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- may peace, truth and justice prevail.

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ZIMBABWE: Book fair suffers impact of economic crisis

[This report does not necessarily reflect the views of the United Nations]

HARARE, 4 August (IRIN) - The annual Zimbabwe International Book Fair
(ZIBF) was this year described as a "non-event" by the publishing
industry, acknowledging that books had become a luxury for Zimbabweans
struggling to make ends meet.

"Libraries and books are among the casualties of the economic challenges
facing our country today," said ZIBF director Samuel Matasangaise.
"Individuals have to make a hard choice between spending their bearer
cheque [Zimbabwe currency] on the latest book by their favourite author,
or a child textbook, and using scarce money to replenish their dwindling
food basket."

The public and major authors were absent from this key annual event in the
publishing industry, which opened on Tuesday under the theme 'Voices:
Dialogue Across Nations'. "People cannot come here on empty stomachs, so
the bottom line is that people want to have food first before reading a
book," noted poet Freedom Mubaya.

"There is nothing to talk about for this year's book fair, it's a
non-event," said the marketing manager of a well-known publishing house.

With an inflation rate of around 400 percent, ordinary households are
unable to afford basic commodities. IRIN reported last month that the
capital, Harare, had seen a rising number of kwashiorkor cases. The
symptoms of kwashiorkor, caused by inadequate protein consumption, include
a bloated stomach and spindly arms and legs, and can result in death if
not treated.

The International Monetary Fund calculated that Zimbabwe's GDP had fallen
by 30 percent over the last five years and expected another 4 to 5 percent
decline this year. "Unemployment is very high and increasing; social
indicators, which were once among the best in Africa, have worsened, and
the widespread HIV/AIDS pandemic remains largely unchecked," the Fund

The UN's Food and Agricultural Organisation has predicted yet another poor
harvest for Zimbabwe this season, the third in a row.


Tel: +27 11 880-4633
Fax: +27 11 447-5472
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Voice of America
Journalist Deported from Zimbabwe Wins Top International Reporting Honors
Barbara Schoetzau
New York
04 Aug 2004, 19:39 UTC
Listen to Barbara Schoetzau's report (RealAudio)
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Columbia University's School of Journalism has awarded its top prize in international reporting to Andrew Meldrum, the freelance reporter kicked out of Zimbabwe for his reports on brutalities and crackdowns by the Mugabe regime.

The prestigious journalism school is honoring Mr. Meldrum with its Kurt Schork Award in International Journalism. The awards committee says it is recognizing Andrew Meldrum's "remarkable courage, commitment and lucidity" in more than 20 years of reporting on the brutality of the Mugabe regime and the suffering of the Zimbabwean people. The director of the school's international program, Josh Friedman, is a member of the award committee.

"Andrew Meldrum was honored for a body of work that was compiled over a number of years that he lived in Zimbabwe,” Mr. Friedman said. “He often ran into tremendous opposition from the government and overcame it up to the point where he got kicked out."

Mr. Meldrum, an American citizen who graduated from Columbia's Journalism School, spent more than two decades in Zimbabwe, mostly working as a freelance reporter for the British newspaper, The Guardian. He was expelled in 2002 immediately after a court acquitted him of charges of publishing falsehoods in what was widely viewed as a test case for media in Zimbabwe.

A second award, honoring local reporting in nations in transition, was given to Romanian investigative reporter Liviu Avram for his ongoing expose of a Cabinet minister who diverted European Union funds to her family and front companies. Josh Friedman says the award to Mr. Avram recognizes the determination reporters need in nations that do not have traditions of tolerance for investigative journalism.

"This guy is intrepid. He is incredible. He is a traditional muckraking investigator. He was burrowing in and they could not stop him and he exposed this situation," Mr. Friedman said.

The winners will each receive $5000. The awards were established to honor freelance journalist Kurt Schork, who was killed in a military ambush while on assignment for the Reuters news agency in 2000 in Sierra Leone.

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Organisation to Set Up Eye Bank


EYES for Africa seeks to establish the country's first ever cornea bank in a bid to restore sight to thousands of people throughout the country.

The organisation is hoping to get people to donate their corneas, the lens on the eye, after death. This is common practice in many other countries of the world.

Although the whole eye would be removed from the dead body, it is only the cornea that can be transplanted.

According to Ms Anne Hamilton King, a Rotarian who, over the weekend held a fund-raising event for Eyes for Africa at Borrowdale Country Manor, there were thousands of people who needed cornea transplants in the country.

Research had shown that many people throughout the world were blind because of problems affecting the cornea.

Though good vision could be regained through corneal transplantation, the rate of eye donations could not meet the demand.

Hence the appeal for cornea donations, which, said Ms King, would only be taken after a person's death.

The pledge to donate one's eyes, she said, would be fulfiled by their kin after their death.

According to the eye bank donor pledge form, artificial or plastic eyes would be inserted into the socket to replace the eyes before the eyelids are stitched together to restore the normal appearance of the face.

The identity of both the recipient and the donor would be kept a secret and there is no payment for the eye or the cornea even though the recipient may pay for the operation.

To donate one's eyes in the event of their death, one has to fill in a pledge form, after consulting their family.

Ms King said the donor had to get the approval of the family, as these were the people who would make it possible for the eye bank to get the eyes on the death of the donor.

For the eyes to be useful, she said, they had to be removed no more than six hours after death.

They would then be tested for HIV and any other diseases before being put to use.

If successful, she said, the move could result in many people who were otherwise resigned to lose their sight, being able to see.

Ms King said her organisation was aware of some of the cultural implications of the eye bank, especially in Zimbabwe where a dead body is considered sacred and must not be tampered with. To counter this cultural block, some educational and awareness campaigns were being carried out, she said.

"We want people to know that they can live on through somebody by donating their eyes and that they would be doing someone a great service," she said.


The idea of an eye bank was mooted by renowned eye surgeon Dr Solomon Guramatunhu, who has over the years assisted many people to regain their sight.

So far only one person has donated their eyes.

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Voice of America
Health & Medicine
Study: Survival for Black Cancer Patients in Zimbabwe Among Lowest
Rima Arnaout
Voiced by Bob Doughty

04 Aug 2004, 17:56 UTC
Arnaout report - Download 448K (RealAudio)
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For the first time, an international group of researchers measured cancer survival rates in one city in Sub-Saharan Africa. Survival is disturbingly low, as shown by a study in Harare, Zimbabwe.

The study, published in the International Journal of Cancer, found that cancer patients in Harare are not likely to survive five years after diagnosis. Researchers followed a few thousand people who had been diagnosed with the 15 most common types of cancer, including skin, liver, cervical, and lung cancer.

Survival rates vary among those types, but even in the best case, a patient's chance of being alive after five years is only about 50 percent. The study also shows that black Zimbabweans have even lower survival rates than white Zimbaweans.

Study author Max Parkin of the International Agency for Research on Cancer in France, says this is one of the first studies of cancer survival in Africa. His group has just completed research in Uganda and the Gambia as well, showing similar results to the Zimbabwe cancer study.

