examines the stabilisation experience of countries that
experienced similar rates of inflation (above 1 000%) during 1980-2005 and
draws lessons for Zimbabwe.

Hyperinflations are largely a modern and rare phenomenon generally
associated with printing money to finance large fiscal deficits due to wars,
revolutions, the end of empires, and the establishment of new states.
According to Cagan's definition, hyperinflation begins in the month
inflation first exceeds 50% (per month) and ends in the month before the
monthly inflation rate drops below 50% for at least a year. Since monthly
inflation is still officially under 50%, Zimbabwe currently does not qualify
formally as a hyperinflation case by Cagan's definition.

It is worth mentioning, however, that the official CPI in Zimbabwe is
likely to substantially understate inflation because about a third of the
basket reflects price-controlled items and the consumption weights are
outdated. Many in the private sector believe that the true rate of annual
inflation was closer to 3 000% in February 2007. Monthly inflation rates in
informal private indices - which are more heavily weighted by food - have
exceeded 50% for several months.

Another distinct feature of Zimbabwe's economy is the sustained
contraction in output. Real GDP is estimated to have declined by about 30%
since 1999. While the initial output collapse is widely attributed to the
chaotic seizure of commercial farms - the backbone of the economy - other
factors have also contributed in recent years:

* Price distortions due to extensive controls and regulation,
particularly relating to the exchange rate which is fixed by the Reserve
Bank of Zimbabwe at a highly overvalued rate;

* The collapse of investor confidence due to unpredictable policies
and lack of respect for property rights, particularly in agriculture and
mining; and

* Minimal external financing because of poor relations with creditors
and donors and deteriorating economic and social conditions.

Without an immediate stabilisation package and comprehensive
medium-term structural reforms, prospects are for Zimbabwe's inflation to
continue accelerating and for the economic crisis to deepen.

Do the countries that have gone through similar episodes of high
inflation in recent decades have lessons to offer Zimbabwe?

Using a 12-month inflation rate of 1 000% as the threshold for
defining a period of high inflation, we identify 30 such inflation episodes
in 24 countries between 1980 and 2005.

Accelerating inflation in Zimbabwe has been fuelled by high rates of
money growth reflecting rising fiscal and quasi-fiscal deficits. The
adjusted overall fiscal deficit or financing requirement, including
government and RBZ interest payments, is estimated to have amounted to about
80% of GDP in 2006. These large and rising deficits have been partly
financed through money creation, giving rise to accelerating rates of
inflation. In fact, money growth and inflation in 2006 would have been even
higher without the implicit taxation of the banking system via a lengthening
of the maturity of treasury and RBZ bills and payment of highly negative
real interest rates on these bills.

The recent announcement by the RBZ that it would create a fully-owned
subsidiary called Fiscorp to carry out QFAs, possibly on a transitory basis,
would not address the fundamental issue - the massive price and exchange
rate distortions and poor governance in the public sector (including public
enterprises) that place an unsustainable burden on the public finances.

The international experience suggests that in countries such as
Zimbabwe, with high inflation and extensive relative price distortions,
strong upfront adjustment through a broad-based policy package is needed to
establish credibility and minimise the cost of adjustment. For Zimbabwe, we
identify five interrelated elements that would be necessary in an initial
stabilisation package:

* Transparent transfer of quasi-fiscal activities to the government
budget, as announced by the 2007 budget. No entity outside the budget should
undertake any activity of a fiscal nature (including interest payments,
subsidised credits etc) without offsetting transfers transparently provided
for in the budget;

* Substantial fiscal tightening, including the newly-absorbed QFAs of
the RBZ or any other public entity. This tightening could be achieved by
reduction in the government wage bill - which is large by regional
standards - and capital expenditure - which more than doubled in real terms
in 2006 - as well as from cuts in (former) QFAs, particularly subsidies to
public enterprises.

* Complementary measures, such as price and exchange rate
liberalisation would be needed to ensure that QFAs are durably reduced.

* Fiscal expenditure would need to be prioritised (within a tighter
envelope) to ensure food security rehabilitate the collapsing health
infrastructure, and provide a targeted social safety net to protect
vulnerable groups, including those affected by HIV/Aids and Operation
Murambatsvina.

* Liberalising the exchange regime by unifying the exchange rate and
removing restrictions on current international payments and transfers. The
interbank exchange rate would need to be substantially devalued promptly and
all multiple exchange rates eliminated. The interbank rate should then be
depreciated steadily toward the parallel market rate (which would appreciate
as fiscal and monetary policies are tightened), and the unified exchange
rate subsequently floated.

* Deregulating prices and imposing a hard budget constraint on public
enterprises.

Establishing a strong money anchor to reduce inflation and inflation
expectations. Once exchange rates are unified and the RBZ disengages from
QFAs, a broad money anchor and a flexible exchange regime could be
established, with reserve money as the operational target. To ensure that
monetary policy is effective and reduce liquidity risks in the banking
system, interest rates would need to be gradually moved to market determined
levels.

Achieving sustained growth in Zimbabwe will require - in addition to
stabilisation - comprehensive structural reform and better governance over
the medium term.

Public enterprise and civil service reform, central bank reform, as
well as public expenditure and tax reform will be important to sustain the
fiscal adjustment and stimulate output growth. Improving governance,
including by protecting private property rights and increasing policy
predictability, will be essential for reinvigorating investor confidence.

Zimbabwe's situation with respect to agriculture - a key sector of the
economy - needs to be resolved. At present, commercial bank lending to the
sector remains limited in part because existing arrangements, including the
recently-introduced 99-year leases, do not provide adequate security of land
tenure. A broad-based agreement among stakeholders on land tenure may be
needed to achieve sustained growth in agriculture and in the economy.

The lack of external financing is an issue for Zimbabwe, but
cross-country evidence does not indicate this is a reason by itself to delay
the implementation of a stabilisation programme. Even with limited external
support, decisive policy action led to positive stabilisation gains in
several cases. However, in almost all these cases there was external support
in the form of close policy advice and technical assistance.

For Zimbabwe, strengthening relations with donors and mobilising
external financing would ease the burden of the adjustment needed for a
strong, upfront reduction in inflation.

If a credible stabilisation package is implemented upfront and
followed by reforms to restore investor confidence, Zimbabwe's economy is
sufficiently diversified and potentially strong enough to recover.

Govt faces grilling over rights abuses

Zim Independent


Augustine Mukaro

AS state agents intensify repression of dissenting voices in Zimbabwe,
government is being grilled for human rights violations at the 41st Session
of the African Commission on Human and Peoples' Rights (ACHPR) which opened
in Ghana on Wednesday.

Government is due to present its report responding to allegations of
rampant human rights violations perpetrated by state agents and
recommendations made by the 2002 ACHPR fact-finding mission. It will also
have to explain its failure to prosecute those responsible in accordance
with the Paris Principles.

Civic groups attending the session said the government report glosses
over critical issues which plunged the country into the current economic
crisis. They say it fails to acknowledge that any crisis exists.

It evades virtually all the negative incidents that the country went
through including the violence currently taking place and that characterised
the land invasions and all the three elections held over the past seven
years.

"The government report is silent on the widely condemned Operation
Murambatsvina, which left over 700 000 people homeless," one civic group
said. "The report mentions in passing Operation Garikai without giving any
background as why they had to embark on the nationwide house construction
programme."

The groups said government is denying all the allegations of human
rights abuses and blames external forces for the deterioration of the
economy.

It is not taking responsibility for anything, including the
demolitions of Murambatsvina and the brutal attacks on the opposition.
However, hordes of local and international civic organisations have thronged
Ghana to present "shadow" reports that counter the government report.

Civic groups' reports will expose government's unwillingness to uphold
its primary responsibility to promote, protect, and fulfil human rights.
They seek to pin down government as the leading perpetrator of rights
abuses.

Zimbabwe Lawyers for Human Rights (ZLHR) director Irene Petras
confirmed that the African NGO Forum adopted a resolution on Zimbabwe, which
cited numerous ongoing violations. Petras said the ZLHR would highlight the
recent attacks on lawyers and the opposition. She said there has been a lot
of solidarity and understanding of the challenges currently facing
Zimbabweans.

During a forum prior to the ACHPR session, African NGOs expressed
concern over the situation of journalists and freedom of expression
activists in Africa, especially in Zimbabwe, Eritrea, the Gambia, Ethiopia,
Sierra Leone and Somalia and called upon these and various other African
states to respect provisions in the African Charter, the Declaration of
Principles on Freedom of Expression in Africa and their various
constitutions on the right to freedom of expression.

On Zimbabwe, the Forum also called upon the government of Zimbabwe to
investigate thoroughly all-outstanding issues. "We call upon the government
of Zimbabwe to thoroughly investigate all outstanding issues including the
bombings of the Daily News printing press and offices of Voice of the People
Trust as well as the abduction and murder of freelance cameraperson Edward
Chikomba," the resolution said.

There was also emphasis on the government's urgent need to repeal laws
which hinder the enjoyment of the right to freedom of expression such as the
Access to Information and Protection of Privacy Act (Aippa), the Public
Order and Security Act (Posa) and the Broadcasting Services Act (BSA).

MISA-Zimbabwe Legal Officer Wilbert Mandinde is among the various
representatives of NGOs and will present a paper on the state of the media.

