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Will inflation trigger the regime change in Zimbabwe?

Bhuwan Thapaliya - 8/12/2007

In 1968, Germany ’s economics minister, Karl Schiller, announced that “inflation is dead, as dead as a rusty nail”. In America , Lester Thurow, a professor of economics, declared in his book that inflation is “an extinct volcano”, dangerous because some foolish central bankers refuses to see that it has vanished. Both of them stated that inflation is dead and buried. But bring them to Zimbabwe and they may perhaps immediately reverse their statements.

The official annual rate of inflation in Zimbabwe is nearing 5,000%.the highest in the world and worried by this fact, of late Zimbabwe have brought into circulation a new 200,000 Zimbabwe dollar note, in its desperate effort to tackle the country's mammoth inflation.

“The new note, issued by the Reserve Bank of Zimbabwe, is worth US$13 at the official exchange rate or $1 on the black market and can buy 1kg (2.2lb) of sugar,” BBC reports.

The new banknote comes after International Monetary Fund (IMF) forecasts that by the end of 2007, prices will be 1,000 times higher than they were a year earlier, according to the Reuters news agency.

Inflation is defined as a substantial rise in prices and volume of money resulting in a decrease in the value of money. Under inflationary conditions, however, the purchasing power of money declines, causing economic disarray. Whereas, in a normal country, a monthly inflation rate of around 2.5% would rightly be regarded as alarming. In Zimbabwe a monthly inflation rate of 100% is regarded as normal because inflation in Zimbabwe is nearing 5,000%.

What does this actually mean in reality? In short, it means that the Zimbabwean economy is all set to collapse. Furthermore, according to the BBC reports, this figure is reminder of the policies, corruption and repressive governance of President Robert Mugabe and his ruling ZANU-PF party, who are directly responsible for the severe economic slide, growing public discontent and international isolation of the country.

Inflation has crippled Zimbabwe . Food and fuel shortages have become common in Zimbabwe . And there are no sings of it stabilizing in the near future too because unemployment rate in Zimbabwe is high, poverty is soaring, and foreign reserves has already shrunk to all time low, there is shortage of foods, and there are diseases such as HIV/ AIDS to name a few.

Meanwhile, in their lackluster attempt to tame the inflation, it has been reported by the media that Zimbabwean police have arrested and fined a huge numbers of Zimbabwean businessmen and women for breaking official price controls in the past two weeks. But the government’s latest move has not shown any sign of progress. Instead, it has led to artificial shortage and business man say as the new prices are set below cost; they have no other option but to close their firms.

Whereas, some unconfirmed media report suggests that Zimbabwe neighbors are opting for the more viable solution and are trying to revive the economy. There are talks of pegging the Zimbabwe dollar to the South African rand but this has not been confirmed. Furthermore, it has been reported by the media that Stubborn Zimbabwe ruling leaders have already rejected it citing a threat to the sovereignty. On the other hand, analyst state that South Africa would not wish to subsidies Mr. Mugabe’s misrule. But no one really knows what’s cooking.

Furthermore, what makes the Zimbabwean inflation grave is its food insecurity. According to the 2007 FAO/WFP Crop and Food Supply Assessment Mission, Zimbabwe experienced a poor main cereal harvest in April due to a combination of adverse weather conditions, a lack of key agricultural inputs (fertilizer and tractors), crumbling irrigation systems and the disincentive effect of the government’s price controls.

”The poor harvest coupled with the worsening economic crisis will leave 2.1 million people facing food shortages as early as the third quarter of 2007 – a figure that will rise to 4.1 million at the peak of the crisis in the months before the next main harvest in April 2008. In addition, around 90,000 of non-cereal food assistance will also be needed to meet the needs of all the vulnerable people in both rural and urban areas,” according to the 2007 FAO/WFP Crop and Food Supply Assessment Mission.

Food insecurity and Inflation must be not just brought low, but knocked out, and soon. On the face of things, that looks tough enough. Success will not be easy. There Mr. Mugabe’s trouble begins. To kill inflation requires cleaning up the socio-political chaos at the earliest possible. But there are no signs of that happening giving the stubbornness of Mr. Mugabe.

Over the last few months foreign policy makers and economists have increasingly expressed concern about the state of the Zimbabwean economy, about the safety of their own claims upon that economy, and even especially the seizure of white-owned farms, for ordinary Zimbabweans' hardship.

The Zimbabwean authorities have replied to such concerns with a kind of hectoring bluster, aimed mainly at the foreign governments of trying to interfere in Zimbabwe 's internal affairs. As often as not, Mugabe’s regime complains that it is unscrupulous foreigners who are to blame for the mess but analyst reckon that Mr Mugabe's policies are to blame for ruining Zimbabwe .

So where are we, and what's it all sum up to - crisis likely. Maybe a mammoth crisis down the line that may come sooner than most think. Will it, and is that what I'm predicting? I don't know what the Mugabe regime will do. They may try to prolong their rule by playing every card from their pack. But even if they do so, my judgment is that the condition of Zimbabwe is getting from bad to worse, and it is not too long before the frustrated people’s volcano will erupt.

“Years of economic collapse, provoked by dreadful misrule, have already taken a huge toll on Zimbabwean lives: the population has been battered by hunger, poverty and AIDS; some 3m people are estimated to have fled abroad; life expectancy has dropped to medieval levels,” according to the Economist.

Considering this fact, observers state that unless and until Mr. Mugabe’s undemocratic regime is replaced, there is no hope of any recovery for Zimbabwe . But no one knows how to replace the aging dictator. Yet Mr. Mugabe is sensing trouble. Being a veteran politician, he knows economics too. He knows by heart that an economic collapse would provoke regime change, and the country’s hyper inflation is plucking the peace of his mind.

Something will definitely happen in Zimbabwe , if not today, then certainly tomorrow. What will bring the change? Inflation of course as Zimbabweans are snarled by hyperinflation. They are growing frustrated over the high price of petrol and food, over the unemployment, over their deteriorating living condition, over the food shortage, and political repression. The mercury of their tension is rising and it is not too long before it bursts. When it bursts, then Mr. Mugabe would have no one to blame, expect himself and his corrupt regime.

Finally, perhaps, may be later in 2007, exactly after 39 years of the Karl Schiller’s announcement about the dead inflation, the world will wake up one day and witness the regime change triggered by inflation. Strange world, isn’t it?