Although the types of cancer are different from those in the United States and Europe, Dr. Parkin says cancer is no less a problem in Africa. For example, Zimbabweans have fewer cases of the kinds of cancer that are partly caused by eating fatty foods. At the same time, cervical cancer is more common in Zimbabwe than in the United States, where women are treated before the cancer can develop. A certain kind of skin cancer that accompanies AIDS, called Kaposi sarcoma, is also more widespread.

"So it's not a particularly rare disease; the types of cancer are different," Dr. Parkin said. "It's a neglected problem because there are a lot of other pressing health problems that are there and require urgent attention; AIDS in particular at the moment, maternal and child health, infectious diseases so that cancer sort of tends to get forgotten."

Dr. Parkin suggests a number of possible reasons for low cancer survival rates in Harare and the difference between black and white Zimbabweans. He does not think race itself is an issue, except as it relates to social class. He adds that wealthier people often have better access to cancer treatment, especially in countries where it is not widely available. He also says people do not seek treatment for cancer early enough.

"There's this problem of knowledge about cancer," Dr. Parkin said. "People are quite unaware of the disease so they come at a stage when it's completely untreatable. So probably a lot more can be done about that awareness of the public, trying to persuade people that if you feel something you should go and seek treatment. And then try to make treatment available for those early cases."

Dr. Parkin adds that the AIDS epidemic may also affect cancer survival, because cancer patients who also have AIDS are abnormally weak.

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Online newspaper hopes to break state control

    August 04 2004 at 07:10PM - IOL AFRICA

By Ben Harding

Johannesburg - Zimbabwean journalists who have launched an Internet-based newspaper from South Africa hope to loosen their government's hold on the media before elections in 2005, its editor said on Wednesday.

Abel Mutsakani was briefly the managing editor of the pro-opposition Daily News before it was closed last year under tough new media laws enacted by President Robert Mugabe's government.

He and about 20 other Zimbabwean journalists who worked for the Daily News and other independent publications have combined to launch Zim Online, (, after being barred from working in their home country, he said.

'We are not trying to demonise the government'
"This is a news service primarily to try and give a platform for an alternative voice that has been shut down in Zimbabwe," Mutsakani told Reuters in Johannesburg.

"We are not trying to demonise the government," he said.

An independent watchdog, the Media Institute of Southern Africa (MISA), said on Wednesday that independent journalism had effectively been criminalised in Zimbabwe, where media laws compel journalists to register with a state commission and subject them to tight regulations.

The government says the laws are necessary to instil professionalism in Zimbabwean journalism, and while they have been used to target a handful of independent media outlets they have not been used recently against individual journalists.

MISA regional director Luckson Chipare said more than half of the press freedom violations the watchdog recorded in 11 Southern African countries last year were in Zimbabwe.

Laws compel journalists to register with a state commission
MISA said reporters who criticise the government may still see applications to work turned down and then fail to find work in the dwindling independent media.

"The legal framework ensures that within the independent media, self-censorship has taken control," said Pamela Dube, a journalist from Botswana who visited Zimbabwe recently as part of a MISA team.

Mugabe, in power since independence from Britain in 1980, says private media have spearheaded a Western propaganda campaign against his government over its seizure of white-owned farms for redistribution to landless blacks.

Mutsakani said Zim Online, which is currently funded by donations, aimed to keep independent Zimbabwean journalism alive until the country's political and economic crisis was over.

"We are looking into the post-Mugabe era. This guy Mugabe goes, and we have nothing (no independent news)," said Mutsakani. "We are online at the moment but if things change and conditions allow, it will be a newspaper published in Zimbabwe."

He said that despite not having advertised, Zim Online had received 300 000 hits in its first three weeks of operation, many from people inside Zimbabwe who printed off stories and circulated them to friends and colleagues.

  • This article was originally published on August 04, 2004
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Zimbabwe seizes farm tools bound for Zambia

    August 04 2004 at 08:11PM

Harare - Zimbabwe police have arrested five men for attempting to smuggle farm equipment to Zambia, where many evicted white Zimbabwean farmers have settled, a police spokesperson said on Wednesday.

Zimbabwe law allows authorities to confiscate agricultural equipment left behind on commercial farms seized from whites, although President Robert Mugabe's government has accused some farmers of vandalising the machinery in retaliation.

Assistant Commissioner Wayne Bvudzijena said in a statement police had intercepted a consignment of farm equipment en route to Zambia from the southwestern city of Bulawayo. He said a white farmer was implicated in the crime.

Critics say Mugabe's redistribution of land from white commercial farmers to landless black has disrupted agriculture and led to the food shortages which have affected millions of Zimbabweans since 2001.

The government blames the crisis on drought.

  • This article was originally published on August 04, 2004
Reuters - IOL AFRICA
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IOL Africa - Reuters
What now for alleged mercenaries?

    August 04 2004 at 05:01PM

Johannesburg - A group of South Africans held in Zimbabwe on suspicion of plotting a coup in Equatorial Guinea lost a bid on Wednesday to force their government to seek their return home, where they hope they will get a fairer trial.

Lawyers for the 69 men say Zimbabwe plans to extradite their clients to Equatorial Guinea once their trial in Harare is completed - a move they fear could put them at risk of the death penalty, which South Africa has banned.

South Africa's Constitutional Court ruled that Pretoria had no legal obligation to seek the men's return to South Africa, rejecting defence arguments it should force the government to step in to help.

Defence attorney Francois Joubert said he would study the ruling before deciding on further steps.

"We plan to continue doing everything we can to protect our clients' interests," he said.

The men were arrested when their plane landed in Harare in March. A further 15 men, including eight South Africans, have been detained in Equatorial Guinea in connection with the same alleged plot.

They deny the charges and say they were en route to the Democratic Republic of the Congo to guard mines.

Most of the Harare defendants pleaded guilty and were convicted last week of immigration and arms violations, but other charges are pending.

The Zimbabwe trial will resume on August 18, while the one in Equatorial Guinea is expected to begin later in the month.

  • This article was originally published on August 04, 2004
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State Continues to Exert Tight Fiscal Management



Deputy Business Editor

Government continues to maintain tight fiscal management according the latest figures released by the Reserve Bank of Zimbabwe (RBZ).

As of July 23, it had a surplus cash position of a staggering $652 billion while domestic debt has been sustained in the region of $2 trillion.

This fiscal discipline has contributed immensely to the economic turnaround programme through reducing inflationary pressures and instilling confidence in the economy thereby boosting the revival optimism.

Contributing to the domestic debt figure was the huge Treasury Bill figure of $1,4 trillion while Government stocks have remained constant at around $267 billion in the past two months.

The Treasury Bills figure was largely inflated by the RBZ's open market operations, which were meant to drain the excess liquidity in the market.

The persistent surplus on the market has seen the central bank introducing the compulsory Treasury Bills, which converted any surpluses at the end of the day into the special instruments.

While the Treasury Bill amount might not be of concern, the interest bill that the instruments have attracted might be of worry as they have ballooned to very high levels.

As of July 23, the interest on the Treasury Bills amounted to $1,04 trillion from just over $300 billion at the beginning of July.

The Reserve Bank's tight control of liquidity in the market is a way of containing money supply growth, which was one of the main drivers of inflationary pressures last year.

