IMF to Zimbabwe: Screw the poor (fwd)

[Robert Weissman <rob@essential.org>]

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Zimbabwe Independent, 24 June 1999

Price controls threaten IMF US$200 million support 

PROSPECTS for the release of a $1,9 billion (US$50 million) tranche
under a fresh $7,6 billion (US$200 million) 13-month credit facility
from the International Monetary Fund receded this week as the Ministry
of Industry and Commerce went ahead with the gazetting of the price of
mealie-meal and threatened to take similar measures to control the
price of bread.

But Ministry of Finance officials said they would work hard to stop
the gazetting of bread prices as this could sabotage support from the
Bretton Woods financier.

Cabinet had already approved the signing of a letter of intent between
it and the IMF. By this week, it had not yet reached the IMF
Washington office, but Michael Nowak, IMF assistant director for the
Africa department, said they expected it "soon".

The letter of intent would commit the government to stringent fiscal
discipline and do away "completely" with price controls.

Cabinet is understood to have discussed the issue on Tuesday. It had
been thoroughly appraised of the consequences of non-compliance on
undertakings with donors at a time when the country badly needed their
support to shore up ailing currency reserves and restore both domestic
and international investor confidence.

"The government has said it will transmit to us the `letter of intent'
and accompanying policy memorandum once the government's own review
procedures have been completed," Nowak said responding to written
questions from the Zimbabwe Independent. "We expect these documents to
emphasise government's commitment to continued fiscal prudence." 

Nowak said the IMF, which had been busy working on Zimbabwe's
documents for approval by its board, would not support a programme
that upheld price controls.

"Attempts at controlling maize-meal prices have not been successful
and that should give a lesson on the control of bread prices. We'd
definitely not support that programme," Nowak said from Washington.

"Our information is that the price of bread has not yet been gazetted.
If it were to be, this would clearly cause us difficulties," Nowak
explained.

"On the expectation that bread prices will not be a problem, we expect
our internal review procedures to progress satisfactorily. This will
take a few days, at which point we will be in a position to set a
tentative date for discussion by our executive board of the credit
arrangement," Nowak said.

The IMF's sister Bretton Woods institution, the World Bank, which is
lined up to consider a $7,6 billion IDA credit, also expressed similar
concerns, saying it saw price controls as a "policy reversal" on the
part of the government.

"Our board does not look favourably at that (price controls)," said
the World Bank deputy resident representative, Roger van den Brink.
"We agreed these (price controls on mealie-meal) would be temporary
and would be phased out. The NECF (National Economic Consultative
Forum) is doing a study of pricing for basic commodities. If the study
does not show widespread profiteering by millers, government should
follow that conclusion and stop the controls. We hope it's done soon,"
Van den Brink said.

The price of mealie-meal had already been controlled by the government
in an effort to stem social upheaval after spontaneous food riots
erupted in January 1998. It took heavily armed troops to crush the
riots, resulting in injuries and the death of at least 10 people from
the use of live ammunition.

Government sources said this week that a tug-of-war had developed
between the Ministry of Industry and Commerce, led by Nathan
Shamuyarira, and the Ministry of Finance, led by Herbert Murerwa.

On the one hand, Murerwa's ministry was said to be vigorously opposing
controls on bread pricing, saying this would contradict undertakings
with major donors. On the other hand, Shamuyarira's ministry saw
government's intervention to moderate basic commodity prices as the
only way to minimise immediate social unrest. Shamuyarira is
understood to have a number of cabinet backers on the issue.

"The Ministry of Finance is working hard on this but it is facing a
lot of opposition," a government source said, adding that the Ministry
of Finance had made frantic efforts to block the gazetting of bread
prices which had been held up by the civil service strike.

The IMF, Nowak said, was working out a programme to rescue the country
from its economic woes. He said they had been "moving ahead with
internal arrangements" for Zimbabwe's credit facility. 

He said they had been working hard "to get approval from our
management" to support Zimbabwe's request for balance of payments
support. "We have to convince our management that it's a programme
that the IMF can support before it's taken to the board," Nowak
explained.