At the opening ceremony on Wednesday, Justice minister Patrick
Chinamasa made a presentation on behalf of AU member states, urging them to
ratify the protocol on the rights of women in Africa and another
establishing the African Court.

Civic groups hope Chinamasa would lead by example and make sure
Zimbabwe ratifies both protocols.

ACHPR last year adopted a resolution strongly denouncing Zimbabwe's
human rights practices.

The ACHPR's resolution noted its concern over the "continuing
deterioration of the human rights situation" in Zimbabwe, and expressed
alarm at the number of people displaced by the official clean-up campaign,
Operation Murambatsvina, which the government said was aimed at clearing
slums and flushing out criminals.

The resolution said the Zimbabwean government should "respect
fundamental rights", such as freedom of expression, association and
assembly, and repeal or amend "repressive legislation", including Aippa, the
BSA and Posa.

The resolution further called upon the government to implement
recommendations of the commission's fact-finding mission of June 2002, as
well as the recommendations contained in the report by the United Nations
Special Envoy on Human Settlement Issues of July 2005, and to repeal or
amend Constitutional Amendment No 17 and provide an environment conducive to
constitutional reform on the basis of fundamental human rights.

The 2002 fact-finding mission recommended that the "activities of
units within the ZRP like the Law and Order (unit) that seems to operate
under political instructions and without accountability to the ZRP command
structures, should be disbanded".

However, these recommendations have not been implemented.

We have to do the unorthodox - Gono

Zim Independent


Kuda Chikwanda

RESERVE Bank of Zimbabwe governor Gideon Gono yesterday defended the
central bank's quasi-fiscal activities and said he would continue to print
money despite International Monetary Fund (IMF) protests that this fuelled
inflation.

Gono's remarks yesterday suggested that government would continue to
print money to fund its operations. This comes just over two weeks after the
IMF warned that Zimbabwe's inflation could hit 6 000% by next year.

Inflation surged to 3 713,9% for April, raising fears that it might
rise well above the IMF's 6 000% projection for next year before December.
Gono said he would continue with quasi-fiscal activities because he was
operating under unique circumstances such as the current economic crisis and
the land reform exercise. Addressing MPs in Harare on the role of the RBZ,
Gono said the central bank's interventionist measures - viewed as damaging
by IMF and local economists - would continue because government ministries
had failed to carry out their mandate.

"We offer no apology, we offer no remorse for our intervention in all
spheres of the economy, when we do the unorthodox," Gono said. "We have to
do the unorthodox, to go into those areas which traditional economics
written before World War Two sees as unorthodox," Gono said.Gono said the
central bank had come under pressure to source funding for cash-starved
government departments which had been failed by the budgeting system.

"We say no to tradition and yes to conviction. People are not
interested in job descriptions. People are interested in deliverables," Gono
said.

He attacked senior government officials for incompetence and
corruption, which he said had forced him to step in through quasi-fiscal
activities.

"Those charged with doing things are not doing so, and given the bird's
eye view that the central bank has, your governor has not been wanting to
see people dying of dysentery," Gono said, referring to the non-availability
of water in some suburbs.

His comments came on the day government released shocking figures for
inflation, which rose from 2 200% to 3 713,9% in the space of one month.

In a working paper released last month and titled Central bank
quasi-fiscal losses and high inflation in Zimbabwe: A note, the IMF accused
the RBZ of fuelling the economic crisis through clandestine quasi-fiscal
activities.

The paper sought to rebut claims by the RBZ that it had ring-fenced
quasi-fiscal funding under a special purpose vehicle called Fiscorp, after
stinging IMF criticism that such funding be accommodated in the budgetary
process.

The working paper said RBZ's subsidised credit, measures to mop up
excess liquidity, foreign exchange losses through subsidised exchange rates
and multiple currency practices had resulted in huge quasi-fiscal losses,
which in turn resulted in a huge surge in money supply.

"Quasi-fiscal losses of this sort, rather than conventional monetary
supply or fiscal laxity have mainly been responsible for the surge in money
supply during 2005-2007," the IMF said in the paper.

According to the IMF, this helped fuel inflation to unsustainable
levels as the losses had endangered the control of monetary targets, leading
to injections of money.

The central bank was linked to quasi-fiscal losses amounting to 75% of
Zimbabwe's Gross Domestic Product (GDP). This is far in excess of the global
average of 10% for most central banks. Zimbabwe's GDP is currently US$3,1
billion, meaning RBZ induced quasi-fiscal losses are approximately US$2,3
billion.

The IMF paper also attacked sterilization operations by the central
bank, which started with 2004's 900% per annum Financial Treasury bills,
which were then replaced by the Open Market Operation (OMO) bills.

Introduced to absorb excess bank liquidity, these bills have managed
to accumulate "substantial domestic interest-bearing liabilities", with the
net interest cost of sterilizing operations amounting to 40% of GDP.

It argued that while the RBZ could postpone the expansionary monetary
effect created through incurring debt - in the form of issued central bank
bills - debt issuance combined with valuation losses would lead to a
deterioration in RBZ's financial position and in turn contribute to future
losses.

Ncube scoops award

Zim Independent


ZIMBABWE Independent publisher Trevor Ncube has won the 2007 IPA
Freedom Prize in recognition of his role in the furtherance of freedom of
expression. Ncube will receive the prize at the opening ceremony of the
second Cape Town Book Fair on June 15.

The board of the International Publishers' Association (IPA) selected
Ncube from among many highly commendable candidates, nominated by IPA
members, individual publishers and human rights' organizations, said IPA
president Ana Maria Cabanellas, in the citation.

"Trevor Ncube's work as a publisher and his wholehearted support of
freedom of expression have often brought him into conflict with Zimbabwean
authorities and endangered his personal safety.

"Despite repeated threats of violence and attempts to strip him of his
Zimbabwean citizenship, Ncube's newspapers have continued to expose
corruption and human rights abuses in Zimbabwe, thus encouraging healthy
dissent and criticism both in the public and private sectors." - Staff
Writer.

Urban poverty worries NGOs

Zim Independent


Lucia Makamure

GOVERNMENT has come under attack from non-governmental organisations
for failing to live up to its promises to address the impoverishment of
thousands of urban dwellers by Operation Murambatsvina in 2005.

The criticism comes amid evidence that the slum clearance operation
was a major cause of urban poverty in the country which has reached alarming
rates with an estimated two million people requiring food aid this year.

The National Association of Non-Governmental Organisations (Nango), in
its statement to mark the second anniversary of the controversial clean-up
exercise, expressed concern over the rise in urban poverty.

"Exactly two years after the government initiated Operation
Murambatsvina, non-governmental organisations have expressed concern over
the unprecedented levels of urban poverty in Zimbabwe and renewed calls for
increased action to revamp the country's social service delivery
capacities," Nango said. "The tragedy is that the state has reneged on its
progressive commitments to providing health and education for all," it said.

Nango said local NGOs were battling to raise resources from the
international community to assist victims of Operation Murambatsvina.

"Non-governmental organisations in the country have been battling to
raise resources from the international community that has since expressed
reservations with providing support to mitigate a man-made crisis such as
the post-Murambatsvina urban poverty scenario,"said Nango.

Nango blamed the government for failure to address urban poverty and
for destroying the informal sector which used to be the source of income for
many urbanites.

"Nothing has been done by the government to effectively address the
impoverishment of thousands of urban dwellers by Operation Murambatsvina.
The destruction of the informal sector from which urbanites derived their
livelihoods has the overall effect of reducing the standard of living in
most households,"said Nango. It added:

"The terrain of urban poverty in Zimbabwe has many complexities, with
HIV and Aids and economic recession playing a key role in pushing more and
more people into the relentless cycle of poverty."

Operation Garikai which was government's only response to the gross
human rights violations perpetrated under Operation Murambatsvina has failed
dismally to reach the majority of the victims.

Under the operation only 3 325 new houses were built with some having
no access to adequate safe water and sanitation yet Operation Murambatsvina
left more than 700 000 people homeless and affected an estimated 2,4 million
people countrywide.

USAid attributed the increase of urban poverty to high unemployment
rates, reduced real income and less government services which have all
contributed to a highly volatile situation, particularly in the urban areas.

The government described the operation as a crackdown against illegal
housing and commercial activities and an effort to reduce the risk of the
spread of infectious diseases in urban areas.

However, in a report written by Anna Tibaijuka, the executive director
of the United Nations Human Settlements Programme, the operation was a
disastrous venture which violated international law and led to a serious
humanitarian crisis.

The report also described the actions of the government as
"indiscriminate, unjustified and conducted without regard for human
suffering".

Police question photographer

Zim Independent


POLICE yesterday turned their attention to press coverage of recent
human rights abuses by ordering Standard and Zimbabwe Independent
photographer, Boldwill Hungwe, to report to Harare Central police station.

A police officer from Harare Central who gave his name as Inspector
Chinembiri said Hungwe was wanted for questioning in connection with a
Standard front page photograph on Sunday depicting the battered arm and
thigh of Law Society president Beatrice Mtetwa.

According to Hungwe, the police officer demanded that he present
himself at the police station, charging the picture was a violation of the
Public Order and Security Act (Posa).

"A police officer from Harare Central who identified himself as
Inspector Chinembiri called me asking me to come down to the police
station," said Hungwe. "He said it was in connection with a front-page
photograph in the Standard."