The government's reduced recourse to the domestic sector for funding leads to a contraction in money supply growth, a development that is fundamental to the anti-inflation course.

Compared to the over 500 percent money supply growth figure in the previous year, the RBZ has set a target of 200 percent money supply growth this year, which will be attainable if the prevailing discipline is enhanced.

The concentrated efforts to wipe up the excess money on the market by the RBZ is expected to stabilise the interest rates regime which ballooned to as high as 700 percent in December 2003 when the sector was hit by a liquidity crunch.

As stated by the central bank governor, Dr Gideon Gono in his monetary policy statement, fiscal discipline is quite critical if the monetary control measures put in place are to bear fruit.

Analysts reckon it is important for the Government to contain its expenditure thereby minimising its borrowings from the domestic sector if the inflation target of 200 percent by December 2004 is to be realised.

Government's inflated borrowing in the past were, to a significant extent, being channelled to finance recurrent expenditure at the expense of capital expenditure.

Borrowing for consumption is not sustainable and merely results in higher levels of debt without creating any income to reimburse the debt. However, on the expenditure side as recently announced by the central bank, from January to last week, the Government maintained an average surplus position of $241 billion on their account at the RBZ.

Although the Ministry of Finance and Economic Development has reported some unbudgeted pressures on the fiscal policy, line ministries managed to keep a sterling record of fiscal rectitude over the first half of the year.

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Thur 5 Aug 2004

HARARE - The fall in standards at the National Railways of Zimbabwe (NRZ) due to serious viability problems resulted in the train crash yesterday, sources told ZimOnline.

Seventy people were injured, some of them seriously, following the collision of two commuter trains from Marimba and Dzivarasekwa, which Deputy Minister of Transport and Communications, Andrew Langa, blamed on 'human error'.

A different picture emerged, however, when ZimOnline spoke to NRZ officials in the traffic control department late yesterday. Speaking on condition of anonymity, the officials said the accident had resulted from the non-functioning of communication systems as well as serious defects on the train wagons.

'The second train, the one which was behind, should have changed lanes as well as gone to park at another station. However, the train driver couldn't make the decision because of failure to get information from the control department due to the breakdown of the system,' one of the officials said.

The two trains were coming from the same direction of western Harare.The one from Dzivarasekwa, which came in second, ran into the other, which had slowed down and was parking at the main station.

It was not possible to talk to either of the two train drivers, who were both injured and taken to hospital. However, the NRZ officials who spoke to ZimOnline said the driver of the second train had complained about defective brakes on the locomotive before going to Dzivarasekwa in the morning.

The accident was a poignant reminder of the crash in Dete in February last year which claimed 40 lives and seriously injured more than 60 people, also as a result of run-down communication systems. ZimOnline
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World Food Programme retrenches workforce in Zimbabwe
Thur 5 Aug 2004

HARARE -The World Food Programme (WFP) has retrenched 140 members of its workforce in Zimbabwe following President Robert Mugabe's insistence that the country has harvested enough to feed itself and will not require outside

ZimOnline has established that out of the 230 workers that the WFP employed in the country, 140 have been retrenched, with the first batch having already left and the last group set to leave at the end of this month. Sources at WFP' Harare office said this week that management had sent a circular stating that retrenchment was inevitable due to the refusal by Mugabe to accept humanitarian assistance.

Richard Lee, WFP's Johannesburg-based Regional Office corporate affairs manager, yesterday confirmed the retrenchment exercise, saying it was necessitated by a drastic reduction in the number of Zimbabweans receiving food aid. 'We have scaled down (the workforce) to 140 from 230. We have scaled down because the number of people we are feeding has gone down from 4 million to just over 600 000.'

There seems to be controversy over what some of the retrenched workers described as 'peanuts' in terms of terminal benefits and exit packages. 'I wouldn't comment on the issue of disgruntlement over the packages. The Harare office will have to speak on that,' said Lee. Makina Walker, the WFP spokesperson in Harare, was said to be on leave yesterday.

WFP still gives 'targeted assistance' to starving Zimbabweans and reports are that the Harare office has been receiving more requests for food aid from across the country. Government, however, is understood to have reminded WFP and other donor agencies that their 'assistance is not required this year and it would be appreciated if they stopped operations'.

Mugabe has repeatedly claimed that the country had a good harvest this year and that donor agencies had to 'look elsewhere for hungrier people'. ZimOnline
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Railway workers not paid on time for months
Thur 5 Aug 2004

BULAWAYO -  With each passing pay day, Themba Ncube  (not his real name) is growing more frustrated with working for the National Railways of Zimbabwe.

An artisan, Ncube complains bitterly of being short-changed by his employer when it comes to payment.  Each month since February this year, the nearly 10 000 workers at the railway company have been receiving their salaries weeks late.

Ncube and his colleagues at the parastatal say they have been reduced to 'professional working beggars' because of the payment delays.

'We are not managing at all even though we are working.  We are struggling. There are things that you have to do whether you have been paid or not. You have to pay rent, water and electricity, otherwise you will find yourself on the streets,' says Ncube.

In order to pay essential bills on time, most NRZ workers have resorted to borrowing from moneylenders at 50 percent interest per month.  In addition, accounts with credit stores have interest added on for late payment.

'By the time I eventually get paid, I have lost out through interest payments yet the employer does not add interest to our salaries for paying us late,' complains Ncube.

By yesterday, workers from grades one to six who include management and artisans were yet to be paid.  They should have been paid last Friday. Workers in grades 7 to 12 who include general workers, messengers, clerks and shunters received their wages last week.

NRZ management attributes the delays to cash flow problems caused by a fall in the volume of traffic moved due to stiff competition from road haulers.

But workers hold a different view. 'Our unions have done investigations and established that the tonnage we are moving is viable. The problem is too much politics in the running of the organisation,' says Ncube.

'Take the freedom trains (introduced in the run-up to the 2002 presidential elections as the cheapest mode of transport available). We are charging commuters $300 a trip yet it costs double the amount to move each passenger.. Management is not allowed to raise tariffs and if they stop moving goods for organisations (also parastatals) such as ZESA, ZISCO and Wankie Colliery for non-payment, government orders them to continue.'

Zimbabwe Railway Artisans Union (RAU)  secretary general Zvavamwe Shambare maintains the cause of the parastatal's financial problems is not an issue for workers. 'They should just pay workers their wages and salaries on the agreed dates. We come to work to get paid.'

Shambare told ZimOnline that leaders of the three unions representing railway workers had resolved not to go on strike to press for prompt payment of salaries as a tactical strategy. He alleges that NRZ management eager to shed excess staff would welcome any opportunity to 'retrench workers by firing them and save on paying retrenchment packages.'

'Therefore, we have been adopting other strategies to force them to pay us on time.  And just imagine how many times we would have gone on strike this year alone, we would have lost credibility as professionals in the eyes of the public.'

Workers are also disgruntled by management's unilateral decision to stop paying a 20 percent cost of living adjustment agreed on at the beginning of the year. Instead, workers are getting eight days of leave each month. These can not be encashed.

'They cannot pay us and instead give us leave days. But we are told we cannot go off because there is a shortage of staff.  So what do they want us to do?' asked a worker who declined to be named.

