Maravi

(TALKZIMBABWE) Biti blocks US$510m IMF fund

Biti blocks US$510m IMF fund
TSM reporter
Sun, 13 Sep 2009 00:25:00 +0000

FINANCE Minister Mr Tendai Biti has written to the International Monetary Fund directing the Fund to block Zimbabwe from using its US$510 million allocation until the country clears its US$140 million debt.

The minister’s instructions have found favour with the IMF, which has since written a letter to the Governor of the Reserve Bank of Zimbabwe, Dr Gideon Gono, confirming that the Fund stood by Mr Biti’s orders.

Although efforts to get the letter from Dr Gono proved fruitless as he was said to be in Pretoria attending a two-day meeting of central bank governors from Sadc, an official in the Ministry of Finance, where the letter was copied to, availed the copy to this writer.

In the letter dated September 9 2009 addressed to Dr Gono, the IMF said: “I write in response to your letter to me dated September 2 2009 regarding the use of Zimbabwe’s SDR allocations. I also note the letter dated September 3 2009 from Hon T. Biti, Minister of Finance, and Governor of the IMF for Zimbabwe, to Mr Mark Plant, Acting Director in the Africa Department, and your subsequent letter dated September 8 2009 to Mr Dominique Strauss-Kahn, the managing director of the IMF, on the same subject dealing with the possible use of the SDR allocation.

“Governor, while I sympathise with the difficulty Zimbabwe finds itself in, and the urgency of the challenges, member countries are being advised through their Ministers of Finance/Governors of the Fund on the appropriate use of their SDR allocations and the need for due regard to financial and macroeconomic considerations. The possible use of the allocations are summarised as follows:

-Hold the allocation as part of the gross international reserves;
-Use them in operations and transactions with the Fund; and
-Sell them in exchange for freely usable currency, in part or in full, to other Fund members, which could subsequently be used to meet the country’s needs, being fully cognisant of the macroeconomic implications of such usage.

“In this regard, the use of the SDR allocation to build international reserves, as indicated by Hon Biti, until the Government finalises its arrears clearance and debt relief programme, is appropriate. I also note that the IMF staff stands ready to engage with Zimbabwe on the specific implications of the SDR allocations for your country...”

Although Mr Biti earlier in the week defended his decision, saying the IMF funds were too expensive, the Fund clarified the issue saying SDR interest cost is only 0,26 percent per year.

In a revised proposal allocation document he wrote to Minister Biti last week, Dr Gono had proposed that Zimbabwe uses US$140 million to pay off its IMF arrears and then deploy US$370 million to capacitate the country’s productive sectors.

The industrial sector together with the mining and tourism sectors would each get 15 percent of the US$370 million. Zesa, NRZ and Hwange Colliery would collectively be allocated another 15 percent.

The Governor had proposed that since the agricultural sector had been taken care of through other facilities, it would not receive any funds from the IMF allocation.

He had also proposed that another 15 percent of the funds would be used to pay off gold producers, NGOs and other private sector FCAs that were used by Government.

He had also proposed that 10 percent of the funds be used in the building of reserves for the country with nothing going towards consumption in the form of salaries and other consumables.

The construction and infrastructure development sector was also set to benefit as it is key to the country’s economic revival.

The telecommunications sector was also set to receive funds from the IMF allocation.

A Zimbabwean economist who has worked at one of the Bretton Woods institutions said Mr Biti’s directive to the IMF was unprecedented.

“He took a unilateral decision without approval from Cabinet and the principals in Government. This was such a strong matter in terms of the country’s national and economic interests as well as the country’s international relations and so the matter should have been agreed upon before he wrote the letter.

“All the minister should have done was to persuade Cabinet on his position and advise the principals in Government. Now what has happened is that he has transferred what should have been his advice into a Government position.

“This can only result in creating a crisis in Government. From now on, it would be difficult for Government to trust the Minister of Finance.”

In a matter similar to Mr Biti’s, PM Tsvangirai last week said the Minister of Justice and Legal Affairs, Patrick Chinamasa, had no authority to write to the Sadc Tribunal advising the tribunal that Zimbabwe was pulling out of the court.

He said there was no Cabinet resolution or decision and so the letter by Cde Chinamasa was of no effect.

It remains to be seen how the principals and Cabinet will handle this issue.

Added the economist: “In any other situation, this would without doubt be tantamount to profound negligence of duty and gross insubordination with far-reaching consequences.”

While Mr Biti decided to block the use of the funds, neighbouring South Africa has fully embraced the IMF injection. Reports say SA’s “gold and foreign currency reserves surged last month after the IMF gave US$2, 2 billion as part of a worldwide liquidity injection.

In commending this development, the Deputy Divisional Head in the Research Department at SA’s Reserve Bank said: “Given the difficult times we are in, the IMF is trying to increase liquidity. The decision on what to do with the increased allocation will be part of the normal process of reserves management (by the SA Reserve Bank.”

Labels: IMF, TENDAI BITI

posted by MrK @ 7:46 AM