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(HERALD) ‘Practical solution on the way’

‘Practical solution on the way’
Business Editor Victoria Ruzvidzo

OVER the past few weeks Zimbabwe has been facing a severe cash shortage that has seen long queues become a permanent feature in most banking halls. Depositors have not been able to withdraw the $20 million allowable daily and have had to settle for smaller amounts while others have been turned away empty-handed as banks ran out of cash. The Reserve Bank of Zimbabwe is still to launch the second phase of the currency reform whose launch Reserve Bank of Zimbabwe Governor Dr Gideon Gono described as "imminent" three weeks ago. The central bank has also been accused of taking a back seat instead of being in the forefront of resolving the cash crisis. It is against this background that Herald Business Editor Victoria Ruzvidzo sought to establish the facts on the ground from Dr Gono.

Question: Zimbabwe is experiencing a severe cash shortage but the Reserve Bank has been so quiet about it why?

Anser: Firstly, I want to assure you that the Reserve Bank’s observed silence was neither out of spite nor out of lack of appreciation of the intricate strain the general public is under over the cash issue. Rather, from where we sit as the Central Bank, we saw it acutely important to avoid ill-conceived or half-baked strategies that merely scratch on the surface of the underlying problems without addressing the real issues at play. To this end, the past two and half months have seen the Reserve Bank team thoroughly dissecting the cash demand and supply chain so as to appreciate what is really going on.

This comprehensive investigative research has revealed some startling results, which have convinced us that as Zimbabweans, we are fast deteriorating into being our worst enemies through self-destructive malpractices, corruption and indiscipline. And without dealing with these underlying discrepancies, any attempt to jump for the easy and soft options will be more of window-dressing.

I want to also point out that as Governor of the Central Bank, I am deeply sad that among those that are drilling the holes of instability in our economic systems are some who hold very respectable stations in our society. People to whom our upcoming children are supposed to be looking up for inspiration, guidance and protection from the chilly whims of today’s fast-paced global landscape, and yet their heads are buried deep in the shafts of economic destruction.

So yes, the Central Bank has been quiet to this point but this was mainly to allow us to closely introspect and understand the magnitude and texture of what we are dealing with. With utmost confidence, I can now tell the Nation that your Central Bank is fully informed about the core hubs, veins and arteries feeding the muscles of negation at play in our system. In short, we are excited and on top of the situation.

Q: A few weeks ago you said you had adopted a wait-and-see attitude. Has this helped?

A: Yes, when I spoke of the Bank having adopted a "wait-and-see" attitude, it was our first diplomatic tap on the shoulders of those that are flirting with illicit parallel market trading and smuggling activities to realise that their ways cannot be allowed to sway the momentum of efforts meant to stabilise our economy. We sought to also pass on a strong message to the cash barons and baronesses that as a Central Bank, we were not going to be culpable accomplices by flouncing into knee-jack reactions that furthered their destructive cause.

The strategy we adopted of first concentrating our momentum before moving decisively has immensely enriched us with intricate intelligence on some of the key platforms and characters that are at play in destroying our economy.

For instance, arising out of the research we have done, the following malpractices have emerged:

(a) Complicity by some banks, who have allowed individuals to open multiple ghost shelf-companies, which in turn are being used as avenues to siphon huge sums of cash into the underground parallel markets;

(b) Allowance by some banks for their staff members to encash huge sums of cheques into cash on behalf of their errant customers;

(c) Allowance by some banks for large cash-handling retailers and other outlets to retain cash sales without banking it into the formal system;

(d) Allowance by some banks for some individuals and companies to withdraw cash in excess of the standing cash withdrawal limits;

(e) The encashment of high-value cheques in excess of set limits by supermarkets and other outlets;

(f) Direct sales (trading) of local currency by some major high-cash-volume corporates who are victimising those in desperate need for the cash;

(g) Overt and covert diversion of normal business cash into the illegal foreign exchange and precious minerals parallel markets;

(h) Abuse of high offices by some who are going around supermarkets and other cash-handling outlets and encashing their cheques or encashing RTGS (ZETSS) transfers;

(i) Externalisation of local currency into regional markets in pursuit of foreign exchange on the parallel market; and

(j) Open refusal to give normal trade credits and subsequent demands for payment in cash by some producers/wholesalers/retailers. This has substantially bid up the demand for liquid cash.

It should be apparent to every average-minded Zimbabwean that without a radical shake-up to resolve these malpractices and anomalies, any rushed up or emotion-driven measures would be at a serious risk of instant negation.

I am, therefore, very pleased that the approach we followed has been the right one, as this allows us now to design and implement an encompassing response framework.

Q: What is the solution to all these challenges?

A: There are never easy options to dealing with extraordinary circumstances such as those we find ourselves in. Nevertheless, as a Nation, we must not allow ourselves the weakness of being impulsive or entering into excitable panic modes, often fuelled by those who would rather see us collapse as an economy.

As the Reserve Bank has already given out to the public, there will definitely be Sunrise 2 coming anytime from now, mainly to deal with the cash shortages, as well as administering a decisive deterrent blow on the speculators.