Some workers are worried about management's recent move to resuscitate pending disciplinary cases, some dating back to the late 1990s. Workers say the net effect of the new wave of disciplinary hearings has been to instil fear among workers so that they do not complain about poor working conditions.

Railway unions believe NRZ is facing unfair competition from railway organisations such as the privately owned Beitbridge Railway Company and Sheltom.  The two companies use NRZ's infrastructure but contribute nothing towards the upkeep of the railway lines and signals.

Some workers fed up with the payment delays are resigning to join private companies or are emigrating to countries such as New Zealand, Australia and South Africa.

Ncube, who has been with parastatal for 12 years, is also contemplating packing his toolbox to go in search of the proverbial greener pastures.

'It's not just the pay.  The other frustrating issue is the lack of resources and materials to work with. Take for example locomotives. We have many locomotives that are broken down that we cannot repair because there are no spares, so we end up cannibalising for parts.  For a professional like me, that is not a conducive working environment,' says Ncube, who has set his eyes on neighbouring South Africa. ZimOnline
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A Quest for a Nominal Anchor

Click here to view copy of document (PDF format)complete with graphs

Arto Kovanen

© 2004 International Monetary Fund WP/04/130

IMF Working Paper

African Department

Zimbabwe: A Quest for a Nominal Anchor

Prepared by Arto Kovanen1

Authorized for distribution by Hugh Bredenkamp

July 2004


This Working Paper should not be reported as representing the views of the IMF.

The views expressed in this Working Paper are those of the author(s) and do not necessarily represent

those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are

published to elicit comments and to further debate.

This study examines the appropriateness of alternative intermediate monetary policy targets

for Zimbabwe in light of the stability of the demand for money and the information content

of financial variables for predicting price level movements. Results of the study indicate that

a well-defined long-run demand relation exists for currency in circulation, but not for other

monetary aggregates. Currency in circulation has strong information content for predicting

future price level movements. The information content of other financial variables, such as

the exchange rate and interest rates, is weaker. Statistical relationships break down of the

outset of high inflation.

JEL Classification Numbers: E31, E41, E61

Keywords: Monetary policy, demand for money, nominal anchors, and inflation

Authors E-Mail Address:

1 The author thanks Vivek Arora, Ashok Bhundia, Rodolphe Blavy, Hugh Bredenkamp,

Paul Cashin, David T. Coe, Louis Erasmus, G. G. Johnson, Jean-Claude Nachega,

Obert Nyawata, Luca Ricci, Doris Ross, Ratna Sahay, and Matthias Vocke for their comments.

He is also grateful to Thomas Walter for editorial assistance. The usual disclaimer applies.

- 2 -

Contents Page

I. Background ....................................................................................................................4

II. Data...............................................................................................................................6

III. Information Content of Financial Variables ..................................................................7

IV. A Quest for a Nominal Anchor......................................................................................9

A. Full-Sample Estimates .......................................................................................11

B. Estimates for the Subperiod 1980: 1–1995: 12 ..................................................13

V. Conclusions..................................................................................................................14


I. Definition of Data Variables..............................................................................................38



1. Summary of Results for Selected Studies of Long Run

Money Demand for Zimbabwe.......................................................................................16


1. Selected Features of Inflation, 1980: 1-2003: 12 ...............................................................17

2. Summary Statistics 1980: 1-2001:12 ..................................................................................18

3. Unit-Root Tests, 1980: 1-2001:12 ......................................................................................19

4. Biviariate Granger-Causality Tests.....................................................................................20

5a. Multivariate Granger-Causality Tests, 1980: 1-2001:12 ..................................................21

5b. Multivariate Granger-Causality Tests, 1980: 1-1995:12 ...................................................21

5c. Multivariate Granger-Causality Tests, 1996: 1-2001:12 ...................................................21

6. Variance Decomposition....................................................................................................22

7. Unrestricted Cointegration Estimates for Currency in Circulation 1980:1–2001:12 ........23

8a. Currency in Circulation: Test for Normality of the Residuals, 1980:1-2001:12 ..............24

8b. Residual Correlation Matrix, 1980:1-2001:12..................................................................25

9. Pairwise Granger Causality/Block Exongeneity Wald Tests, 1980:1-2001:12................26

10. Unrestricted Cointegration Estimates for Currency in Circulation, 1980:1-1995:12 .......27

11a. Currency in Circulation: Test for Normality of the Residuals, 1980:1-1995:12 .............28

11b. Residual Correlation Matrix, 1980:1-1995:12.................................................................29

12. Pairwise Granger Causality/Block Exogeniety Wald Tests, 1980: 1-1995:12................30

- 3 -

Contents Page


1. Consumer Price Inflation, 1980:1-2003:12.........................................................................31

2. Inflation and Output Growth, 1981–2002...........................................................................32

3. Financial Intermediation and Interest Rates, 1980-2002 ....................................................33

4. Treasury Bill and Three-Month Bank Deposit Interest Rates, 1980:1–2003:10 ................34

5. Real GDP and Manufacturing Output, 1975–2002.............................................................35

6. Residuals from VAR, 1980: 1-2001:12 ..............................................................................36

7. Responses of Inflation to Innovation ..................................................................................37

- 4 -


Zimbabwe is in the midst of its worst economic downturn since it achieved independence in

1980. Real output has fallen by one-third since 1999. Unemployment has risen sharply and

has become pervasive and widespread. Social conditions are eroding rapidly, owing to weak

economic policies and mismanagement.2 Public services are stretched to their limits, in part

reflecting the high incidence of HIV/AIDS, resource constraints, and emigration. Economic

hardships have taken a huge toll on the population, with the poor suffering the most.

Consumer price inflation in Zimbabwe has risen steadily during the past two decades

(Table 1 and Figure 1). The volatility of inflation, measured by the standard deviation of

annual inflation, has risen considerably, in particular during 2000-2003 when inflation

accelerated. Movements in the exchange rate have coincided with changes in the price level,

suggesting that the exchange rate adjusted for inflation may have been broadly appropriate in

the past, except for the period 1999 when movements in the official exchange rate have not

kept pace with the rise in inflation.3 Inflation has moved inversely to output growth (Figure


High inflation distorts resource allocation and complicates economic management. Further, it

undermines incentives for productive investment and reduces productivity growth. Research

points out that high inflation exerts a disproportionate effect on the welfare of the poor (see,

for example, Easterly and Fischer, 2001). Large fiscal deficits and foreign exchange market

distortions, which are often causes of inflation, adversely impact real growth (Fischer, 1993).

Because of these adverse effects of high inflation on economic development, macroeconomic

policies are best geared toward maintaining low inflation. Across the world, as a result of

policies aimed at lowering inflation, inflation has displayed a declining trend since the mid-

1990s, for both developing and industrial countries. Among African countries, annual

average inflation has fallen to about 10 percent in 2003.4

The authorities in Zimbabwe have experimented with several monetary policy frameworks to

contain inflation, including exchange rate and monetary-based anchors, but these attempts

did not achieve credibility owing to fiscal dominance. For example, the government granted

2 Zimbabwe experienced severe droughts in 2001-2003, which added to the economic

problems and required large-scale food imports by the government and donors to supplement

the local crops.