This is not the first time the paper has been under threat. Recently,
Bill Saidi, the deputy editor of the Standard, received a bullet in a
hand-delivered envelope warning him to "watch out" after the paper published
a cartoon showing baboons poking fun at an army officer's payslip. - Staff
Writer.

Court orders cops off Matabeleland farm

Zim Independent


Loughty Dube

THE Bulawayo High Court has ordered senior police officers who invaded
a farm owned by one of the few remaining white farmers in Matabeleland North
two months ago to vacate the property.

The relief order, granted by High Court judge Justice Francis Bere,
says the first respondent in the matter, Police Commissioner Augustine
Chihuri, the second respondent, Senior Assistant Commissioner Chivangire,
and Home Affairs minister Kembo Mohadi, should stop interfering with and
harassing the farm owner and his workers.

Police invaded Portwe Farm in March and forcibly took keys to all the
buildings on the farm. The owners of the property, which includes a safari
concern, J Joubert & Sons (Pvt) Ltd, were told that the farm was "now a
police state farm".

The police proceeded to erect tents around the farm where they are now
camped.

Police also raided the gun cabinet and helped themselves to an array
of rifles used for hunting expeditions by guests at the safari lodge
situated on the farm.

Justice Bere said police should immediately vacate the farm, return
keys to the farm and firearms they unlawfully confiscated when they invaded
the property.

Western aid to Zim up

Zim Independent

     
Itai Mushekwe

WESTERN governments this week increased financial aid to Zimbabwe
despite government's claims that European Union sanctions targeted at
President Robert Mugabe and his officials are responsible for the economic
decline.

The Swedish government on Tuesday disbursed almost US$1 million for
food security for HIV and Aids affected households in Kwekwe rural and Gweru
urban. The lifeline is being channeled through the Swedish International
Development Agency and will be administered by the Swedish Cooperative
Centre.

Goran Engstrand, the Swedish Embassy head of development cooperation,
said the HIV and Aids pandemic, combined with various other problems
"crippling" Zimbabwe, posed a "major threat" to the country's development.

Australia also on Tuesday unveiled a US$900 000 financial package to
the United Nations Children's Fund (Unicef) to bolster its National Action
Plan for orphaned and vulnerable children.

Australia has also raised its aid assistance. Unicef spokesman, James
Elder yesterday confirmed receipt of the financial boost from the Australian
government, saying it will go a long way in assisting the United Nations
body in undertaking the programme.

"The US$900 000 will be directed to the national programme for
orphans," said Elder. "The money came to us directly from the Australian
government, and we're going to channel it to the affected communities."

NMB chief in Zurich in search of missing cash

Zim Independent


Shame Makoshori

NMB Bank chief executive, David Hatendi, flew into Zurich,
Switzerland, on Sunday as the troubled financial institution intensified the
hunt to recover the US$4,7 million siphoned from the bank by a syndicate of
treasury staff, businessdigest heard this week.

Hatendi is expected back in the country this morning and will brief
the Reserve Bank of Zimbabwe (RBZ) on his findings. Hatendi, whom banking
sources say is facing intense pressure from shareholders to quit, is
understood to have visited AKB Private Bank in the Swiss capital which has
been linked to the scam.

A company called Cardinal Finance which is also at the centre of the
current investigations kept an account with AKB Private Bank where the
stolen finds were alleged to have been deposited. The AKB Private Bank
account number is 16701690347.

The alleged ring-leader in the scam, Shame Mandara, has since fled the
country and is believed to be in the United States. NMB Bank sources said
this week that Hatendi's leadership has come under fierce scrutiny from the
central bank that has queried why the bank took so long to detect the porous
configuration of its risk management systems.

The local police have asked for assistance from Interpol to help track
down the suspects. Sources said the NMB Bank chief had to seek clearance
from the central bank before leaving the country.

"He had to seek clearance from the governor of the Reserve Bank
(Gideon Gono) to go and try to look for leads that can help the recovery of
the missing money," a senior NMB Bank executive told businessdigest. The
executive added that officials from the central bank had camped at NMB Bank
headquarters in Harare going through its books to find loopholes.

NMB Bank this week suspended officials in the treasury department to
facilitate the on-going investigations. The RBZ is concerned that the
transactions were approved by senior managers in the treasury department.
Businessdigest understands that the RBZ also wanted officials from risk
management and finance to be included in the probe.

"Mandara was not a senior bank executive but an assistant manager
whose duty was to initiate the deals which he forwarded to treasury managers
for approval. But what the investigations have exposed is that all of the
managers signed the fraudulent transactions between 10 and 60 times without
questioning," said a source in the RBZ.

"So there is a strong reason to believe that they were all part of the
scam." This had prompted Hatendi's decision to fly to that country.

The central bank said in a statement this week the police anti-money
laundering and other international institutions were tracking the
perpetrators of the fraud and trying to establish the brains behind Cardinal
Finance, the alleged recipient of the stolen funds.

On Tuesday, the RBZ cancelled NMB's foreign dealership status for the
second time in four years for the continued failure to adhere to sound risk
management practices.

The central bank has also demanded an immediate reshuffle of the board
and management at NMB Bank.

Zim crisis scares off International Finance Corporation

Zim Independent


Pindai Dube

THE deteriorating political situation in Zimbabwe has forced the
International Finance Corporation (IFC) to rescind its decision to resume
offshore credit lines support to the country, officials in the Finance
ministry confirmed.

Businessdigest established from the Ministry of Finance sources that
considerations by IFC to resume funding had taken a beating from the
escalating political situation in the country.

IFC, a private arm of the World Bank, has snubbed Zimbabwe in its
offshore credit lines for the past seven years citing the deteriorating
political and economic environment.

The withdrawal of offshore credit lines was seen as undermining the
performance of key sectors of the economy.

The permanent secretary in the finance ministry Willard Manungo
confirmed that the IFC had turned back its intention to resume funding to
the country.

"We have been hard done by owing to the rising political situation in
the country. There is no funding from the IFC again despite considerations
to resume. We don't know their position regarding to future funding on
investments," said Manungo.

Confederation of Zimbabwe Industries (CZI) president Callisto Jokonya
lamented that the nation's economy had been hit by political crises, saying
there is need for Zimbabwe 'to put its house in order".

"For us to get access to the IFC funds, we have to urgently put our
house in order. No finance institution will like to put funds where there is
no order. We have to be responsible at all costs and have dialogue," said
Jokonya.

The IFC had since 1980 availed more than US$600 million to private
sector investments in the fields of mining, agriculture, tourism, and
manufacturing among others.

However it disinvested its shares in several local companies as
tension between Zimbabwe and the Bretton Woods instuition worsens.

According to the IFC, Zimbabwe which used to account for huge chunk
from the instuition's financial support in Sub-Saharan African has been
overtaken by Zambia and Mozambique.

On Monday IFC announced that it will invest US$1,8 million in Protea
Arcades Ltd, a subsidiary of Union Gold (Zambia) to help meet the growing
demand for quality accommodation in that country's capital, Lusaka.

But it was now cautious on future investment in the country citing
risks such as a four figure inflation, high unemployment and a volatile
economic climate.

Causes and cost of inflation

Zim Independent


Zimbabwe's government blames private businesses and greed for
galloping inflation. Price controls and outright threats have been used to
stop businesses from raising prices, but inflation has not slowed down. This
article looks at some of the challenges countries face when trying to reduce
inflation.

By David Ranson

INFLATION is the loss in purchasing power of a currency unit, usually
expressed as a general rise in the prices of goods and services.

A classic example is the Great Inflation of the Roman Empire.
Successive emperors replaced a steadily increasing fraction of the silver in
their ancient currency, the denarius, with base metals like bronze or
copper. As a result prices rose inexorably despite repeated attempts to
restrain them through legislation. Diocletian, rather than taking
responsibility for the debasement, attributed the rapid inflation of his day
to the avarice of his subjects.

His famous edict of AD 301 threatened with death any vendor who
charged prices exceeding official limits. But inflation ran along unhindered
for another century until an alternative currency, an undepreciated gold
coin known to Shakespeare as the bezant, became the customary unit of
account, spreading throughout Europe and lasting well into the Middle Ages.

In modern times inflation continues to be blamed on private greed, and
governments still seek to restrain it by decree, sometimes even devaluing
their currencies as they do so.

We have many measures of inflation, but none provides a truly reliable
gauge of inflation at any specific time. The most widely watched measure is
the consumer price index (CPI), published monthly in most countries.

The problem with the CPI is that the weight attached to each class of
goods and services is held constant for years at a time. Therefore, when
consumers lower their cost of living by buying more items whose relative
price has fallen and fewer items whose relative price has risen, the CPI
will not show a decline in the cost of living.

Moreover, the difficult problem of allowing for changing quality has
never been solved. Nor can the government inspectors who collect the data
from retailers track down all the sales and discounts of which consumers are
so keenly aware. As a result of these and other factors, the consumer price
index reflects inflation trends only with a long delay and portrays an
artificially smooth path for the inflation rate.

Other indicators of inflation include producer prices and unit-value
indexes for imports and exports. As we move back through the distribution
chain from the consumer toward the supplier of raw materials, a more jumpy
picture of inflation is revealed at each step.

