Zimbabwe's poor billionaires

Hyperinflation wreaks havoc on economy


By Zhen Ming


IN economics, hyperinflation is inflation that has run amok.

It's a condition in which prices go up at an extremely high rate of at least 50 per cent a month, causing a country's money to quickly become practically worthless - sometimes overnight.

That's what's happening right now in the southern African nation of Zimbabwe, whose economy is fast collapsing with each passing day, and where the country's 84-year-old President (some say, dictator), Mr Robert Mugabe, has still refused to step down from power despite more than 20 years of misrule.

Those who're old enough will probably remember the so-called 'banana money' issued by Imperial Japan during the Japanese occupation of Singapore, Malaya, North Borneo, Sarawak and Brunei. (It was named as such because of the motifs of banana trees on 10-dollar bank notes.)

Back then, the Japanese occupiers simply printed more notes whenever they required more money.

This resulted in high inflation and a severe depreciation in value of the banana note. After the surrender of Japan, the currency became worthless - except as a collector's item.

And that's precisely what's also happening in Zimbabwe today. The country's money-printing presses are running full time and the country has even had difficulty obtaining sufficient supplies of special paper with which to print enough currency.

President Mugabe first wrecked his country's agricultural industry when he broke up large white-owned working farms to distribute in small parcels to poor Zimbabweans without training them how to farm.

Destructive

Then, faced with economic sanctions and the difficulty raising money to finance his government, he took what seemed to be the easy way out by printing more money.

In a way, his hands were tied as he could not tax Zimbabweans whose average income is barely at the subsistence level. All in the name of keeping himself in power at all costs.

Zimbabwe is not alone in abandoning financial integrity. To date, some 15 countries - including China (just before the communist takeover) and Japan (just after World War II) - have experienced post-war hyperinflation.

But the hyperinflation in Zimbabwe is perhaps the fastest-ever in living memory. Last month, the country's inflation was officially running at 2.2 million per cent but independent economists said it's closer to 12.5 million per cent.

Back in July, a loaf of bread cost 200 billion old Zim dollars in Harare, the country's capital. As of Monday, the same loaf cost 1,600 billion old Zim dollars. One Zimbabwean observes: 'We are billionaires and we can't buy anything.'

Sadly enough, dropping 10 zeros from its hyper-inflated currency - a move which officially took effect on 1 Aug - hasn't improved the situation at all. Bread in Harare still cost 160 new Zim dollars at the start of this week, compared to only 20 new Zim dollars less than a month ago.

'Hyperinflation is greatly destructive to a nation's economy because it basically terminates the usefulness of money,' said Dr Ron Ross, an economist based in California.

'Money's primary roles in an economy are to serve as a medium of exchange and as a store of value. Hyperinflation destroys both these roles.'

In the case of Zimbabwe, the hyperinflation is further exacerbated by a 'crisis of confidence' in an economy wrecked by civil war (or its aftermath), gross economic mismanagement, and political or social upheaval.

And don't expect this hyperinflation to go away overnight, without Mr Mugabe first relinquishing his power.

Then and only then, might there be hope yet for this country that was once one of the most prosperous and productive in Africa.


Source: The New Paper, Mon 01 Sep 2008