3 However, the instantaneous correlation between the official exchange rate and prices is

rather low, about 33 percent in the full sample. Furthermore, comovements in the exchange

rate and the price level should not be interpreted as suggesting causality between these


4 Table 8, IMF World Economic Outlook, September 2003.

- 5 -

large pension increases for war veterans in 1997 that were unbudgeted, thereby contributing

an important way to the exchange crisis that followed. In 1999, the authorities fixed the

official exchange rate. Because official reserves were low and the exchange rate policy was

not supported by other macroeconomic policies, particularly fiscal policy, it failed to provide

a credible nominal anchor for the economy. As a result, the real exchange rate appreciated

rapidly and a significant parallel exchange market emerged. Foreign exchange shortages in

the official market forced the authorities to devalue the official exchange rate in August

2001, with an announced policy of adjusting the exchange rate in line with actual inflation.

However, after a few months, the authorities abandoned the crawling–peg exchange rate

regime and kept the exchange rate unchanged until February 2003, when the exchange rate

was devalued for most external transactions. In the meantime, the parallel market exchange

rate depreciated rapidly.

Financial markets in Zimbabwe have undergone significant changes during the past two

decades, particularly following the financial liberalization of the early 1990s, which

increased financial intermediation, as evidenced by the rise in the ratio of bank deposits to

currency (Figure 3). An important factor behind financial deepening was the liberalization of

bank interest rates in the early 1990s, which increased the attractiveness of interest-bearing

deposits by providing positive real return.5 However, the failure to contain fiscal deficits after

that led to an explosion of fiscal financing needs in the late 1990s, which were met, to a large

extent, from domestic sources. This crowded out private sector credit and resulted in high

real interest rates, while investors shifted away from bank deposits-to-treasury bills as the

spread between deposit rates and treasury bill yields widened (Figure 4). In response to high

nominal and real treasury bill rates, the government restructured its domestic public debt in

January 2001, which led to a collapse of interest rates. Real interest rates became highly

negative and demand for currency and foreign exchange increased, which contributed to

inflation. In these circumstances, monetary policy became powerless to offset increases in

inflation pressures, and the Reserve Bank of Zimbabwe had no policy autonomy in setting

interest rates.6

Research on inflation and its determinants in Zimbabwe has been limited. Odedokun (1997),

using pooled annual data for 32 sub-Saharan African countries, including Zimbabwe, finds

that currency depreciation in the official and parallel markets, monetary growth, and foreign

inflation have had significant impacts on domestic inflation. Jenkins (1999) and Nyawata

(2001) examine the demand for money in Zimbabwe using quarterly data and establish longrun

relations between money and the price level for currency, bank deposits, and narrow and

5 The number of financial institutions also grew as indigenous players entered the financial


6 See the discussion about the relationship between fiscal deficits and inflation in

International Monetary Fund, World Economic Outlook, May 2002.

- 6 -

broad moneys (see Box 1).7 The existence of this type of relationship is essential for a

successful money-based stabilization.

This study builds on the earlier research. It examines the dynamics of inflation in Zimbabwe

and its determinants, as well as its implications for the conduct of monetary policy. The study

uses a broad set of econometric techniques to analyze the monetary transmission process in

Zimbabwe. Monthly data spanning 22 years is utilized. The paper is structured as follows.

Section II discusses data issues. Section III analyzes the causal relationship between the

price level and financial market variables using bi- and multivariate Granger-causality tests.

(Variables are explained in the appendix.) In this section, a vector-autoregressive (VAR)

model is estimated that will explain to what extent fluctuations in the price level can be

explained by its own variance and to what extent they are caused by the variance of other

variables. Section IV moves the discussion to the long-run relationship between the price

level and financial variables. In order to consider the anchor role of financial variables, one

needs to establish whether there is a well-identified relationship between the variables

included in the analysis. The presence of cointegration between the price and financial

variables would suggest that a monetary variable is “anchoring” price expectations. This

study estimates long-run money-demand relations for currency in circulation and reserve,

narrow, and broad money aggregates. Section V concludes and discusses the implications of

the results for monetary policy implementation in Zimbabwe.


The empirical analysis is based on monthly data for the period 1980:1-2001:12, including the

early years of the most recent economic downturn. In view of the data limitations regarding,

in particular, real GDP, which is available annually, monthly GDP data has been generated

by utilizing the seasonal pattern of the monthly manufacturing data. Although manufacturing

output only represents about 20-25 percent of total output in Zimbabwe, it correlates highly

with real GDP at the annual level and therefore appears appropriate (Figure 5).8 We use four

different definitions of money: currency in circulation, reserve, narrow, and broad money

aggregates, and two interest rates (3-month treasury bill rate and 3-month time deposit

interest rate). The latter performs better in econometric tests but the two move closely (see

Figure 4).

7 Jenkins (1999) offers a well-written and detailed analysis of the financial developments in

Zimbabwe from 1976 until 1996 and discusses the use of various variables in estimating the

money demand function for Zimbabwe.

8 The correlation between the annual growth rates of manufacturing and real GDP is 0.77. In

addition, manufacturing production is to a large extent dependent on agricultural production,

a key economic sector in Zimbabwe, as about two-thirds of manufacturing uses agricultural

products as inputs. Jenkins (1999) uses agricultural output as a proxy for quarterly real GPD

while Nyawata (2001) uses manufacturing output.

- 7 -

The period-average official exchange rate against the U.S. dollar is used as a proxy for the

expected returns on foreign currency, in the absence of a continuous time series for the

parallel market rate. This variable was also adopted by Jenkins (1999), who notes that

“illegal transactions in the foreign currency markets by wealthier Zimbabweans have tended

to occur at the official exchange rate through the current account rather than at the parallel

market rate (see page 406 of Jenkins, 1999).” All time series have been seasonally adjusted

except interest and exchange rates, which do not exhibit seasonal patterns. Summary

statistics are provided in Table 2.9


We begin by examining the significance of each financial variable for determining the price

level using bi- and multivariate Granger causality tests. The approach adopted here follows

Bernanke and Blinder (1990). The marginal significance levels of bivariate causality tests

for the full sample and for two subsamples are reported in Table 4. The results suggest that

currency in circulation is a significant predictor of the price level whereas other financial

variables are generally not. Real GDP Granger-causes changes in the price level in the full

sample, pointing to the importance of possible supply-side explanations for price level

movements. During the period 1996:1–2001:12, the causality of output reverses itself,

suggesting that high inflation has adversely affected output growth. Reserve money Granger

causes price level movements in the period 1980:1–1995:12.

Bivariate causality from the price level to financial variables and interest rates is also shown

in the data, and is quite significant. This is counterintuitive, as one would expect changes in

financial variables to lead changes in the price level. The lack of a statistically significant

causal relationship between the exchange rate and price level is worth emphasizing, in light

of the relatively close movements of these two variables during the sample period (Table 1).

The importance of the exchange rate variable is also supported by Odedokun (1997).