In the news media, discussion of inflation often takes a "bottom up"
view. Each month's change in the CPI can be, and is, split up into dozens of
components, such as food, energy and housing. It is tempting to see the
sectors where prices rose the most as causes of the observed inflation. This
way of looking at inflation is mistaken. The prices of some items always are
rising or falling relative to others. Surely inflation is not simply the sum
total of a collection of independent price changes, as the arithmetic of the
CPI implies. It is the degree to which all of the prices move in concert.

What does inflation cost? Economists who view inflation as a very
serious problem point to what they call the "inflation tax". By this they
mean the reduction in the purchasing power of the cash balances held by the
private sector - like a wealth tax. This tax is a drag on the economy - an
"efficiency loss" - because it induces people and businesses to economise on
cash balances, making it more difficult to participate in the money economy.

Economic losses associated with the inflation tax and other
distortions are known as the "welfare cost of inflation." At one extreme of
the debate, Harvard economist Martin Feldstein has claimed that the present
value of the losses that result from unending inflation may be infinite! His
argument is that each year the cost to the economy grows in proportion to
society's money balances. Because the rate of growth of money balances
exceeds the interest rate he uses to calculate the present value, the
present value is unbounded.

The increase in government spending could be claimed as either a cost
or a benefit to the economy, depending on whether one wants more or less
government spending. But there is a real cost that is not ambiguous. High
tax rates on employment, on business investment, and on the accumulation of
capital deter all these activities in favor of untaxed uses of the economy's
resources and, therefore, impede output and growth.

Still more difficult than measuring inflation is the problem of
identifying its root causes. In spite of its long and rich history, few
subjects in the field of economics are more confused. Professional
economists have still not reached broad agreement as to the origins of the
inflation process.

Two camps dominate the debate. Some see inflation as a malady of the
currency (as was surely the case in the Roman Empire). In the words of
Milton Friedman: "Inflation is always and everywhere a monetary problem."
Others see nonmonetary forces at work, such as monopolies, union demands for
higher wages, oil politics, or the "wage-price spiral".

Some nonmonetary ideas are illogical. The existence of monopoly power
or union power might be argued to raise prices generally relative to what
they otherwise would be. But a continuing price rise year-in year-out
requires a continuing increase in the degree of monopoly or union power in
the economy. This is neither plausible over long periods of time, nor
consistent with evidence from recent decades for the United States.

Nonmonetary theories of inflation traditionally separate "demand-pull"
sources from "cost-push" factors like oil, monopoly power, or wages. A surge
in the demand for goods and services in general ("aggregate demand") is
thought to "pull" prices up across the board, especially when "aggregate
supply" is held back by inertia or capacity limitations. Sceptics rightly
question how demand could constantly outstrip supply. Surely, demand must
originate from purchasing power, purchasing power from wealth, wealth from
income, and income from the ability to produce (and hence supply) goods and
services.

Other logical objections to the idea of demand-pull inflation center
on the importance of money. How could prices rise without a commensurate
increase in the quantity of money in private hands? If such a thing
happened, the purchasing power of the quantity of money would have declined
involuntarily, and that would not be consistent with market equilibrium.
Economists of the "monetarist" school emphasize the power and discretion of
government to vary the money supply, causing private markets to bring the
economy's price structure into conformity.

Among those who attribute inflation to monetary causes, at least two
quite different views exist. The monetarist view is that increases in the
quantity of money cause inflation. Critics of this view point out that the
quantity of money is difficult to define, especially when funds can be
transferred electronically and credit cards can substitute for cash
balances. It can also be argued that people have freedom to choose the
quantity of money they want to hold rather than merely accept the quantity
the government wishes to impose upon them.

The other monetary view, held historically by opponents of fiat (ie,
government) paper money, and by advocates today of restoring the gold
standard, is that the quantity of money can take care of itself. What really
is needed, according to this view, is a mechanism for keeping the price of
the currency stable, for providing an anchor, so to speak.

Governments have been slow to accept the recommendations of either of
these camps. That probably is because either a strict monetary rule or
strict adherence to a gold standard or other price rule would place strict
limits on discretionary government management of the economy.

* David Ranson is president of HC Wainwright and Company, Economics,
an investment research firm in Boston. He was formerly an assistant to the
secretary of the Treasury in Washington.

When the inflation floodgates open

Zim Independent


By Michael K Salemi

INFLATION is a sustained increase in the aggregate price level.
Hyperinflation is very high inflation. Although the threshold is arbitrary,
economists generally reserve the term hyperinflation to describe episodes
where the monthly inflation rate is greater than 50%. At a monthly rate of
50%, an item that cost $1 on January 1 would cost $130 on January 1 of the
following year.

Hyperinflations are largely a 20-century phenomenon. The most widely
studied hyperinflation occurred in Germany after World War I. The ratio of
the German price index in November 1923 to the price index in August 1922 -
just 15 months earlier - was 1.02 × 1010. This huge number amounts to a
monthly inflation rate of 322%. On average, prices quadrupled each month
during the 16 months of hyperinflation.

While the German hyperinflation is better known, a much larger
hyperinflation occurred in Hungary after World War II. Between August 1945
and July 1946 the general level of prices rose at the astounding rate of
over 19 000% per month, or 19% per day.

Even these very large numbers understate the rates of inflation
experienced during the worst days of the hyperinflations. In October 1923,
German prices rose at the rate of 41% per day. And in July 1946, Hungarian
prices more than tripled each day.

What causes hyperinflations?

No one-time shock, no matter how severe, can explain sustained (i.e.,
continuously rapid) price growth. The world wars themselves did not cause
the hyperinflations in Germany and Hungary. The destruction of resources
during the wars can explain why prices in Germany and Hungary would be
higher after them than before. But the wars themselves cannot explain why
prices would continuously rise at rapid rates during the hyperinflation
periods.

Hyperinflations are caused by extremely rapid growth in the supply of
"paper" money. They occur when the monetary and fiscal authorities of a
nation regularly issue large quantities of money to pay for a large stream
of government expenditures. In effect, inflation is a form of taxation where
the government gains at the expense of those who hold money whose value is
declining. Hyperinflations are, therefore, very large taxation schemes.

During the German hyperinflation the number of German marks in
circulation increased by a factor of 7.32 × 109. In Hungary, the comparable
increase in the money supply was 1.19 × 1025. These numbers are smaller than
those given earlier for the growth in prices.

In hyperinflations prices typically grow more rapidly than the money
stock because people attempt to lower the amount of purchasing power that
they keep in the form of money. They attempt to avoid the inflation tax by
holding more of their wealth in the form of physical commodities. As they
buy these commodities, prices rise higher and inflation accelerates.

Hyperinflations tend to be self-perpetuating. Suppose a government is
committed to financing its expenditures by issuing money and begins by
raising the money stock by 10% per month. Soon the rate of inflation will
increase, say, to 10% per month. The government will observe that it can no
longer buy as much with the money it is issuing and is likely to respond by
raising money growth even further. The hyperinflation cycle has begun.
During the hyperinflation there will be a continuing tug-of-war between the
public and the government. The public is trying to spend the money it
receives quickly in order to avoid the inflation tax; the government
responds to higher inflation with even higher rates of money issue.

How do hyperinflations end?

The standard answer is that governments have to make a credible
commitment to halting the rapid growth in the stock of money. Proponents of
this view consider the end of the German hyperinflation to be a case in
point.

In late 1923, Germany undertook a monetary reform creating a new unit
of currency called the rentenmark. The German government promised that the
new currency could be converted on demand into a bond having a certain value
in gold. Proponents of the standard answer argue that the guarantee of
convertibility is properly viewed as a promise to cease the rapid issue of
money.

An alternative view held by some economists is that not just monetary
reform, but also fiscal reform, is needed to end a hyperinflation. According
to this view a successful reform entails two believable commitments on the
part of government.

The first is a commitment to halt the rapid growth of paper money. The
second is a commitment to bring the government's budget into balance. This
second commitment is necessary for a successful reform because it removes,
or at least lessens, the incentive for the government to resort to
inflationary taxation.

Thomas Sargent, a proponent of this second view, argues that the
German reform of 1923 was successful because it created an independent
central bank that could refuse to monetise the government deficit and
because it included provisions for higher taxes and lower government
expenditures.

What effects do hyperinflations have?

One effect with serious consequences is the reallocation of wealth.
Hyperinflations transfer wealth from the general public, which holds money,
to the government, which issues money.

Hyperinflations also cause borrowers to gain at the expense of lenders
when loan contracts are signed prior to the worst inflation. Businesses that
hold stores of raw materials and commodities gain at the expense of the
general public.

In Germany, renters gained at the expense of property owners because
rent ceilings did not keep pace with the general level of prices. Costantino
Bresciani-Turroni has argued that the hyperinflation destroyed the wealth of
the stable classes in Germany and made it easier for the National Socialists
(Nazis) to gain power.

Hyperinflation reduces an economy's efficiency by driving agents away
from monetary transactions and toward barter. In a normal economy great
efficiency is gained by using money in exchange.

During hyperinflations people prefer to be paid in commodities in
order to avoid the inflation tax. If they are paid in money, they spend that
money as quickly as possible. In Germany workers were paid twice per day and
would shop at midday to avoid further depreciation of their earnings.
Hyperinflation is a wasteful game of "hot potato" where individuals use up
valuable resources trying to avoid holding on to paper money.

