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ZIMBABWE: Recession slows election results

Photo: Ballot bother - the economy the new culprit Harare, 2 April 2008 (IRIN) - The painful slowness of announcing the results of Zimbabwe's 29 March poll is being condemned internationally as "suspicious", but the accusations do not take account of the debilitating affects of the country's eight-year long recession and its impact on the electoral process.

In past elections, results were announced almost immediately by the Zimbabwe Electoral Commission (ZEC). But this time, the battered economy and the world's highest inflation rate in excess of 100,000 percent, could mean that final results may only be finalised on 11 April, election officials and candidates told IRIN.

"We could have expected more in terms of preparations for such major elections, but the current economic problems naturally constrained the voting process," David Chimhini, candidate for the opposition party, the Movement for Democratic Change (MDC) in the rural province of Manicaland, told IRIN.

Chimhini, who is also the director of Zimbabwe Civic Education Trust (ZIMCET), said: "Worse still, the ruling party hurried the elections in spite of protestations from the opposition that the polls should be postponed to June, all because they thought they wanted to retain power before our crisis got out of hand." The transportation of ballot boxes after voting on Saturday was a real headache. Officials ended up resorting to unreliable transport such as private lorries and tractors that broke down

"There were hardly enough vehicles to ensure smooth voting in the province," said Chimhini, who won his seat. "The transportation of ballot boxes after voting on Saturday was a real headache. Officials ended up resorting to unreliable transport such as private lorries and tractors that broke down.

"To make matters worse, there was little fuel and in one case in my constituency, the lorry that was used because there was no official vehicle ran out of fuel on its way to [ZEC's] command centre, and that meant a big delay in relaying the results," Chimini said.

Shortages of fuel, food and energy have become commonplace, but the election placed extra demands on an economy which has become shadow of its former self.

In the run-up to the polls, fuel shortages became even more acute as supplies were procured by the National Oil Company of Zimbabwe (NOCZIM), a state parastatal, for election purposes.

Ballot shortages

Ballot paper ran short and hasty arrangements had to be made to get more; and even though polling stations were equipped with generators for lighting, there was no fuel to power them. "While candles might have been made available, how far do you go with candles in the windy darkness?," noted Chimini.

Samson Phiri, a school teacher, was deployed as a polling officer to a constituency in the Mhondoro district of Mashonaland West province, about 60km southwest of the capital, Harare. He said they were not provided with sufficient candles to provide light at night.

"We ended up using our own money to buy candles from the nearby shopping centre, but there was a further problem in that the only shop that had them was overwhelmed by demand from other polling stations, and the result was that we carried out our duties under extremely difficult conditions," Phiri told IRIN.

Innocent Makwiramiti, a Harare-based economist, commented: "It is possible that even up to now, some remote areas have not sent in their results. I have heard of ox-drawn carts being used to transport ballot boxes, and one wonders how long it would take to get them to their intended destinations for purposes of verification.

"The fact is that the economic crisis that we are experiencing now, that has made so many people fervently wish for leadership change, has managed to throw its own spanners into the very process that would bring about the much desired change in our fortunes."

He said more problems would be experienced if there was a second round run-off in the presidential poll, required if no candidate received more than 50 percent of the vote, as the "government is too broke to sustain another round of elections".

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ZIMBABWE: Recession hits renal patients

Photo: AMREF Health services have been crippled by the economic recession Bulawayo, 1 October 2007 (IRIN) - Thousands of lives have been put at risk since the only two functioning dialysis machines in Zimbabwe's second city, Bulawayo, broke down three weeks ago.

The dialysis machines were at Mpilo Central hospital, Bulawayo's main referral hospital for more than a million people, including those living in far-flung rural areas in the three southern provinces of Matabeleland North, South and Masvingo.

In the capital, Harare, 10 of the 18 dialysis machines at Parirenyatwa Hospital, the country's largest referral centre, broke down a month ago. Desperate patients now queue for treatment around the clock.

Machines often break down in Zimbabwe, where economic recession and hyperinflation has severely crippled public health services. Zimbabwe is saddled with foreign exchange shortages and the world's highest inflation rate, running at about 6,500 percent.

Jonathan Nyathi, a Bulawayo resident, has been unemployed for the past eight months because of his deteriorating health and will now have to seek treatment in a private hospital, which could cost him up to US$20 for every four-hour treatment. Nyathi's wife, Sibonokuhle, earns only US$10 a month as a teacher. Two of Nyathi's brothers, who work overseas, help him pay for his medical costs.

"My husband needs at least one session a week, and his condition has been deteriorating since he did not get treatment in the last two weeks, as we had no money," said Sibonokuhle, wiping the sweat off his face with a towel. His face, ankles and legs are swollen.

