guest column :Tim Rainhard
AN all too familiar joke that has been doing the rounds ever since Zimbabwe’s economy hit turbulence is that every citizen of this country has become an economist of sorts. This places the burden of filtering inferior suggestions on the advice-taker.
The Chicago Sun-Times once created an advice column that ran under the pen name Ask Ann Landers which, in one of its instalments, advised thus; “Know when to tune out, if you listen to too much advice you may wind up making other people’s mistakes.”
After reading an odd article in one of the local dailies in which Parliament was advising the Reserve Bank of Zimbabwe (RBZ) to hold foreign currency auctions daily rather than weekly, I was reminded of this column which used to appear in the flagship paper of the Sun-Times Media Group, which has the second largest circulation among Chicago newspapers.
In that article, Parliament advised the RBZ to increase the frequency of auctions to daily after successfully getting it off the ground.
“Lessons can be drawn from Angola, which started with weekly auctions and gradually gravitated to three times a week before increasing to daily auctions,” Parliament was quoted as saying in its 2020 mid-year monetary policy review.
“Effective implementation is key to success. Supply side interventions are now critical to ensure uninterrupted forex (foreign currency) supply. The mistakes of 2004, where the auction system degenerated into an allocation system, should be avoided. Interference with the market mechanism and monetary indiscipline lead to inefficiencies that will cause the total collapse of the auction system as well as failure to defend the local currency.”
The report went on to state that the monetary authorities should worry about stability of the exchange rate and not about the value, before appearing to contradict itself by saying “exchange rate stability will be achieved when economic agents perceive the local currency as a store of value”.
Parliament, which rarely comments on monetary policy, said there is need to decentralise the auction system so that it can be managed by commercial banks, while allowing the gap between the auction rate and parallel rate to close so as to encourage forex liquidation in the formal market.
“….The central bank must ensure that winning bidders on the auction market get their foreign currency on time to squeeze out the parallel market,” opined Parliament, which is often accused of lacking depth and quality expected of an institution that should not only be exercising oversight over the Executive but crafting laws for the country.
But in spite of its shortcomings, the National Assembly could not resist the temptation of giving advice to the monetary authorities; after all every citizen of this country is now an “economist”.
Because Parliament is no ordinary body, its advice cannot be brushed aside. Beyond everything, this is an arm of the State with four main functions, namely making laws (legislation); representation (acting on behalf of citizens); scrutiny (examining the government) and formation of the government itself.
However, even as we encourage the central bank to consider suggestions from the legislative assembly, it must not take them hook, line and sinker because it is the RBZ’s responsibility to oversee the monetary system to achieve low inflation and currency stability, among other functions.
At the same time, Parliament must also avoid unduly influencing the RBZ’s decisions. It is such trespasses that are emboldening those who are behind calls for broad central banking reforms where independence would be of paramount importance for any effective central bank policy.
It is curious that the advice is coming at a time when the foreign currency auction trading system introduced by the RBZ in June this year is being lauded for bringing about exchange rate stability and reining in the pricing madness in our economy.
For all we know, prices – though sticky downwards – are beginning to come down for select product ranges, leaving the consumer with a few more dollars to spend on other products or save.
Against this background, why not give the RBZ time to implement its plans and strategies rather than frogmarching them into dangerous experiments?
The auction system was only introduced in June this year, catering for amounts ranging from US$50 000. In August, a second auction was introduced to take care of smaller amounts above US$20 000, while those below this threshold were to be catered for by bureaux de change and the banks.
Since its introduction, the margin between the parallel and official exchange rates has narrowed and is now in sync with international practice of between zero and 15% premium range.
This shows that the RBZ has made huge strides in curtailing the parallel market, which by the way, can never be eradicated totally, even in most stable economies.
The RBZ must, therefore, be commended for demonstrating high levels of transparency and accountability in conducting the auction and for the bold steps it has taken to achieve exchange rate stability which has seen prices coming down. The monetary authorities must also be applauded for ensuing that money from the auction system is channelled into the productive sectors.
With such stability, it will not be wise to rush the central bank into increasing the frequency of the auction system without first dealing with the administrative challenges which Parliament referred to, none of which are a creation of the central bank.
It would also be folly to start daily auctions when there is no noticeable improvement on the supply side. Currently, to fund the auction system the RBZ is depending on forex from export earnings, the surrender portion from exporters, diaspora remittances and forex from the non-governmental organisations sector.
Instead of barking up the wrong tree, Parliament must go around industries to identify supply constraints and come up with laws and reforms to deal with these bottlenecks so that the country can produce more for export and increase foreign currency earnings.
Parliament can also play a role in ensuring that the elusive social cohesion in the body politic is firmly established by getting the quarrelling political parties to dialogue and find each other in the process.
Parliament must not forget that it also has a role to play in ensuring that the stability on the economic front is buttressed by political stability, which it completely ignored in its analysis of the mid-term monetary policy statement.
Recent revelations by former central bank governor Gideon Gono should have spurred Parliament to push for a committee to ensure the bank’s independence and that governors and their executives are insulated from political pressure. This would then form the basis for long-lasting, proper sound management of the economy.
I am thus urging the august House to focus on more critical issues that outlive them as leaders as opposed to being analysts.
Renowned authors of the book Why Nations Fail James A Robinson and Daniel Acemoglu argue that the main determinants of differences in prosperity across countries are differences in their economic institutions.
Because economic institutions are an outcome of the nature of political institutions, it is the responsibility of the National Assembly to address these issues that have plagued the economy for years.
Parliament through its public committees should, therefore, go beyond harassing public officials when they appear before them and seek to address the root problems. The law allows even Members of Parliament to bring in private members’ Bills into the august House for those who are not government ministers.
History will judge our Parliament and so far they don’t seem to be scoring very well for posterity.