The recent examples of very high inflation have mostly occurred in
Latin America. Argentina, Bolivia, Brazil, Chile, Peru, and Uruguay together
experienced an average annual inflation rate of 121% between 1970 and 1987.
One true hyperinflation occurred during this period. In Bolivia prices
increased by 12 000% in 1985. In Peru in 1988, a near hyperinflation
occurred as prices rose by about 2 000% for the year, or by 30% per month.

The Latin American countries with high inflation also experienced a
phenomenon called "dollarisation". Dollarisation is the use of US dollars by
Latin Americans in place of their domestic currency. As inflation rises,
people come to believe that their own currency is not a good way to store
value and they attempt to exchange their domestic money for dollars.

In 1973, 90% of time deposits in Bolivia were denominated in Bolivian
pesos. By 1985, the year of the Bolivian hyperinflation, more than 60% of
time deposit balances were denominated in dollars.

What caused high inflation in Latin America? Many Latin American
countries borrowed heavily during the 70s and agreed to repay their debts in
dollars. As interest rates rose, all of these countries found it
increasingly difficult to meet their debt-service obligations. The
high-inflation countries were those that responded to these higher costs by
printing money.

The Bolivian hyperinflation is a case in point. Eliana Cardoso
explains that in 1982 Hernan Siles-Suazo took power as head of a leftist
coalition that wanted to satisfy demands for more government spending on
domestic programmes but faced growing debt-service obligations and falling
prices for its tin exports. The Bolivian government responded to this
situation by printing money. Faced with a shortage of funds, it chose to
raise revenue through the inflation tax instead of raising income taxes or
reducing other government spending.

* Michael K Salemi is an economics professor at the University of
North Carolina in Chapel Hill.

When the inflation floodgates open

Zim Independent


By Michael K Salemi

INFLATION is a sustained increase in the aggregate price level.
Hyperinflation is very high inflation. Although the threshold is arbitrary,
economists generally reserve the term hyperinflation to describe episodes
where the monthly inflation rate is greater than 50%. At a monthly rate of
50%, an item that cost $1 on January 1 would cost $130 on January 1 of the
following year.

Hyperinflations are largely a 20-century phenomenon. The most widely
studied hyperinflation occurred in Germany after World War I. The ratio of
the German price index in November 1923 to the price index in August 1922 -
just 15 months earlier - was 1.02 × 1010. This huge number amounts to a
monthly inflation rate of 322%. On average, prices quadrupled each month
during the 16 months of hyperinflation.

While the German hyperinflation is better known, a much larger
hyperinflation occurred in Hungary after World War II. Between August 1945
and July 1946 the general level of prices rose at the astounding rate of
over 19 000% per month, or 19% per day.

Even these very large numbers understate the rates of inflation
experienced during the worst days of the hyperinflations. In October 1923,
German prices rose at the rate of 41% per day. And in July 1946, Hungarian
prices more than tripled each day.

What causes hyperinflations?

No one-time shock, no matter how severe, can explain sustained (i.e.,
continuously rapid) price growth. The world wars themselves did not cause
the hyperinflations in Germany and Hungary. The destruction of resources
during the wars can explain why prices in Germany and Hungary would be
higher after them than before. But the wars themselves cannot explain why
prices would continuously rise at rapid rates during the hyperinflation
periods.

Hyperinflations are caused by extremely rapid growth in the supply of
"paper" money. They occur when the monetary and fiscal authorities of a
nation regularly issue large quantities of money to pay for a large stream
of government expenditures. In effect, inflation is a form of taxation where
the government gains at the expense of those who hold money whose value is
declining. Hyperinflations are, therefore, very large taxation schemes.

During the German hyperinflation the number of German marks in
circulation increased by a factor of 7.32 × 109. In Hungary, the comparable
increase in the money supply was 1.19 × 1025. These numbers are smaller than
those given earlier for the growth in prices.

In hyperinflations prices typically grow more rapidly than the money
stock because people attempt to lower the amount of purchasing power that
they keep in the form of money. They attempt to avoid the inflation tax by
holding more of their wealth in the form of physical commodities. As they
buy these commodities, prices rise higher and inflation accelerates.

Hyperinflations tend to be self-perpetuating. Suppose a government is
committed to financing its expenditures by issuing money and begins by
raising the money stock by 10% per month. Soon the rate of inflation will
increase, say, to 10% per month. The government will observe that it can no
longer buy as much with the money it is issuing and is likely to respond by
raising money growth even further. The hyperinflation cycle has begun.
During the hyperinflation there will be a continuing tug-of-war between the
public and the government. The public is trying to spend the money it
receives quickly in order to avoid the inflation tax; the government
responds to higher inflation with even higher rates of money issue.

How do hyperinflations end?

The standard answer is that governments have to make a credible
commitment to halting the rapid growth in the stock of money. Proponents of
this view consider the end of the German hyperinflation to be a case in
point.

In late 1923, Germany undertook a monetary reform creating a new unit
of currency called the rentenmark. The German government promised that the
new currency could be converted on demand into a bond having a certain value
in gold. Proponents of the standard answer argue that the guarantee of
convertibility is properly viewed as a promise to cease the rapid issue of
money.

An alternative view held by some economists is that not just monetary
reform, but also fiscal reform, is needed to end a hyperinflation. According
to this view a successful reform entails two believable commitments on the
part of government.

The first is a commitment to halt the rapid growth of paper money. The
second is a commitment to bring the government's budget into balance. This
second commitment is necessary for a successful reform because it removes,
or at least lessens, the incentive for the government to resort to
inflationary taxation.

Thomas Sargent, a proponent of this second view, argues that the
German reform of 1923 was successful because it created an independent
central bank that could refuse to monetise the government deficit and
because it included provisions for higher taxes and lower government
expenditures.

What effects do hyperinflations have?

One effect with serious consequences is the reallocation of wealth.
Hyperinflations transfer wealth from the general public, which holds money,
to the government, which issues money.

Hyperinflations also cause borrowers to gain at the expense of lenders
when loan contracts are signed prior to the worst inflation. Businesses that
hold stores of raw materials and commodities gain at the expense of the
general public.

In Germany, renters gained at the expense of property owners because
rent ceilings did not keep pace with the general level of prices. Costantino
Bresciani-Turroni has argued that the hyperinflation destroyed the wealth of
the stable classes in Germany and made it easier for the National Socialists
(Nazis) to gain power.

Hyperinflation reduces an economy's efficiency by driving agents away
from monetary transactions and toward barter. In a normal economy great
efficiency is gained by using money in exchange.

During hyperinflations people prefer to be paid in commodities in
order to avoid the inflation tax. If they are paid in money, they spend that
money as quickly as possible. In Germany workers were paid twice per day and
would shop at midday to avoid further depreciation of their earnings.
Hyperinflation is a wasteful game of "hot potato" where individuals use up
valuable resources trying to avoid holding on to paper money.

The recent examples of very high inflation have mostly occurred in
Latin America. Argentina, Bolivia, Brazil, Chile, Peru, and Uruguay together
experienced an average annual inflation rate of 121% between 1970 and 1987.
One true hyperinflation occurred during this period. In Bolivia prices
increased by 12 000% in 1985. In Peru in 1988, a near hyperinflation
occurred as prices rose by about 2 000% for the year, or by 30% per month.

The Latin American countries with high inflation also experienced a
phenomenon called "dollarisation". Dollarisation is the use of US dollars by
Latin Americans in place of their domestic currency. As inflation rises,
people come to believe that their own currency is not a good way to store
value and they attempt to exchange their domestic money for dollars.

In 1973, 90% of time deposits in Bolivia were denominated in Bolivian
pesos. By 1985, the year of the Bolivian hyperinflation, more than 60% of
time deposit balances were denominated in dollars.

What caused high inflation in Latin America? Many Latin American
countries borrowed heavily during the 70s and agreed to repay their debts in
dollars. As interest rates rose, all of these countries found it
increasingly difficult to meet their debt-service obligations. The
high-inflation countries were those that responded to these higher costs by
printing money.

The Bolivian hyperinflation is a case in point. Eliana Cardoso
explains that in 1982 Hernan Siles-Suazo took power as head of a leftist
coalition that wanted to satisfy demands for more government spending on
domestic programmes but faced growing debt-service obligations and falling
prices for its tin exports. The Bolivian government responded to this
situation by printing money. Faced with a shortage of funds, it chose to
raise revenue through the inflation tax instead of raising income taxes or
reducing other government spending.

* Michael K Salemi is an economics professor at the University of
North Carolina in Chapel Hill.

IMF projects 6 000% inflation by end 2008

Zim Independent


Paul Nyakazeya

THE International Monetary Fund (IMF) has projected that Zimbabwe's
year-on-year inflation could reach 6 470% by December 2008 as the country's
economic crisis continues to accelerate at an unprecedented rate.

The Bretton Woods institution had initially projected that the country's
inflation would reach 5 000% by year-end.

In its World Economic Outlook for April 2007, the IMF said the country's
inflation, currently at 3 714% for April, would reach 6 470,8% by the end of
next year.

According to the IMF, with the current year-on-year inflation at 3
714%, it means the "realistic" inflation rate for March is above 7 400%.