For the purpose of examining the causality between financial variables and the price level

and, in particular, to shed further light in the relationship between the official exchange rate

and the price level, we use multivariate Granger causality tests for three sample periods

(Tables 5a, b, and c). In the full sample, the official exchange rate Granger causes

movements in the price level when accompanied by other financial variables. One way to

explain this is to argue that exchange rate movements impact the price level more through

changes in other variables. For example, depreciation might be accommodated by a

loosening of monetary policy, which then causes inflation to rise. The causal relation is

statistically insignificant in the subsamples. Other results are broadly similar to the results

9 Stationarity of economic time series is tested using the augmented Dickey-Fuller (ADF)

and Phillips-Perron (PP) tests. Table 3 reports the test statistics with and without a trend.

Based on the results, all variables exhibit stationarity in first-difference form and are

integrated of order one (i.e., I(1)). Critical values are based on MacKinnon (1991).

- 8 -

from bivariate analysis. However, narrow money significantly Granger-causes movements in

the price level for the sample period up to end-1995. The causal correlations seem to break

down during the estimation period starting in 1996:1. We return to this issue in Section IV.

To analyze the monetary transmission mechanism in Zimbabwe further, we estimate a vector

autoregressive model comprising the price level, real GDP, and all financial variables used in

the Granger causality tests to conduct variance decomposition analysis. This type of analysis

can be useful in clarifying what percentage of the variance of the forecasted variable (price

level) can be attributed to its own variance and that of other variables (Table 6). The results

are consistent with the above results from Granger causality tests and indicate that currency

in circulation plays a key role in determining the price level in the full sample.

The analysis for the full sample indicates that a lag, ranging from 6 to 12 months, exists for

the impact from an initial shock to currency in circulation to the price level.10 Furthermore,

the official exchange rate is significant in the vector autoregression, although its impact on

the price level is small. The result also suggests that the pass-through effect from the

exchange rate to the price level reaches its peak at 18 months after the initial shock in the

full sample, at which point the exchange rate explains about 20 percent of the price level

variance. This indicates partial exchange rate pass-through to domestic prices in Zimbabwe.11

During 1980:1 – 1995:12, the variance of reserve money becomes a significant determinant

of price level variance, suggesting a possible role for it as a nominal anchor. Own variance is

more persistent, which may be in part due to the relatively lower variance of inflation in this

period (Table 1). During the high inflation period (1996:1–2001:12), own variance seems to

dominate other sources of variance, except for the variance of deposit interest rate, which is

relatively large. The reason for the dominance of own variance in this period could be due to

high “noise” in price data (i.e., large standard error). Another possibility is that non-market

mechanisms that were introduced by the authorities in recent years, such as widespread use

of price controls and non-market clearing interest and exchange rates, and the rapid growth

of informal activities, have weakened the relevance of official statistics to measure economic


These results, in particular the apparent failure to obtain a significant monetary impact on the

price level other than for currency in circulation, except for the earlier subperiod, are worth

pointing out, given that other studies find a strong relationship between broad money and the

price level. This could be due to the liberalization of Zimbabwe’s financial markets in the

10 The results are robust for alternative ordering of the variables. The roots of the polynomial

are within the unit circle and hence the system is considered stable.

11 Choudhri and Hakura (2001) report a greater long-term pass-through effect for Zimbabwe,

about 35 percent, based on single-equation difference equation specification, which is close

to the average for medium-inflation countries.

- 9 -

early 1990s, which could have caused instability in monetary aggregates, similar to the

experience of other developing countries (see Cottarelli and Giannini, 1997). As a result,

money demand relations could have changed, eroding the usefulness of historical relations

for monetary policy implementation.

While financial markets in Zimbabwe are somewhat developed and some financial deepening

has taken place in the country, these developments are relatively recent (Gelbard and Leite,

1999).12 However, the demand for cash may be less affected by financial liberalization than

the demand for other monetary aggregates since the demand for currency is associated with

transaction demand, which is relatively stable relative to GDP. Changes in monetary policy,

including in reserve requirement ratios, are also likely to have an impact on money demand.13

Furthermore, the volatility of broader monetary aggregates reflects measurement problems,

for example arising from changes in the definition of the aggregates and changes in

Zimbabwe’s exchange controls (in particular, foreign currency deposits, which are part of

broad money, have been subject to exchange control changes). Finally, interest rates have

been negative in real terms, particularly before their liberalization in the early 1990s, thus

making them less important for portfolio decisions.

Because of the lags involved in implementing monetary policy, an important consideration

in choosing an operating target is the extent to which this target behaves as a leading

indicator of inflation, which is the ultimate objective of monetary policy. We have provided

evidence to suggest that currency in circulation is a more consistent predictor of future price

movements than any other financial variable. However, the rapid acceleration of inflation in

recent years has weakened this relationship. To examine further the role of monetary

variables in determining the price level, we analyze whether a well-defined money demand

function exists that can provide a basis for monetary policy to influence the price level.


Is there a monetary variable that could serve as a nominal anchor, or can the exchange rate

play that role? For this to be the case, two elements are needed. First, there needs to exist a

well-defined long-term relationship between the price level and an anchor variable. Second,

monetary policy needs to be credible and supported by other policies (fiscal, in particular).

This paper focuses on the first issue.

12 Jenkins (1999) notes that financial repression was probably important for suppressing the

demand for money and facilitating arbitrage, at least prior to financial market liberalization.

13 Since 2001 the Reserve Bank of Zimbabwe has allowed banks to onlend a portion of their

statutory reserve balances, thereby lowering the effective reserve requirements.

- 10 -

Zimbabwe has experimented with exchange rate and monetary anchors in the past, but as we

discussed earlier, these policies failed to provide guidance for price expectations. This is for

the most part because these policies have lacked credibility and were not supported by other

macroeconomic policies, in particular fiscal policy.

Studies by Jenkins (1999) and Nyawata (2001) report a well-identified relationship between

monetary variables and the price level. However, empirical evidence to support an exchange

rate anchor is more elusive. We will identify a money demand relationship using the

Johansen and Juselius cointegration technique (Johansen and Juselius, 1990). This has the

advantage that it is not necessary to specify the causal relations between variables ex ante; an

indication of weak exogeneity can be inferred from the results (Wald tests).

Empirical models typically specify money demand in terms of real balances, implying price

homogeneity, that is, unitary elasticity between the price level and monetary aggregate. This

is because of the econometric problems associated with the use of nominal rather than real

variables as the dependent variable. Furthermore, empirical research suggests that the

demand is for real balances rather than for nominal balances. A generic form of money

demand equation can be written as follows:

M/P = f(y, R), (1)

where the demand for real money balances, M/P, is a function of the chosen scale variable, y

(in this study, we use real GDP), and a vector R of other variables thought to be relevant for

explaining the demand for money (e.g., the rate of return on other assets relative to money),

were M is the money aggregate and P is the price level.14 The “own” interest rate influences

money demand positively because a higher return on money increases incentives to hold this

asset; interest rates on other assets affect money demand negatively through the substitution

channel. Currency depreciation, by increasing the cost of holding local currency, will have a

negative impact on money demand.

