Ruling on RBZ triggers confusion

via Ruling on RBZ triggers confusion | The Herald September 11, 2015

A recent High Court ruling insulating the Reserve Bank of Zimbabwe (RBZ) from property attachment lawsuits will likely leave many potential capital equipment lenders, or any other lender, on tenterhooks. Last week, Justice Tendai Uchena stopped Farmtec Spares and Implements from attaching roughly 4 hectares of RBZ land over a seven-year-old $2,1 million debt, and instead, ordering the lender to pay the cost of the suit.

Justice Uchena argued the Reserve Bank’s assets belong to Zimbabwe, and Zimbabwe cannot attach her own property, protected under law. Now, at a time the country is desperate to rebuild investor confidence, the ruling gives the disconcerting impression of an untouchable central bank, one that cannot be held to account by its creditors, even through court processes.

It can borrow, default with impunity, and get away with it, banking on special judicial protection, experts say. In short, the RBZ is not credit worthy. “This is politics, not business,” opined Allen Sedze, an IT expert from Harare, who has also studied economics.

“All liabilities should be recoverable somewhere, somehow. If the RBZ’s property cannot be attached, you should have the option to convert the debt into bonds. “If no option is left to recover (the money) that actually becomes a matter for the international courts.” Justice Uchena did not go as far as to suggest the Reserve Bank should never repay what it owes. He implored meekness, hoping in “good faith” the Government’s banker will settle its dues when it is in a position to do so, whenever that will be.

However, by agreeing to deliver 60 tractors (forming the core of the $2,1 million debt) to the RBZ at zero deposit during Zimbabwe’s toughest economic year on record, 2008, Farmtec Spares and Implements acted in good business faith. For the honourable Judge to suggest the lender should continue to exercise patience in a 7-year-old debt, that is, by any measure, stretching the good faith principle too far.

Clearly, the effect of the High Court ruling will be felt beyond Farmtec Spares and Implements. Those owed by the Reserve Bank, well, not anymore, as that became public debt after Government earlier this year took over the central bank’s $1,3 billion debt, will never have their day in court. Even if they did, there was no telling such processes would yield an outcome favourable to the plaintiff.

The ruling could see companies that supplied $200 million-worth of farming equipment to the RBZ on credit in an ambitious scheme to mechanise agriculture between 2007 and 2008 writing off the debts. And, all this happening in a market starved of capital and where industry is operating at just 36 percent of capacity, according to the Confederation of Zimbabwe Industries. Meikles Ltd has struggled to receive payment from the Reserve Bank over a $90 million debt dating back to 1998.

It is only last year that the central bank issued the hotel group with $50 million Treasury bills-worth, but that was not enough for Meikles Ltd to avert a $34,5 million net loss during the year to March 2015. The group reported a profit $37,2 million the previous year. The world over, most central banks tend to be independent of their governments, giving the impression of efficiency and competitiveness synonymous with the private sector. Justice Muchena’s ruling, however, indicates just how much of an influence local authorities still hold over the RBZ, experts say. “There are three ways to look at the ruling,” said economist, Chris Chenga, by telephone.

“The first one is about credit worthiness. The evidence has shown there is some reason to be sceptical about the RBZ’s credit worthiness. “Secondly, in terms of conflict or legal resolution, the court ruling gives the perception that legislation is not in favour of the lender. “Thirdly, if we are taking this from a regional or global context, most central banks operate independently from government. The RBZ does not. That means the RBZ is not as competitive as other banks operating independently.”

Given how the RBZ has been indicted by both citizens and Parliament over its huge debt overhang, it should come as no surprise that there is lingering uncertainty about the potential impact of the court ruling on future lending to the apex bank. A certain amount of scepticism is even less surprising when so much of the equipment from the RBZ scheme benefited mostly powerful politicians who could not be tracked or held accountable for abusing material acquired from public funds.

Court decisions by nature set precedent. The one set in the Farmtec Spares and Implements is that future litigations against the RBZ seeking to attach any of its properties over outstanding debt will come to naught. A governor appointed by the President is responsible for the day-to-day operations of the Reserve Bank of Zimbabwe. At any time, the governor is assisted by two deputy governors while a board of directors, representing key economic sectors, is also in place.

Generally, the RBZ should answer to the national constitution.