IMF's projection of 6 470,8% by December next year would mean Zimbabwe's
"realistic" inflation rate would be above 12 500% by the end of next year.

In a working paper titled Lesson from high inflation episodes for
stabilising the economy in Zimbabwe released by the IMF last month, Zimbabwe's
inflation was said to be double the official figures because half the
products in the basket used to measure the Consumer Price Index (CPI) were
controlled by government.

"Many in the private sector believe that the true rate of annual
inflation was closer to 3 000% in February 2007," the IMF added.

The IMF said Zimbabwe's real GDP has declined by about 30% since 1999
due to poor policies implemented by government.

These include the price controls which have triggered massive price
distortions. The government had refused to implement IMF's recommendation to
let the market determine the exchange rate.

The official value of the dollar has been pegged at $250 to the
greenback since July last year. On the parallel market the dollar is trading
above $32 000 to the US unit.

Investor confidence has collapsed as a result of the unpredictable
policies and lack of respect for property rights in the mining and
agriculture sectors, and the minimal external financing emanating from
government's poor relations with creditors and donors who President Robert
Mugabe has repeatedly told to back off insisting that Zimbabwe will "go it
alone".

The IMF also predicted a 5,7% reduction in the Gross Domestic Product
(GDP) this year and a further shrinkage of 3,6% for next year as Zimbabwe's
seven-year old economic recession continues unabated.

History repeats itself at NMB

Zim Independent


Shame Makoshori

A mission statement on NMB Holdings' website says the financial
institution will be driven by integrity, client satisfaction and thrive to
increase shareholder value. The situation on the ground however reveals a
totally different picture. The financial institution's 14 years of existence
expose a history littered with fraud allegations, alleged poor corporate
governance practices and perennial clashes with regulators that have spanned
half a decade.

During the banking crisis of 2003 the Reserve Bank of Zimbabwe (RBZ)
moved swiftly to cancel the bank's foreign currency dealership status
arguing depositors' funds were endangered by the illegal trade by executives
on the parallel market.

Although NMB appealed against the suspension and won the licence back
the incident marked the beginning of perennial clashes between the embattled
bank and authorities that culminated in fiercely denied rumours that the
Zimbabwe Stock Exchange (ZSE) planned to suspend the financial institution
as news trickled down that top managers had feasted on billions of
depositors' funds.

In March 2004 Eland Park Residents Association in Harare accused NMB
of conniving with one of the directors of liquidated ENG Asset Management
Company, Gilbert Muponda, to allegedly defraud their trust account of $2,5
billion - a huge amount then. Eland Park chairman Edward Tome argued that
they strongly suspected that ENG was an extension of the NMB.

Apparently, Muponda who allegedly defrauded ENG investors of $60
billion in 2004 had a stint with NMB before moving out to start his asset
management company. The court case on allegations that he defrauded
depositors of $60 billion has not been finalised.

Just as the dust was settling police reported in September 2004 that
they were investigating an NMB clerk, Justin Kusaranyare, for a $144 million
fraud. The matter was later brought before the courts.

Then in a watershed case involving NMB's short but controversially
eventful corporate life four of its top directors Julius Makoni, Otto
Chekeche, James Mushore and Francis Zimuto hit headlines when they fled
Zimbabwe after police launched a manhunt as rumours swelled that they had
allegedly externalised $30 billion from the bank into UK registered LTB
Money Transfer. They have lived in the UK since then and denied any
wrongdoing.

The allegation of fraud prompted a massive run on deposits as
sceptical depositors and investors feared their funds would be locked up
should the central bank have decided to shut down NMB.

Trust Bank, Royal Bank, Time Bank and Barbican Bank had succumbed to
stringent RBZ demands for best corporate practices and shareholders had to
helplessly watch their investments going down the drain. NMB shareholders
and depositors breathed a huge sigh of relief when, instead of applying an
iron hand, the central bank chose a more conciliatory path, demanding the
complete overhaul of the bank's board and top management and embark on a
turnaround track that would extinguish the raging fires.

Top banker David Hatendi was appointed chief executive and a
completely fresh board came in to drive the bank back to stability and win
back market confidence.

It looked stable when the bank reported that net interest income for
the year ended December 31, 2006 surged significantly to $8,6 billion from
$285 million in 2005 while post tax profits were $6,9 billion up from $352
million.

During the first quarter of 2006 Hatendi told analysts they had made
great strides in exorcising the bad spirits that had rocked NMB and a
recapitalisation exercise carried out then was bearing fruit.

"The bank's capital base has increased well above the new minimum paid
up capital requirement of $100 billion, it has restructured and has embarked
on a rationalisation programme, addressing inefficiencies, cost structures
and recapitalisation," Hatendi said while presenting the 2005 annual report.

The Global Credit Rating Company (GCR) also weighed in NMB's favour
giving it a clean bill of health and projecting a positive rating outlook.
Great news for the market!

But Hatendi was not aware then that history was repeating itself. An
assistant manager in the treasury department, Shame Mandara, was already
illegally gnawing through the financial institution's foreign currency
coffers which totalled US$4,7 million last week. The money which belonged to
NGOs, embassies, exporters and individuals was transferred into numerous
offshore accounts in Swiss banks.

Mandara left his jacket on the chair and fled the country, leaving NMB
executives globe trotting looking for possible leads especially in Swiss
banks. Hatendi is currently in Switzerland investigating the fraud that has
caused upheavals at the bank.

Inflation higher than official figures

Zim Independent


Martin Tarusenga

EVERYONE in Zimbabwe now worries about whether or not the money they
hold will be able to buy the goods they want tomorrow.

The money could be cash holdings, a bank deposit, an investment with a
stockbroker, etc, with prices of goods continuously increasing and in
enormous hikes, we worry about whether or not we will be able to buy the
same things budgeted for.

There are therefore continuous searches for methods of converting all
these various types of money holdings into "something" that can later be
traded back to the Zimbabwean dollars.

The one now apparently common method used to protect against inflation
is to convert to the foreign currency. But then this is illegal - there is a
high risk of being made an example.

With a little financial innovation and financial engineering, there's
however a host of possibilities to protect our money from inflation,
provided, there's available sufficiently responsive and transparently
managed inflation indices.

Based on these indices and established financial theory, the past two
decades has, in developed economies, seen an explosion of ingenious methods
to meet the various financial needs of consumers including inflation
protection.

To mention but a few, the UK RPI indexed Index Linked Gilts (ILG's)
are a very popular investment in periods of high inflation or when high
inflation is expected. The US has Treasury Inflation-Protected Securities
similarly indexed.

Indeed the object of the erstwhile RBZ CPI bonds was on the face of
just that - to protect against inflation.

In our inflationary economy we would be a step closer towards
accessing these inflation instruments with available sufficiently responsive
and transparently managed inflation indices. The established measure of
inflation in Zimbabwe is the Consumer Price Index (CPI) managed by the
Central Statistical Office (CSO).

Questions have recently been raised on the CPI responsiveness and
management transparency. The Zimbabwe Independent (May 11) reports some
dissenting opinions regarding the effectiveness of the CSO CPI in tracking
inflation in Zimbabwe. The delayed publication of the latest CPI figures
lends good credence to these suspicions.

There are several simple ways to check the practicality and hence
efficiency of CPI in tracking the pace and level of increases in prices of
goods that we purchase and whether in fact it is protecting our money to the
extent it is used to prove achievement of financial performance over and
above inflation. Inflation indices must have certain characteristics and
must be managed very transparently.

For starters the pace and level with which our CPI progresses must
bear plausible relationships with both domestic and international prices
including interest rates as the price of money and exchange rates as the
price of other currencies in our currency.

First considering exchange rate relationships - an exchange rate of
one US$1:$30 000 measures in part how much of a US good (say one litre of
fuel) is paid in the US relative to the price paid of the same good in
Zimbabwe - so called Purchasing Power Parity in economics.

The progression of the Zim dollar exchange rate is in fact a
reflection of the progression of real prices on the ground in Zimbabwe
relative to prices of the same good in the US dollars. It can be observed
that the parallel exchange rate of one US dollar moved from about $2 900 at
the end of December 2006 to about $30 000 as of to date, ie: the price level
of goods purchased in the US remained at US$1 end of December 2006 and May
2007, while the price level for the same goods over the same period in
Zimbabwe moved in relative terms, from $2 900 to $29 000, representing 25
000% inflation per annum.

This does not compare to the 2 200,2% (3 700% announced yesterday)
inflation per annum reflected by the CPI. Note here that reference is to
"real prices on the ground" that real people, regardless, pay in response to
demand supply fundamentals when contrasted to the more artificial controlled
prices.

Let's however assume the RBZ controlled exchange rates are in
operation, comparing the previous exchange rate of $250 to the current
seller exchange rate of $15 000 gives an annual inflation rate of 1 851
567%!

The exchange rate for the others which remained at $250 says that
there is no inflation in Zimbabwe! The CPI inflation bears no relationship
to any one of these inflation figures. The sums don't quite add up here,
with the CPI falling out of reality - to the extent that people are
apparently using the US dollar and other hard currencies to hedge against
inflation.