High inflation affects money demand adversely because it erodes the real value of money

balances, particularly non-interest bearing. In money demand studies, inflation is often used

as a proxy for the return to real assets. Sriram (2001) stresses that it is important to select the

opportunity cost variables properly, as omitting any variables tends to bias income elasticity

estimates. Jenkins (1999) also includes rationing variables for foreign exchange and credits,

in order to help identify a stable money demand relation for Zimbabwe.

14 Sriram (2001) provides a good survey of recent empirical money demand studies and how

to interpret variables included in the money demand function.

- 11 -

A. Full-Sample Estimates

The cointegration results for currency in circulation are reported in Tables 7 and 8. Year-onyear

changes in the price level and exchange rate performed better than monthly changes of

these variables and are therefore used here. This may be because year-on-year inflation is

less volatile and more likely to be used as a basis for inflation expectations by the public.15

Table 7 presents the relevant Johansen statistics, while the cointegrating vector for currency

demand can be written as follows (including constant term):16

RCUR = 5.533 + 0.9608*RGDP + 0.9373*TDRATE – 1.2477*INFLATION

(0.2114) (0.3058) (0.2949)

– 0.6586*DEPRECIATION – 0.0706*FININNOV (2)

(0.1154) (0.0130)

The estimated long-run elasticity vis-à-vis real GDP is 0.96 and broadly in line with Sriram

(2001) and Jenkins (1999), but higher that Nyawata (2001). The estimated income elasticity

is statistically not different from unity and consistent with the transaction motive for holding

money. The parameter estimate for the three-month deposit interest rate, which is statistically

significant, is positive but contrary to expectations. Interest rates, for the most part, have not

played an important role in allocating financial assets in Zimbabwe, as nominal interest

rates remained virtually unchanged until their liberalization in the beginning of the 1990s

(Figure 4). 17, 18 Interest rates adjusted for inflation have frequently been negative. Furthermore,

real currency holdings of the public generally rose after the end to the financial

repression, which coincided with the rise in nominal interest rates.

Inflation has had a significant direct impact on currency demand. The parameter estimate for

inflation has the expected negative sign, which suggests that the willingness to hold cash

balances is negatively influenced by inflation. It is also evident in the negative parameter

estimate for depreciation that currency substitution has a role to play in money demand.

15 Jenkins (1999) uses the year-on-year rate of currency depreciation as a measure of the

expected return on foreign currency holdings.

16 Estimated standard errors are reported in brackets.

17 See also Jenkins (1999) for a discussion on nominal and real interest rates.

18 Interest rates in Zimbabwe were liberalized only in the early 1990s and formal capital

controls remain in place. However, exchange rate depreciation provides an incentive for

capital flight. As shown below, the interest rate variable is not significant for the sample

ending at end-1995.

- 12 -

Financial innovation is associated with lower demand for currency, as would be expected,

given that it is measured as the ratio of broad money to currency in circulation.

Table 8a rejects the joint-test for normality of the estimated residuals, although skewness is

not a major problem except for FININNOV (Figure 6).19 Non-normality leads to inefficient

but unbiased and consistent estimators.20 The residual correlation matrix shows that all offdiagonal

elements are close to zero (Table 8b).

Pairwise Granger-causality was examined using Wald tests (Table 9).21 The results suggest

that currency demand can be treated as weakly exogenous vis-à-vis inflation. Inflation cannot

be treated as weakly exogenous.22 Wald tests clarify the channels through which exchange

rate changes could impact the domestic economy. This “chain of events” implies that

currency depreciation influences inflation through the interest rate channel, which then

affects the demand for currency. Changes in currency holdings impact inflation through the

demand effect. It therefore offers evidence for the effectiveness of monetary policy to

counter the inflationary effects of depreciation.

Figure 7 illustrates how shocks to currency demand, output, the interest rate, inflation, the

exchange rate, and financial innovation affect inflation (measured by one standard deviation

change in each variable). The results are consistent with the earlier discussion on factors that

contribute to price level movements (Section III). Shocks to interest and exchange rates

impact inflation with a lag, from 6 to 10 months (shorter for the exchange rate variable), and

these effects are statistically significant. Both effects become weaker after about 12 to 14

months. A shock to currency demand, on the other hand, influences inflation with a lag of

about 7 months, and remains significant for the entire sample period. This suggests that

monetary policy aimed at currency demand can be effective in containing inflation. The

“own price” effect is highly significant and persistent. Other variables do not exert significant

influences on inflation.

We do not find well-identified demand functions for reserve, narrow and broad moneys. In

this respect, our results are somewhat different from those of Jenkins (1999) and Nyawata

(2001), which may be due to the use of higher-frequency data in this study and differences in

the specification of variables. Regarding the latter, the variable used to measure the demand

19 All unit roots of the VAR are within the unit circle. Joint test for heteroscedasticity of the

estimated residuals is significant at the 1 percent marginal significance level. However, there

is no significant autocorrelation in the estimated residuals.

20 Kmenta (1986).

21 These tests can be used for inference on weak exogeneity.

22 This should be expected in an economy where the exchange rate is flexible.

- 13 -

for currency in our study is currency in circulation, which comprises currency outside banks,

a concept used by Jenkins, and bank holdings of cash in vault. Currency in circulation is

readily available in the Reserve Bank of Zimbabwe’s balance sheet and, hence, provides a

basis for policy decisions; cash in vault, however, is reported less frequently and is typically

estimated. Other variables in Jenkins’ study, such as proxies for credit and foreign currency

rationing, were unavailable to us.23 Furthermore, the sample period used in this study

includes the recent acceleration in inflation, which is likely to have distorted the structural


Regarding specific results, Jenkins fails to establish a long-run relationship between demand

for currency and inflation (page 406 of Jenkins (1999)). Currency substitution, however, is

significant in both Jenkins’ and Nyawata’s studies. Jenkins fails to identify a cointegrating

relation for bank deposits, citing changes in the classification of bank deposits.

B. Estimates for the Subperiod 1980:1–1995:12

In light of our earlier discussion, there seems to be a strong case to suggest that parameter

estimates may not be constant in time. To account for this possibility, we estimate equation

(1) for currency in circulation covering two separate sample periods. The results for the

period 1980:1 – 1995:12 are reported below, which indicate that the demand for currency

reverts to a standard demand function (Table 10):

RCUR = 5.6952 + 0.9808*RGDP – 0.8328*DEPRECIATION – 0.0912*FININNOV (3)

(0.1642) (0.1534) (0.0135)

where TDRATE and INFLATION drop out since their estimates are not statistically different

from zero. The nonsignificant parameter estimate for the deposit interest rate reenforces the

view that interest rates were not an important factor in the allocation of financial assets prior

to the liberalization of bank interest rates.

The parameter estimates for RGDP, DEPRECIATION, and FININNOV remain more or less

unchanged and highly significant. One possible explanation for the insignificance of the

parameter estimate for INFLATION in this sample is that this variable captures the increase

in inflation volatility over the past few years, which is not a factor in the current estimation.

Tables 11a and b report residual diagnostics tests for VAR. Wald test statistics are provided

in Table 12. Break-point F-tests, based on recursive estimation of the VAR for the period

1996:1-2001:12, indicate that the estimated parameters have not remained constant.24

23 Jenkins uses proxies for foreign currency availability and government domestic borrowing.

24 These tests are performed under the null hypothesis of constant parameter. The test statistic

has an F-distribution, and is highly significant (it is related to the CUSUMSQ statistic).