Broadly, however, it is imperative that the Nation realises that our socio-economic environment urgently requires a mutually agreed Social Contract supported by firm implementation of consistent policies all round across Government Ministries, the Parastatal Sector, the Financial Sector, in Mining, in Tourism, in Agriculture and in our Industrial and Commercial Sectors among all others. In this process, the greatest focus ought to be placed on revitalising capacity utilisation and growing the overall supply of goods and services in the economy.

I must also underscore here that in seeking to nurture a self-reinforcing atmosphere of optimism and stakeholder cooperation, we must intimately learn from our past mistakes, at the same time reinforcing our areas of strength: Consistent with this, our well-considered advice to those whose responsibility it is to superintend over the affairs of our productive, pricing and commercial systems remains that we must work to cultivate mutual cooperation by avoiding precipitous blitz, some of which has already shown us the acidity of unintended consequences born out of hastened decisions at the implementation stage.

Back onto the cash issue, I want to assure the public that appropriate measures will be taken to ensure that well-meaning stakeholders are not needlessly inconvenienced over the festive season. As I said earlier, the situation is well under control.

Q: You told the nation on November 21 that the Launch of Sunrise 2 was imminent. At that point there seemed to be so much activity towards the launch but it all seems to have died down somewhat. What is happening and when should we expect the programme to kick off?

A: In strategy, they say still waters run deep. For high impact and precision, stealth is key. So all I want to say to members of the public is that please take heed. Do not cry foul tomorrow.

At the Reserve Bank, we have watched with a mixed tempo of scorn and itchiness to crack the whip and embarrass some senior members of the community who have been passing ill-advised battons of bad-will to their runners on the streets to ignore and dismiss our advance notice on the imminence of Sunrise 2 as a hoax.

To these I have just these words: Please take heed. Do not cry foul tomorrow. Let us work together to build the economy for current and future generations. Those who departed before us will turn in their graves if we do the contrary and continue to choose the path of self-mutilation.

Q: The maximum deposits of $50 million for individuals and $200 million for corporates with effect from December 1 have not been adhered to with banks saying they have not received official communication from the Central Bank on this issue. Please enlighten us on the actual state of affairs.

A: The full operational modalities of Sunrise 2 will be made public at the right time.

What we have been doing over the past few weeks has been to listen very attentively and carefully to various pieces of advice from all interested groups of stakeholders, and as a responsive Central Bank, we want to make sure we take into account genuine submissions. For instance, we have received genuine requests by bona-fide businessmen and women, as well as from some banking institutions on special cases that needed to be treated with progressive sensitivity. But this is never to imply that we have retracted or gone back against our resolve to roll-out the full extent of Sunrise 2 with all its checks and balances to guard against the slippery manoeuvres of fraudsters in our system.

So yes, the parameters of Sunrise 2 will be made explicitly public when it is strategically opportune to do so.

Q: Some schools of thought have said that it is not practical for you to introduce a new currency in this high inflationary environment. How do you respond to this?

A: Tolerance and cordial diversity management exudes itself through the extent and depth of opinions that manifest themselves among stakeholders in a people. Likewise, the myriad of schools of thought you mention are liberated to express themselves from the vantage points of their telescopes — short-sighted or far-sighted, whichever category they fall in.

The school of thought we subscribe to as the Central Bank and custodians of the country’s monetary policy programmes has always been, and will always be that of pragmatism. Such pragmatism occasions itself through our desire to respond to real-life difficulties with tangible, practical alternatives that recognise the rigid sanctions-ridden global context we find ourselves in.

New currency or no new currency, the bottom line is that at the end of the day, as Zimbabweans, we must survive and we must work towards restoring the viability of our businesses; we must work to shore up the overall supply of goods and services in the market as the ultimate weapon against inflation; we must fight and shake off the dark omen of corruption from our systems; we must be a Nation of policy implementers, and not mere desk planners; and equally important, we must elevate our overall inclinations above sectional interests and think and act Zimbabwe First.

In this our school of thought, therefore, stakeholders will see us passionately implementing what we strongly believe are the most logical and effective courses of action to address the hurdles we face as an economy.

It has to be understood also that currency changes the world over are merely a variable with which one seeks to plough back transactional convenience to business and the general public. In itself, therefore, it is not necessarily the panacea towards overall macroeconomic stability. This fact granted, it becomes almost a matter of opinion as to the appropriateness or otherwise of going the new currency route or sustaining the existing bearer cheques. What is aptly certain is that as a Central Bank, we are enthusiastically clear about the courses of actions we will soon be rolling out. The banking public should please take heed.

Q: Others say that the "Reserve Bank theory" that much of the money in circulation is with cash barons does not hold water, saying that due to high inflation prices have gone up to the extent that people have to move around with large amounts of money to get by. What are your views on this?

A: A first principle that my Team and I at the Reserve Bank adheres to so religiously is that of never radiating unsubstantiated assertions to the public domain. We thus, always precede our public announcements with intimate research, facts from which would then energise us to speaking elegantly with confidence and authority.

To reflect this, let me use a simple reality check framework to show the perplexing inconsistencies in some of the mushrooming schools of thought as you mentioned them.