If next we consider how the speed and level of prices of goods
commonly purchased progress, it will be observed that they are higher than
the speed and level of the CPI progression. The table below shows some
preliminary data on price changes of a selection of goods from a survey
in-progress between 31 December 2006 and 14 May 2007. This selection of
goods takes into account the consumption shifts towards essentials in
periods of economic recession.

The table shows goods price increases reflecting an inflation rate
well over the 2 200,2% estimated by the CPI. If these prices on the ground
are anything to go by, the CPI is clearly rendered kaput, having no
relationship whatsoever to the inflation on the ground. Note that this is
not a rigorous index evaluation but one does not have to eat the whole ox to
ascertain how tasty the beast is.

If lastly we take the interest we receive on $100 per year, as pegged
by the RBZ, to be the price of a holding of $100, the pace and level at
which the RBZ pegged rates change must reflect inflation in Zimbabwe and
therefore have a reasonable relationship with CPI changes.

The interest rates as pegged by the RBZ are currently averaging 700%,
that is the price of $100 is averaging $700 per year, having moved from 600%
that is, a price of $600 for $100. This represents an inflation rate of 45%.
Again quite different from the CPI inflation of 2 200,2%.

Additionally the nominal interest rates pegged by the RBZ must be the
sum of the annual inflation reflected by the CPI and the real rate of return
from government issued debt, assuming this investment is default free. With
interest rates currently pegged at an average rate of 700% and assuming a
CPI inflation rate of 2 200,2%, government issued debt is in real terms
yielding negatively at -1 500,2%, ie for every $100 invested in government
debt one looses $1 500,2 over the year, of the buying power of the initial
$100 investment assuming the 2 200,2%. The purchasing power lost is much
more if inflation is higher than that estimated by CPI as these rough
estimates and checks suggest.

If these manifestations of the CPI deficiencies are anything to go by,
they lead us to conclude that the CSO CPI inflation is much lower than
inflation on the ground. What's worse all the CPI inflation adjusted
financial results recently published by banks and other corporations are not
a reflection of the real corporate performance - the corporate performances
could be negative.

* Martin Tarusenga is Principal Consultant with Systemics Consulting.
email mtarusenga@aol.com

6m kg tobacco auctioned

Zim Independent


Paul Nyakazeya

AT Least 6, 35 million kg of flue-cured tobacco valued at US$11,7
million (about $2,9 billion at the interbank rate) have gone under the
hammer at the country's three auction floors since the beginning of the
selling season on April 24.

Figures obtained from the Tobacco Industry and Marketing Board (TIMB)
yesterday revealed that the deliveries were 83,25% more than the 3, 46
million which went under the hammer during the first two weeks of trade last
year.

In monetary terms last year's sales for the same period were 416,42%
less at $567,3 million in Zimbabwe dollar terms due to hyperinflation.
Inflation which is currently at 3 714,2% for April was 1092% during the same
period last year.

In US dollars terms the value of tobacco sold is US$11,7 million,
102,43% more than US$5,7 million sold during the same period last year.

A total of 68 371 bails have gone under the hummer so far from,
88,12%% more than 36 345 which were sold during the corresponding period
last year, the TIMB said.

Of Zimbabwe's three auction floors, Burley Marketing Zimbabwe (BMZ)
has sold 979 974 kg worth US$1,9 million ($477,5 million). Tobacco Sales
Floor (TSF) sold 853 200 kg valued at US$1,7 million ($425,7 million).
Zimbabwe Industry Tobacco Auction Centre (ZITAC) accounted for 568 484 kg
worth US$1,1 million ($281,7 million).

Contract tobacco farmers accounted for 3,9 million kgs valued at
US$6,9 million ($1,7 billion).

The current season has also witnessed an increase in the selling price
that has averaged US$1,78c compared to US$1,45c which prevailed during the
corresponding period last year.

The increase in the selling price has been attributed to a better
quality crop on offer compared to last year and an attractive special
exchange rate.

Last year's crop was affected by low rainfall and late planting which
resulted to the leaf fetching lower prices.

The waste percentage during the period under review is 3,98%. It is
44,87% less than 7,23% recorded during the same period last year.

A total of 80 million kgs of the golden leaf is expected to gone under
the hammer by the close of the season. A total of 55,5 million kg was sold
last year.

Over the last few years, production of the crop has been on the
decline owing to recurrent droughts and unavailability of essential inputs.

Tobacco production declined by 76% last year from an all time high of
237 million kg which was sold in 2000.

Year Production (million kgs) Year Production (million kgs)

1980 125 038  1994 182 466

1981 71 812    1995 198 380

1982 90 602     1996 208 716

1983 98 956    1997 215 369

1984 124 872   1998 215 000

1985 107 957  1999 193 183

1986 116 456    2000 236 130

1987 121 320     2001 202 540

1988 114 736      2002 165 842

1989 130 361       2003 81 812

1990 130 394      2004  69 112

1991 178 565       2005 73 392

1992 211 394        2006 55 533

1993 204 790        2007 Projection 80 000

Total production of tobacco since 1980

Govt biggest forex spender

Zim Independent


THE Reserve Bank of Zimbabwe governor, Gideon Gono, yesterday told
parliamentarians that government was the biggest beneficiary of foreign
currency generated by the country over the past three years. He was
responding to parliamentarians who said government and key parastatals were
not getting currency from the central bank.

Foreign exchange allocation to priority sectors since 2004 show
government received a total of US$868 million. Noczim was the second largest
recipient with US$587 million while Zesa got US$249 million. The Grain
Marketing Board was allocated US$259 million while troubled Air Zimbabwe got
US95 million.

The figures show government received US$67,1 million in the first
quarter.

Gono dismissed calls by some parliamentarians for the government set
up committees to allocate foreign currency saying this would not help the
situation. "It is therefore, illogical and misguided for some sections of
the society to recommend to government the formation of foreign exchange
committees thinking that would in itself solve the prevailing foreign
currency shortages," Gono said. - Staff writer.

'Zim will become a military state if left unchecked'

Zim Independent


Augustine Mukaro

STATE brutality against human rights defenders, civic groups and
opposition supporters needs to be checked before the country degenerates
into a military state, observers said this week.

Analysts said there are prospects of an increase in human rights
violations and brutality against dissenting voices in Zimbabwe, especially
in the run-up to the 2008 joint elections if rogue elements in the security
forces are not stopped right away.

"The continued repression is shameful and a sad subjugation of
citizens' rights," one analyst said. "It is a stark representation of the
breakdown of the rule of law. A serious government respects its citizens and
should not engage in random acts of thuggery against those who seek to
defend the rights of individuals."

The analyst said Zimbabweans must be wondering who will defend them if
the state agencies have become gangsters who subject members of the public
to routine harassment.

"It is very clear that state machinery such as the police have become
so politicised to the extent that all semblance of professionalism is
sacrificed in an attempt to prop up the Zanu PF government," the analyst
said.

Southern African Development Community (Sadc) leaders have called on
the Zimbabwean authorities to stop the abuses. Sadc presidents of law
societies last week flew into the country to persuade government to stop
rampant human right abuses by state agents and restore respect for the rule
of law.

The visiting lawyers held meetings with senior police officers, the
Attorney General, the permanent secretary in the Ministry of Justice, Chief
Justice Godfrey Chidyausiku and the Judge President Rita Makarau.

In an unprecedented move, the Pan African Parliament last Friday
decided to send a fact-finding mission to investigate allegations of the
abduction or murder of opposition activists, and detentions of journalists
and violations of freedom of speech.

Despite lobbying by Zanu PF legislators Rugare Gumbo, Chief Fortune
Charumbira and Sheila Mahere, the PAP voted overwhelmingly for the mission
to Zimbabwe with 149 members approving the motion while 20 opposed it.
Charumbira argued that the decision to send a mission to Zimbabwe was
misguided, as there were far worse countries on the continent than Zimbabwe.

"It seems the situation in Zimbabwe is being exaggerated. There are
other countries where people are being killed and that is ignored but the
moment someone cries in Zimbabwe, it is made an issue. We see an external
hand," he said.

The mission to Zimbabwe, expected in a few weeks, would be the first
fact-finding mission to investigate human rights in the country since the
United Nations sent a special envoy in 2005 to assess the destruction caused
by Operation Murambatsvina.

Analysts said recent events that saw the leader of the opposition
Morgan Tsvangirai being seriously assaulted by state agents were a cause for
concern for the continent.

Opposition activists have remained under siege over the past three
months with the police arresting and assaulting suspects while in detention.
An estimated 700 opposition activists and supporters have either been
arrested, tortured, abducted, or hospitalised since February. Three people
have been killed in the process.

Reports from all provinces show increasing repression with police on
high alert to thwart any demonstration. Last week five legal practitioners
were detained and assaulted when police violently broke up a protest march
by a group of about 50 lawyers.

The lawyers, most of them in their gowns, were holding a peaceful
demonstration outside the High Court in Harare to protest the arrest of
their colleagues, Alex Muchadehama and Andrew Makoni. The protest was also
against defiance of court orders by the police. Some of the lawyers
including Law Society of Zimbabwe president, Beatrice Mtetwa, and four
others, were singled out and badly beaten.

The Law Society of South Africa called on Zimbabwean authorities to
cease harassment and intimidation of human rights lawyers. "LSSA expresses
its grave concern at the ongoing harassment of human rights lawyers in
Zimbabwe by the Zimbabwean authorities," chief executive officer Raj Daya
said in a statement.