- 14 -

Regarding period 1996:1–2001:12, we are unable to establish a money demand relation for

any monetary variable. Indeed, the statistical relations break down, which reflects the rapid

rise in inflation and the accompanied distortions in the economy.


This study has analyzed the underlying determinants of prices in Zimbabwe using a wide

range of statistical techniques. The results are robust to alternative specifications. The key

results for the full sample are as follows. First, there is a strong linkage between currency in

circulation and the price level. This suggests that currency in circulation would provide a

good leading indicator of future price movements. Second, cointegration analysis establishes

a well-identified long-run money-demand relation for currency in circulation, suggesting

that this monetary aggregate could be helpful to the Reserve Bank of Zimbabwe as an

intermediate monetary operating target. Third, reserve money, which the Reserve Bank

of Zimbabwe has used as an intermediate policy target, is ineffective in the current highinflation

environment, because the demand for reserve money is not welldefined, while its

information content for predicting future price movements is weak. Fourth, well-defined

money-demand functions for narrow and broad money cannot be establised in the full

sample.25 Sixth, statistical relations seem to break down during the high-inflation period

of the past few years. This raises serious challenges for monetary policy implementation,

particularly regarding the appropriate anchor to facilitate disinflation in the Zimbabwean


It has been argued that the exchange rate could serve as a nominal anchor in Zimbabwe. As

experience has shown, however, pegging the exchange rate has not succeeded in constraining

other—namely, monetary and fiscal policies—I therefore believe it has not been a credible

policy anchor. This may in part explain its low information content for predicting future price

movements. This study’s analysis suggests that exchange rate changes have an impact on

domestic prices through the currency-substitution channel and influence the demand for

currency indirectly through the interest rate channel. The pass-through effect to domestic

prices is only partial, which does not mean that exchange rate changes are insignificant. The

Reserve Bank of Zimbabwe would be well advised, therefore, to counter inflationary effects

arising from exchange rate changes with an appropriately tight monetary policy.

These results need to be interpreted with caution. Although the results appear to be robust for

alternative model specifications and are consistent with other studies in this topic area, the

estimated parameters are shown to be unstable owing to the rapid rise in inflation since the

25 Kochhar (1996) provides an analysis for using alternative definitions of reserve money in

the context of IMF-supported programs.

26 See, for example, Eichengreen and others (1999) for a comprehensive discussion of the use

of various nominal anchors and strategies during disinflation.

- 15 -

late 1990s. It is possible, therefore, that once inflation has been brought down to a relatively

low level, another monetary aggregate, such as reserve money, could become useful for the

conduct of monetary policy. Nontheless, high inflation and the accompanying policies have

undermined the stability of structural relations, for the reasons discussed earlier, and this is

likely to complicate macroeconomic management in the future.

Finally, I wish to emphasize that economic policies are only effective if accompanied by

credible and genuine commitment of the authorities. In the past, the credibility of monetary

policy has been undermined by the lack of support from fiscal policy, as well as the lack of

consistency in policy implementation. Strengthening the Reserve Bank of Zimbabwe’s

independence and clarifying its policy objectives should assist in enhancing its credibility.

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Civil society groups to lobby SADC leaders over new NGO Bill
Wed 4 Aug 2004

HARARE - Zimbabwean civic society and non-governmental organisations will lobby southern African leaders meeting in Mauritius later this month to put pressure on the government to scrap a proposed new law designed to restrict NGO activity in the country.

They resolved to take advantage of the Southern African Development Community (SADC) heads of state meeting to show that the proposed NGO Bill is out of step with democratic principles, said Zimbabwe Crisis Coalition (ZCC) chairman Brian Kagoro. ZCC brings together churches, the labour movement, opposition parties, civic and pro-democracy groups.

"Our argument is specifically that the bill aims to close democratic space at a time when Zimbabwe claims to be moving towards creating a more conducive environment for democracy."

Under the NGO Bill 2004, to be tabled in Parliament when it resumes next week, NGOs will be banned from carrying out political and civic rights education campaigns.

The NGOs, which President Robert Mugabe has accused of being used by his enemies to unseat his government, will also be barred from receiving external funding for their activities. According to human rights activists and analysts, the new law, if enacted, could see pro-democracy NGOs virtually unable to operate in Zimbabwe. ZimOnline

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'Teachers' unions seek government protection
Wed 4 Aug 2004

HARARE - The Zimbabwe Teachers' Association ZIMTA and the Progressive Teachers' Union of Zimbabwe (PTUZ) have called on the government to prevent political violence against teachers in the run-up to the 2005 general election.

"Only the government can protect our members from political violence," ZIMTA secretary general, Denis Sinyolo told ZimOnline. In a separate interview PTUZ secretary general Raymond Majongwe said: "Everything depends on the
government. There is really nothing that we can do to protect our members."

Several teachers in Zimbabwe's rural areas were tortured and murdered before parliamentary and presidential elections in 2000 and 2003 respectively. The suspected perpetrators were ruling ZANU PF party militants who accused teachers in particular of influencing rural voters to back the opposition Movement for Democratic Change (MDC).

Majongwe himself was arrested by police in the eastern border city of Mutare yesterday afternoon for addressing students at Mutare Teachers' College.Speaking to ZimOnline by phone while still in police custody, he said he had been invited by college authorities to address students.

The government's Public Order and Security Act prohibits Zimbabweans from holding meetings without first seeking permission from police, but it allows professionals such as teachers to meet freely for the discussion of professional issues only.

It could not be established by late last night whether Majongwe had been released or was still being held by police. ZimOnline

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Labour Court hands Daily News hefty retrenchment bill
Wed 4 Aug 2004

HARARE ­ Zimbabwe's Labour Court has ordered Associated Newspapers of Zimbabwe (ANZ), publishers of the banned Daily News, to pay 153 former workers five million Zimbabwe dollars each and six months pay for every year served as retrenchment packages.

The five million dollar payouts, the Court said, are meant to cover 'relocation costs'. The bulk of the Harare-based ANZ workers lived in the capital city.

Workers who had been employed for less than a year are to receive two years pay. The company is also ordered to factor in a 960 percent salary increment it had initially awarded workers but later backtracked on.

The ruling, a copy of which is in the posession of ZimOnline, was made last Friday but is still to be made public.

ANZ chief executive officer Sam Sipepa Nkomo said the company was going to appeal against the judgment. "I am happy that the retrenchment has been granted. We will appeal against this ruling. I have never heard about relocation. I only knew it in cases such as when one is relocating to a far away place like Malawi. But in our case, it doesn't apply."

In addition to the huge payouts ANZ, which has been out of production since it was forced to shut down the Daily News last September, was also ordered to cover medical costs of its former workers for one year and to sell company vehicles to all workers who were using them at book value.

Workers'  representatives could not be reached for comment on the matter.

If ANZ loses on appeal and has to pay the huge retrenchment bill, the company may be forced to close down completely and sell off its properties, including its huge printing press, to raise money to pay workers' packages. ZimOnline

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