A dialysis machine is used to filter the patient's blood when the kidneys lose their ability to fully perform their main function of filtering excess fluid and waste products from the blood; lowered kidney function can also hamper the body's ability to fight harmful bacteria and viruses.

Government assurances

Zimbabwe's Health Minister, David Parirenyatwa, assured IRIN that the dialysis machines would be repaired soon. "We are working hard as a ministry to ensure that the two machines at Mpilo hospital [in Bulawayo] are repaired - everything is being done to ensure that they are ready for the patients." My husband needs at least one session a week, and his condition has been deteriorating since he did not get treatment in the last two weeks, as we had no money

Lindiwe Mlilo, chief executive officer of Mpilo hospital, told IRIN that the two machines at the hospital have yet to be repaired because they did not have the equipment to identify the problem.

But while renal patients continue to suffer, 54 dialysis machines donated by the Swedish government about three years ago are gathering dust in storage rooms after the government failed to reach an agreement with the donors over servicing the machines.

However, Parirenyatwa said an agreement had been reached and the machines would be installed soon. "The 54 dialysis machines donated by the Swedes will installed, and we expect them to be operational as soon as the Ministry of Finance has given us the guarantee that they will avail funds for their repair in case of breakdowns."

In the meantime, many patients have resorted to consulting traditional healers. "Last month we had no money and I took my husband to a traditional healer, who prescribed some herbs that helped reduce his high blood pressure," said Sibonokuhle.

"But the traditional healer's medicine is not reliable for his kidney condition, but since the hospitals have no machinery and drugs, we have no options left."

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By Gilbert Muponda Last updated: Thu, 12 Nov 2009 14:59:19 GMT ZIMBABWES chart topping inflation reportedly at 24,000 % qualifies the nation as experiencing hyper inflation. Compare that to the next highest inflation of 40% in Burma.

The main cause of hyperinflation is a massive and rapid increase in the amount of money (estimated at 17,000%), which is not supported by growth in the output of goods and services.

This results in an imbalance between the supply and demand for the money (including currency and bank deposits), accompanied by a complete loss of confidence in the money, similar to a bank run.

The enactment of legal tender laws and price controls to prevent discounting the value of paper money relative to gold, silver, hard currency, or commodities, fails to force acceptance of paper money which lacks intrinsic value.

When the entity responsible for printing a currency promotes excessive money printing, with other factors contributing a reinforcing effect, hyperinflation usually continues.

The body responsible for printing the currency cannot physically print paper currency faster than the rate at which it is devaluing, thus neutralising their attempts to stimulate the economy. This is clear with the new $750,000 bearer (or is it burial) cheque. The countrys highest note cannot even buy a loaf of bread. Can you imagine walking into Tesco in the UK and one loaf costing more than 50, or being in Walmart in the USA, and a loaf going for more than US$100? Imagine being in No Frills, in Canada one

loaf going for more than C$100? This is how Zimbabwes currency has been absurdly decimated by inflation.

Zimbabwes hyper-Inflation is a result of the monetary authority irresponsibly borrowing money to pay all its expenses and funding quasi-fiscal activities (which are normally left to Central Government). In Neoliberalism, hyperinflation is considered to be the result of a crisis of confidence. The monetary base of the country flees, producing widespread fear that individuals will not be able to convert local currency to some more transportable form, such as gold or an internationally recognised hard currency.

Zimbabwe Inflation Since 1980

In neo-classical economic theory, hyperinflation is rooted in a deterioration of the monetary base; that is the confidence that there is a store of value which the currency will be able to command later. The perceived risk of holding currency rises dramatically, and sellers demand increasingly high premiums to accept the currency. This in turn leads to a greater fear that the currency will collapse, causing even higher premiums. This is akin to trading cash with no apparent economic activity (read Cash Baron)!

Rates of inflation of several hundred percent per month are often seen. Extreme examples include:

Germany in 1923 when the rate of inflation hit 3.25 106 percent per month (prices double every 49 hours).

Greece during its occupation by German troops (1941-1944) with 8.55 109 percent per month (prices double every 28 hours).

The most severe known incident of inflation was in Hungary after the end of World War II at 4.19 1016 percent per month (prices double every 15 hours).

More recently, Yugoslavia suffered 5 1015 percent inflation per month (prices double every 16 hours) between October 1, 1993 and January 24, 1994. Zimbabwe may be on its path to match if not break some of these records.