"We urge the Zimbabwean authorities to safeguard the right of legal
practitioners to practise freely without fear of intimidation, arrest or
assault. Lawyers must be able to attend court and to consult freely with
their clients to provide effective representation and to protect their
clients' rights and freedoms. They must have proper and unfettered access to
the courts and to their clients, and the lawyer-client relationship must be
protected."

Daya urged the Zimbabwean government to respect the rule of law, carry
out the orders of the courts and uphold the independence of the judiciary
and of legal practitioners.

"The LSSA also expresses its support to the Law Society of Zimbabwe,
its President Beatrice Mtetwa, and its members, and for the work being done
by Zimbabwe Lawyers for Human Rights (ZLHR). The LSSA joins these legal
organisations in strongly condemning the recent arrest and detention of
human rights lawyers Alec Muchadehama and Andrew Makoni.

"Although the two lawyers have been released, we agree with the ZLHR
that the actions of the Zimbabwean authorities cannot be tolerated or
condoned in a democratic society," says Daya.

Observers said the public assault on the legal fraternity was a slap
in the face for Sadc and Thabo Mbeki's mediation in the political crisis in
Zimbabwe.

Muchadehama and Makoni were arrested last Friday when they were
defending jailed opposition activists accused of petrol bomb attacks. They
were on Monday charged with obstructing justice and freed on bail after
spending the weekend in police cells.

Locally, the Combined Harare Residents' Association (CHRA) said it was
outraged by the barbaric attack on lawyers by the police.

"CHRA wishes to reiterate its commitment to justice, advocates for
equity before the law and vehemently denounces its selective application,"
it said in a statement.

"The harassment of people who defend us against organised violence and
torture is a serious mockery to the pronouncements that Harare is a
democracy. We urge the international community, especially the leadership of
the African Union and Sadc, to use their influence with Harare to end
targeted harassment and the disregard of the rule of law."

Zim needs a new script

Zim Independent


By Brian Chikwava

TO a man who has only a hammer, every problem he encounters looks like
a nail. So said the American psychologist Abraham Maslow - and, being a
writer, I find myself in a similar position. I happen to have only a pen,
and every problem that crosses my path resembles a story in need of fixing.

Because of this, I have come to think that the art of story writing
has a lot in common with the art of politics.

A glance at Zimbabwe tells me that this is a bad story. It needs more
than thorough editing; it needs a complete rewrite. Whether the script can
be fixed depends not just on its main protagonist, President Robert Mugabe,
but also on the opposition. Their part is to put new ideas on the table, to
carry the story in another direction.

Mugabe believes he is living an epic history, something like War and
Peace. Except that his story is packed with more heroic exploits than
Tolstoy, and can end only with the triumph of his will over history. The
opposition, and many others, thinks it should be shelved under "tragedy".

Mugabe has scripted himself into a role in which there is no room for
fresh thinking. If a mhondoro spirit (the mythic lion spirits that are the
custodians of the people) were to appear before him with an offer to give
the president anything he desired, but on condition that this wish shall be
given twice to every citizen, it would not be out of character now for
Mugabe to request that one of his eyes be gouged out.

This is a failure of the imagination. But it also reflects a failure
of the opposition to articulate its vision. Nowhere was this better
illustrated than the week after Morgan Tsvangirai's brutal assault at the
hands of the police. Tsvangirai's wounds were paraded on television stations
worldwide - the veritable victim.

I am not suggesting that Tsvangirai should not be in pain, or indeed
that he is not a victim. What I seek to understand is how the people are
supposed to reconcile this sorry spectacle with the inspiration required of
an indomitable and populist leader?

For his part, Mugabe probably suffers sleepless nights and fierce
headaches. But we have yet to hear about that. In an age in which the art of
image-making is mastered even by teenagers on MySpace, it seems odd that
Tsvangirai has not grasped this.

Or maybe the problem is deeper than that. Tsvangirai has two
audiences, after all. One is outside Zimbabwe, to whom he must look like a
victim. The other is in Zimbabwe, to whom he must at least try to act the
part of irrepressible opposition leader. He is not sure if he's a victim or
a fighter.

There is no language to convey an alternative political project. With
a trade-union background, one would have expected Tsvangirai's Movement for
Democratic Change to speak a language that inspires the common people.
Instead he has flirted with neo-liberal policies.

The opposition does not know whether they are free marketeers or a
grassroots movement. Lacking the right words to spell this out clearly,
Mugabe has been able to pose as a people's leader, monopolising the idiom of
the left - with all its leftist language.

This may explain why Tsvangirai, given a chance to script a new plot
for Zimbabwe's future, is still holding his pen in mid-air. A better story
lies somewhere inside his head, but he does not have the language for the
task. Staring at a blank sheet of paper in front of him, Tsvangirai must
confront the first question of characterisation: is his protagonist hero or
victim? - Kubatana.net

* Brian Chikwava is a Zimbabwean writer and winner of the 2004 Caine
Prize for African Writing.

Nigeria's best from a bad job

Zim Independent


By Dele Olojede

THE new president must first curb the newly ascendant members of the
thieving classes, who must surely have thoughts of dictating the direction
of things.

The paradox of Nigeria's recently concluded elections is that the
country got the right man from the wrong process. The man who emerged from
the shambolic elections as the new president-elect, Umaru Yar'Adua, is by
most accounts a decent man with a reputation - unusual in a Nigerian
politician - for honesty, modesty, and an almost ascetic lack of
self-interest.

Of the three major candidates - the others were outgoing President
Olusegun Obasanjo's estranged deputy, Atiku Abubakar, who always seemed to
carry more than a whiff of scandal about him, and a mean-spirited former
military dictator, the retired general Muhammadu Buhari - Yar'Adua was
widely seen as the best of the lot, and also the most likely to win.

Which is why, in presiding over the worst elections ever conducted in
Nigeria, one marked by a combination of rigging and incompetence, Obasanjo
has done Yar'Adua no favours. The new president, scheduled to assume office
on May 29, now has a more difficult challenge. He will first have to
persuade the public of his legitimacy before he can gain enough political
authority to embark on the urgent task of national renewal.

The mild-mannered Yar'Adua takes over from the mercurial Obasanjo, a
retired general and former military ruler. In this, his second incarnation
as an elected leader for the past eight years, Obasanjo racked up an array
of major achievements scarcely matched by any previous Nigerian leader.

He inherited a country from which millions of its best and brightest
had fled. The economy was basically dead. Bloodthirsty General Sani Abacha
had been simply carting away dollar bills from the treasury when not
casually ordering the assassination of political opponents, including their
wives and relatives.

Obasanjo, having wasted his first four-year term, set about reforming
the system with a zeal.

He brought together a group of young and idealistic people in his
economic team and they hacked through the jungle of regulations and
bottlenecks to growth.

They pulled the government back from large sections of the economy -
in banking, telecommunications, solid minerals - and helped unleash the
great entrepreneurial drive for which Nigerians are famous.

They got the country out of a US$35-billion external debt and are
leaving foreign reserves of about $50 billion for the next government.

Nigeria went from 400 000 telephone lines to around 40 million in six
years. The agriculture sector, which employs more Nigerians, has been
growing around 12% a year and the overall economy is expanding at around 7%.

They instituted financial controls, introduced transparency in
procurement and kept a tight leash on spending.

Above all, Obasanjo helped create an anti-corruption agency which, for
the first time, began to call to account the most powerful members of
Nigeria's rapacious political elite. So effective was the campaign by the
Economic and Financial Crimes Commission, led by a committed lawyer, Nuhu
Ribadu, that a saying soon gained currency in Nigeria: "The fear of Nuhu is
the beginning of wisdom."

Obasanjo's dedicated band of reformers, in which, by the way, women
were well represented, began to clear the path for a new Nigeria to emerge
from the dark ages of congenital misrule. But a funny thing happened on the
way to the promised land.

Around 18 months ago, Obasanjo allowed himself to be seduced by the
number of sycophants who tend to hang around the powerful. Without ever
publicly admitting to harbouring such ambitions, he allowed his minions to
conduct a destructive campaign to secure him a third term in office, though
the constitution allows for only two. Fanning out across the capital Lagos,
with sacks of cash to bribe senators and members of the House of
Representatives, Obasanjo's "amen corner" worked to change the constitution
to favour a 70-year-old man's desire to remain in power.

To improve his chances of success, Obasanjo, of necessity, got into
bed with many odious characters whom he had previously condemned in public
as the epitome of corruption. As his desire to hang on to power increased,
so did the importance of the worst elements of the political class.

To the eternal credit of the National Assembly - whose members
previously had given no indication of a capacity for resisting cold cash -
the move to amend the constitution was defeated. To his credit, though he
could have so attempted, Obasanjo refrained from seeking extra-legal means
to perpetuate himself in power.

This was one of the best illustrations of the mercurial nature of
Nigeria's outgoing president: he was willing to be tempted to hang onto
office, but he was, in the end, unwilling to break the law to do it. Of
course, by this time - April last year - it was too late. The government had
largely shifted its energy from governing to full-time politics.

The corrupt politicians - mostly governors, and especially governors
from the oil-rich and poverty-stricken Niger Delta - who had been in
retreat, roared right back to the forefront of politics, and Obasanjo could
no longer plausibly sepa