In Zimbabwe, poor economic policies of the Robert Mugabe regime have led to a situation where hyperinflation now exceeds 7,500%. The cost of a banana is seven times that of a two-room apartment. Retailers do not stock essentials because that would imply selling at half the cost price of merchandise, as mandated by a government diktat. The order also stipulates that manufacturers sell at half their production cost.
Gas stations are dry since the government dictated price for selling gas is highly un-remunerative. Public and private transportation have been hit. The government, however, couldn’t care less. Eighty per cent of the workforce is below the poverty line, and earns less than $46 per month. There is wide-scale unemployment. Agriculture constitutes 60% of the economy; however, farmers are dying of hunger.
There is hardly any investment in public health and primary education, both of which are in an appalling state. This is among the worst AIDS-affected regions of the world. The government interfered to check inflation, but this has resulted in the economy being caught in a vicious cycle of a spiralling hyperinflation.
Zimbabwe’s economic collapse and political bankruptcy is a lesson for nations on how not to run the economy. As of February 2004, Zimbabwe ceased to honour its foreign debt commitments, resulting in its suspension from the International Monetary Fund. This, and the United Nations World Food Programme stopping its food aid due to insufficient donation from the world community, has forced the government into borrowing from local sources.
Prior to Zimbabwe’s independence from Britain in 1980, the white minority rule had exploited the region’s natural wealth of chromite, coal, asbestos, copper, nickel, gold, platinum and iron ore and made the area among the richest in the world. After independence economic mismanagement, wrong political policies and corruption have rendered the region not only the worst in sub-Saharan Africa, but among the poorest in the world.
This region had to suffer the ill effects of apartheid, but Robert Mugabe failed to craft a suitable plan of action to keep the economy on track. As in mismanaged regions elsewhere, government interference in the economy and its policy of appropriating private ownership and nationalization spelt ruin.
Zimbabwe began experiencing severe foreign exchange shortages, exacerbated by the difference between the official rate and the black market rate in 2000. In 2004, a system of auctioning scarce foreign currency for importers was introduced that, temporarily, led to a slight improvement. By mid-2005, though, foreign currency shortage was back. The currency was devalued by the central bank twice, first to 9,000 to a US dollar and then to 17,500 in July 2005. This high rate was half of what the dollar was trading on the black market. On April 1 this year, the parallel market rate was 30,000 to the US dollar.
In recent years, the economic havoc wreaked by mismanagement and corruption, coupled with the chaotic land reform programme and the maintenance of unrealistic price controls, has brought about a steep decline in investor confidence.
Zimbabwe’ economy has been ruined because of regressive and retrograde policies. Consequently, if the economy has to be given a fresh lease of life, the first measure the government will have to take is to restore investor confidence. Domestic investors must be allowed to manufacture and sell at viable costs. Retailers must not be bulldozed into selling at a heavy loss.
A heavy dose of foreign investment needs to be injected in the economy. This can be achieved by fiscal and monetary discipline and an assurance to foreign investors that their investments stand guaranteed for suitable returns through concessions. South Africa, Zimbabwe’s neighbour, is its biggest trading partner, accounting for one-third of its exports and 43% of its imports. It would help Zimbabwe if it works out a monetary union with that country. In fact, many of the country’s economic ills can be overcome if the Zimbabwean dollar is linked to the South African rand.
Apropos “More risk from Pakistan” by V. Anantha Nageswaran, Mint, 24 July, the risk analysis of Pakistan carried out by Nageswaran from a short-term financial perspective is accurate. However, there is reason to disbelieve those who propound the theory of emergence of a theocratic state in Pakistan. Islamabad may have many more madrasas such as the Lal Masjid or a long and thin belt of a hostile Islamic, tribal community along its western border with Afghanistan, but it also has a much wider swathe of non-fundamentalist space comprising Punjab, Sindh and large parts of Balochistan. This is the economic heartland of the state which will largely be untouched by the wave of Islamic fundamentalism that is sweeping Federally Administered Tribal Areas and North West Frontier Province.
Moreover, the Pakistan army, which has been attempting a series of strategies to counter militancy in this area, seems to have realized now that politicization by making peace with tribes in Waziristan has not worked. These are typical options which governments attempt in combating militancy. In India, the government has such strategies in place against the Naga and Kuki militants which have paid rich dividends. Pakistan’s mistake was to adopt these strategies too early.
The Pakistan army will be able to regain control over this area in times to come, for the core roots of fundamentalism are restricted. In no case can these so-called theocrats gain control over the large liberal space of the heartland, Punjab. That the liberals lack voice was tragic a few days back, but gradually things appear to be changing.
Pakistan’s problems may arise from a sudden disconnect with the Army in case liberal forces take full charge. Unfortunately, the Pakistan army has deep institutional roots in governance of the state. Thus, a Pakistani soldier can be found in any and every state body from the cricket control board to the police and the airlines. By suddenly severing the uniform from authority, a vacuum may be created which would certainly be harmful for the economy in the short term. The question is the impact in the long term. Experience has proved that civilian governments have failed to govern beneficially, thereby the repeated fallback on the army.
A better option will be a gradual shift from the present military-bureaucratic dominated state structure to a benign politico-bureaucratic one, with the army fading into the backdrop. Yet, in politics, wishes will never be horses, thus we can well presume political turbulence ahead but not of the type envisaged by many Indian hawks, who seem to be gloating over the discomfiture of the Pakistan state today. India faced the same crisis from 1984-1992 with Punjab and Kashmir on the boil and a large military contingent committed in Sri Lanka. If India could survive, so would Pakistan; for driven to the wall, the core of the nation state has the will to undertake the sacrifices to ensure survival. Moreover, apart from America, which some feel has only peripheral interests in Pakistan’s survival, Beijing is Islamabad’s closest and long- standing ally. It would surely not like a militant Islamic state on its soft underbelly below Xingjiang.
—Rahul K. Bhonsle