Firstly, if one alleges that there are no such things as cash barons and baronesses as was observed by the Reserve Bank, implicitly the insinuations will be that:

(a) The cash is somewhere in the vaults of the Reserve Bank or the Banking Sector; or

(b) The cash is in the pockets of genuine transacting public; or

(c) That there just is not enough cash around.

Well, let us apply the hard facts on the above points. Firstly, at the Central Bank we know with absolute precision how much cash we would have channelled out into the economy through the Banking system. As of 15 November, 2007, this stood at $58 trillion. At that point in time, banks were holding an average market-wide float of around $1 trillion, leaving $57 trillion "floating somewhere out there".

Now, with $57 trillion, or 98,3 percent of the total currency in issue circulating outside the formal banking channels, and if one rules out completely the existence of cash barons and baronesses, the question to ask is, who is holding it? Some would quip and say it is the transacting public holding it, but again it is the same public that is crying that all round they do not have even the barest minimum cash to get by.

If again one claims that the 98,3 percent of cash is in the non-errant public’s day to day transactional wallets, a direct irrefutable corollary is that then it is the wholesale and retail sectors that are encashing this money but are not banking it. In that case where is their cash going to?

Fortunately, however, as I did indicate earlier, the comprehensive research we have carried out has unequivocally confirmed the existence of the cash barons and baronesses, some who dwell in some banks, some do dwell under the banners of wholesalers and retailers, whilst others are self-styled briefcase tycoons who are wrecking havoc in our markets through their illegal dealings.

Suffice to say that as Governor of the Central Bank, together with my team, we now have in our custody the precise details of some of the characters that make up the nerve centres of these cartels. Already, some banks have lately started to summarily eject their staff which the Reserve Bank had caught up in the anti-cash barons/baronesses net we are casting out far and wide. No school of thought can rival these factual realities. In due course, the Reserve Bank will be liaising with the law enforcement arms in the land for appropriate remedial measures to be taken against the catalogue of these peddlers and their sponsors. We call upon the Nation to please see and understand the purity of our intentions. We bear not personal grudges against anyone or any corporate entity. Our passionate song is that of playing our legitimate statutory part as expected of us in the interests of Zimbabwe First, and for the public good. We bear neither ambitions to harm nor intentions to leave shrapnel under anyone’s skin; No. Never.

Q: In the same vain, banks have not reported huge deposits despite your warning to cash barons, giving credence to the view that they may actually not be holding that much money. How do you assess this?

A: The banking sector directly falls under the licensing, supervisory and surveillance tentacles of the Reserve Bank. Accordingly, through our normal certification checks and follow-ups, we are putting an added pulse-thumb to determine the veracity of your observations. I must also inform you that already we have unearthed appalling levels of complicity, negligence and in some cases absolute co-participation by some banks in the gravy train of wilful economic sabotage. Again, the full course of appropriate disciplinary measures will be laid out to these banks’ shareholders, boards and management teams. Again we are confident that the galaxy of the public’s jury will judge for itself the sincerity and purity of our intentions. We need this in the interest of cultivating mutual harmony and ataraxia in our socio-economic environment.

Q: What would you propose as the short term, medium term and long term solutions to the cash crisis?

A: We need all-round boldness and steadfast implementation of pragmatic solutions that appreciate and accept our present difficult circumstances, which are being accentuated by the illegal sanctions on us. Along the way, day to day introspection and our capacity to self-correct rather than drag each other in streams of mud will be paramount. Equally too, we need to first do away with the syndrome of armchair critics who bear no alternative solutions to the setbacks we face and start to have full cooperative reinforcement of collective implementation of progressive programmes.

Q: What challenges are posed by rising inflation in this regard and how do you propose to circumvent them?

A: The entire genealogy of our successive Monetary Policy statements has a common thread on the extent to which we have condemned inflation as the country’s number one enemy.

But to fight this monster more permanently, the ultimate weapon that we have to advance is one that impacts positively on shoring up production levels in the economy. Anything short of this, we will be tinkering on the surface of the problem. It is for this reason that under guidance from our Principals, we are passionately implementing the various productivity-focused interventions, both from a working capital point of view, as well as mechanisation and infrastructural investment standpoints.

The tragedy is, however, that some among our stakeholders expect to see instant bacon on the table literally hours after provision of combine harvesters to the people. Such of course is the fallacy of warped expectations. We must remain steadfast in the knowledge that the seeds we are sowing today will pay future dividends through increased tangible output.

Through this, the current high inflation, together with its piercing adversities will be a thing of the past. This era is not too distant, only if we roll-up our sleeves now and till the land; blast the mine shafts; attract tourists with coherent pronouncements and policies; and avoiding precipitous actions on our industries and ensuring viability of producers.

Q: The nation is keen to hear something positive pertaining to cash and the economy in general this festive season. What do you have to offer?

A: A practical solution is on its way. Very soon and before the festive season. Let us not despair, for failure can never be a viable option for us as a people. The destiny of our future is squarely in our hands.

Let me just end by saying to stakeholders out there, we are in this together and as your Central Bank, we will not disappoint you.

Labels: CURRENCY, ZIMBABWE

posted by MrK @ 10:49 PM