A great deal of economic literature concerns the question of what causes inflation and what effect it has. A small amount of inflation is generally viewed as having a positive effect on the economy. One reason for this is that it is difficult to renegotiate some prices, and particularly wages, downwards, so that with generally increasing prices it is easier for relative prices to adjust. Many prices are "sticky downward" and tend to creep upward, so that efforts to attain a zero inflation rate (a constant price level) punish other sectors with falling prices, profits, and employment.

Efforts to attain complete price stability can also lead to deflation, which is generally viewed as a negative because of the downward adjustments in wages and output that are associated with it. More generally, because modest inflation means that the price of any given good is likely to increase over time, there is an inherent advantage to making purchases sooner than later. This effect tends to keep an economy active in the short term by encouraging spending and borrowing, and in the long term by encouraging investments.

High inflation, though, tends to reduce long-term capital formation by hurting the incentive to save, and to effectively reduce long-term spending by making products less affordable. Limited investments will result in shortages of opportunities for corporates which will be forced into speculation. In addition, corporates become less focused on core-business as they try to survive. This can lead to corporate cannibalisation whereby companies essentially trade each others shares without any meaningful investment in plant, equipment, stock or capacity.

Inflation is also viewed as a hidden risk pressure that provides an incentive for those with savings to invest them, rather than have the purchasing power of those savings erode through inflation. In investing, inflation risks often cause investors to take on a more systematic risk, in order to gain returns that will stay ahead of expected inflation. Inflation is also used as an index for cost of living adjustments and as a peg for some bonds. In effect, inflation is the rate at which previous economic transactions are discounted economically.

However, in general, inflation rates above the nominal amounts required to give monetary freedom, and investing incentive, are regarded as negative, particularly because in current economic theory, inflation begets further inflationary expectations. Increasing uncertainty may discourage investment and saving.

Redistribution: Inflation will redistribute income from those on fixed incomes, such as pensioners, and shifts it to those who draw a variable income, for example from wages and profits which may keep pace with inflation -- any senior pensioner still receiving a couple of thousand Zimbabwe dollars being a clear example. Similarly, it will redistribute wealth from those who lend a fixed amount of money to those who borrow. For example, where the government is a net debtor, as is usually the case, inflation will reduce this debt by redistributing money towards the government. Thus inflation is sometimes viewed as similar to a hidden tax. This discourages savings and investment, the actual tax regime becomes impossible to calculate.

International trade: If the rate of inflation is higher than that abroad, a fixed exchange rate will be undermined through a weakening balance of trade, and forex shortage will set in.

Shoe leather costs: Because the value of cash is eroded by inflation, people will tend to hold less cash during times of inflation. This imposes real costs, for example in more frequent trips to the bank. (The term is a humorous reference to the cost of replacing shoe leather worn out when walking to the bank or hours spend trying to access cash). Firms must change their prices more frequently, which imposes costs, for example with restaurants having to reprint menus.

Some economists see moderate inflation as a benefit; some business executives see mild inflation as "greasing the wheels of commerce."

Demand-pull inflation: Inflation caused by increases in aggregate demand due to increased private and government spending, etc.

Cost-push inflation: Presently termed "supply shock inflation," caused by drops in aggregate supply due to increased prices of inputs, for example. Unavailability of forex being a key driver of cost push inflation in Zimbabwe.

Built-in inflation: induced by adaptive expectations, often linked to the "price/wage spiral" because it involves workers trying to keep their wages up with prices and then employers passing higher costs on to consumers as higher prices as part of a "vicious circle." Built-in inflation reflects events in the past, and so might be seen as hangover inflation. All these factors are now at play in Zimbabwe, its now impossible to separate what is causing what.

The Rational Expectations Theory holds that economic actors look rationally into the future when trying to maximise their well-being, and do not respond solely to immediate opportunity costs and pressures.

A core assertion of rational expectations theory is that market participants will seek to head off central-bank decisions by acting in ways that fulfil predictions of higher inflation. This means that central banks must establish their credibility in fighting inflation, or have economic actors make bets that the economy will expand, believing that the central bank will expand the money supply rather than allow a recession. But when you promise to withdraw a high value note only to say I was just joking, that wont do much to build a solid reputation.

There are a number of methods that have been suggested to control inflation. Central banks such as the Reserve Bank of Zimbabwe can affect inflation to a significant extent through setting interest rates and through open market operations (that is, using monetary policy).

In Zimbabwe, however, monetary policy has ceased to be a useful management tool. The inflation is at 24 000 %, the RBZ borrows through treasury bills at 340% then on-lends the money at 25% .This sequence of rates is a disaster. If monetary policy was to be an effective tool, using the above numbers, the RBZ would have to borrow at slightly above 24000%, then on-lend at even higher rate say 24 050%.

