[R-G] Zimbabwe: Donors Want Break from Past Policies

[Yoshie Furuhashi]

<http://www.ft.com/cms/s/0/12d80eae-a48e-11dd-8104-000077b07658.html>
Donors want break from past policies
By William Wallis in London
Published: October 28 2008 02:00 | Last updated: October 28 2008 02:00

It could be many months before Zimbabwe can access donor funds to
stabilise its imploding economy even if President Robert Mugabe and
Morgan Tsvangirai, the prime minister designate, break the deadlock
over cabinet positions holding up a post-election agreement.

Donor officials say any government emerging from the power-sharing
talks that resumed in Harare yesterday would first have to establish a
clean break from ruinous past policies.

"We are keen that they reach a political agreement so that they can
have a credible economic reform programme and credible people at the
Reserve Bank," says Donald Kaberuka, president of the African
Development Bank.

But the government would have to move quickly to schedule repayment of
$1bn (€801m, £644m) in arrears to the AfDB, and the World Bank, and
reach agreement on an International Monetary Fund reform programme
before direct budgetary support would be available, he said.

The threshold has been raised by the global financial crisis and the
likelihood that donors will be reluctant to risk substantial sums on
rescuing an administration still headed by Mr Mugabe.

"For the bilaterals they could begin now. For the international
financial institutions it would require agreement on arrears and an
internationally accepted reform package," Mr Kaberuka told the
Financial Times.

Without an injection of hard currency, potentially more than $1bn, any
government would struggle to tame hyper-inflation running officially
at an annualised 231m per cent, and by unofficial estimates tracked by
the US Cato institute, at 10 quadrillion per cent.

Bilateral donors including the US and UK could raise humanitarian aid
to an estimated 5m Zimbabweans facing starvation, donor officials say.
But a prolonged period of waiting before any formal stabilisation
package is available would pose serious difficulties for both Mr
Tsvangirai and Mr Mugabe.

Having signed up to what some opposition activists criticise as a pact
with the devil, the opposition leader once in government will be under
pressure to prove he can quickly reverse a vertiginous decline in
Zimbabwean livelihoods. "Civil servants want real incomes. What
happens if he can't deliver?" asks a Zimbabwean analyst connected with
the Reserve Bank.

As a bare minimum towards maintaining the peace and paying security
forces, a new government would have to continue printing money in the
near term, an economist with a multilateral donor organisation said.
But to accelerate the disbursement of donor funds - in the best case
scenario within three months - it would have to signal serious intent
to reform.

For Mr Mugabe this would pose an acute dilemma. A period of best
behaviour could jeopardise the patronage system with which he has
maintained his grip on power.

In the fantastical world of quadrillions that Zimbabwe's economy
inhabits, it has become next to impossible to measure the real state
of the country's finances. Donors list some minimum conditions that a
new government would have to meet to restore confidence. These include
commissioning an external audit of the Reserve Bank, establishing a
credible consumer price index, willingness to seek technical
assistance from the IMF, and the appointment of credible reformers to
positions with influence over monetary and economic policy.

Beyond that, a new government could move to protect private property,
reverse legislation hindering business, and re-establish the rule of
law. Because Mr Mugabe and his principal lieutenants have shown little
inclination to do this, many donor officials remain sceptical that a
substantial recovery programme will be feasible in the near term.