High interest rates and slow growth of the money supply are the traditional ways through which central banks fight or prevent inflation, though they have different approaches. For instance, some follow a symmetrical inflation target while others only control inflation when it rises above a target, whether express or implied. Facilities such as Baccossi are highly inflationary. Such facilities subsidise loans and eliminate commercial banking activity since corporates are driven to borrow from such facilities and get a false sense of efficiency.

Wage and price controls have been successful in wartime environments. In general, wage and price controls are regarded as a drastic measure, and only effective when coupled with policies designed to reduce the underlying causes of inflation during the control regime, for example, winning the war (in Zimbabwes case winning the 4th Chimurenga).

The usual economic analysis is that which is under-priced is over-consumed, and that the distortions that occur will force adjustments in supply. For example, if the official price of bread is too low, there will be too little bread at official prices. And your only source of bread becomes the black market. This trend undermines the formal sector as more activity goes underground and the governments ability to raise revenue is reduced.

The removal of zeros only works if accompanied by an influx of forex to support the local currency. This can be in form of foreign aid, foreign direct investment or increased exports.

Temporary controls may complement a recession as a way to fight inflation. That is to say the controls make the recession more efficient as a way to fight inflation (reducing the need to increase unemployment), while the recession prevents the kind of distortions that controls cause when demand is high. However, in general the advice of economists is not to impose price controls but to liberalise prices by assuming that the economy will adjust and abandon unprofitable economic activity.

The lower activity will place fewer demands on whatever commodities were driving inflation, whether labour or resources, and inflation will fall with total economic output. This often produces a severe recession, as productive capacity is reallocated and is thus often very unpopular with the people whose livelihoods are destroyed.

Price controls such as operation dzikisa mutengo, whilst initially very popular, they can ruin a nation dramatically fast.

Gilbert Muponda is a Zimbabwe-born entrepreneur, living in exile. He can be contacted at gilbert@gilbertmuponda.com

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Timeline: Zimbabwe's economic decline Zimbabwe's inflation sets new record

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Last updated: Thu, 12 Nov 2009 14:59:19 GMT ZIMBABWE'S inflation rate accelerated to a new record high of 7,982.1 percent year on year in September from 6,592.8 percent in August, the government's Central Statistical Office (CSO) said on Wednesday.

Following are major events since the economic problems began:

1998 - An economic crisis marked by high interest rates and inflation provokes riots and mass support for the Zimbabwean Congress of Trade Unions headed by Morgan Tsvangirai. The Movement for Democratic Change (MDC) is formed and Tsvangirai is appointed leader the next year.

1999 - World Bank and IMF suspend aid to Zimbabwe over differences with the government on policies.

2000 - Mugabe's government loses referendum on constitutional reforms, and his supporters invade and seize white-owned commercial farms, saying the land was illegally taken by white settlers.

-- Mugabe's ruling ZANU-PF party wins parliamentary polls amid charges of fraud and vote rigging by the opposition.

2001 - Zimbabwe suffers food shortages that government critics blame on farm seizures, but Mugabe blames on drought.

-- Several Western governments quietly withdraw economic aid over rights abuses by the government and Mugabe's land policy.

2002 - Mugabe wins new six-year term in elections. Observers condemn poll as flawed and unfair.

-- Commonwealth suspends Zimbabwe, while EU imposes travel sanctions and freezes assets of Mugabe's associates.

-- Collapse of commercial agriculture and poor weather contribute to serious food shortages. U.N. agencies, Britain and the U.S. help fund food aid.

2004 - The EU renews sanctions against Mugabe.

2005 - Mugabe's party wins parliamentary election.

-- The IMF begins process to expel Zimbabwe from the fund over dues unpaid since 2001.

2006 - Zimbabwe's annual inflation rises above 1,000 percent in April. Redenominated notes are issued in August.

2007 - Ruling ZANU-PF adopts a motion to hold elections in 2008 in March and endorse Mugabe as its presidential candidate.

-- Government institutes price freeze in June, followed two months later by wage freeze.

-- There is a run on shops as goods disappear from shelves. Zimbabwe imports 60,000 tons of wheat to ease bread shortages. The government said it did not meet its annual consumption requirements of between 400,000 and 450,000 tons of wheat.

-- Zimbabwe announces inflation slowed to an annualized 6,592.8 percent in August from 7,634.8 percent in July.

-- Central bank raises its main lending rate to 800 percent from 650 percent on October 1 to fight inflation.

-- The central bank also says it will launch a new currency soon to try to curtail a thriving foreign exchange black-market.

-- Zimbabwe announces on October 17 that inflation has risen to a new record high of 7,982.1 percent year on year in September. - Reuters

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