Tuesday 23 May 2017

Mugabe risks losing power by printing a new 'currency' which even supporters warn will cause his downfall

The 92-year-old Zimbabwe president - Africa's oldest leader - is clinging on by introducing new bond notes, reports Ed Copley in Harare

Zimbabwe president Robert Mugabe risks losing army support over his plan to issue bond notes
Zimbabwe president Robert Mugabe risks losing army support over his plan to issue bond notes

Ed Copley

In Zimbabwe, where worthless $100 trillion notes serve as reminders of the perils of hyperinflation, president Robert Mugabe is printing a new currency that jeopardises not just the economy but his own long grip on power.

Six months ago, the 92-year-old announced plans to address chronic cash shortages by supplementing the dwindling US dollars in circulation over the past seven years with 'bond notes', a quasi-currency expected at the end of November.

According to the Reserve Bank of Zimbabwe (RBZ), the bond notes will be officially interchangeable 1:1 with the US dollar and should ease the cash crunch. The central bank also promised to keep a tight lid on issuance.

After a 2008 multi-billion percent inflationary meltdown caused by rampant money-printing, many Zimbabweans are sceptical. The plan has already caused a run on the banks as Zimbabweans empty their accounts of hard currency.

Internal intelligence briefings seen by Reuters raise the possibility that the bond notes, if they crash, could spell the end of Mugabe's 36 years in charge.

A September 29 Central Intelligence Organisation (CIO) report revealed the powerful army was as unhappy as the rest of the population with the new notes and had told Africa's oldest leader to "wake up and smell the coffee".

"Top security officers have told Mugabe not to blame them if Rome starts to burn," the report said. Reuters was unable to determine the author of the report. It is also unclear if Mugabe has seen the report, whose final audience is not specified. Mugabe's spokesman did not respond to requests for comment, nor was the CIO available.

But the report offers a rare glimpse into the thinking of Mugabe's security forces - the backbone of his power - and their concerns about the implosion of what used to be one of Africa's most promising economies.

"Mugabe was openly told that the bond notes are going to cause his downfall," the report said.

The notes' first test will come in the informal foreign exchange markets on the streets of Harare.

If they fall heavily in value, they are likely to unleash an inflationary spiral that could bleed the banking system of its last few dollars and wipe out Zimbabweans' savings for the second time in less than a decade, economists say.

The same happened in 2008: powerful individuals with access to dollars at the official 1:1 rate were able to buy bond notes at a discount on the unofficial market and then convert them back to dollars at face value.

"You start with one dollar, then you've got 10, then you've got 100, then you've got 1,000 - and it's not even lunchtime," said John Robertson, one of Zimbabwe's most respected private economists.

In Harare's chaotic Road Port bus station, the main terminus for those heading to and from South Africa, Zimbabwe's biggest trading partner, some bus operators are fearing the worst.

Required to pay nearly all their expenses - fuel, road tolls and police bribes in Zimbabwe and South Africa - in hard currency cash, they are particularly exposed.

"It's like being on death row. You don't know when the hangman is going to open your cell door," said ticket-seller Simba Muchenje, pulling a wad of worthless 2008 Zimbabwe dollars from his briefcase and tossing them onto the counter.

"It's just taking us back to the bad old days."

In interviews, none of eight money-changers trading South African rand and US dollars said they would accept bond notes at their $1 face value because of fears of immediate depreciation. The rand and the US dollar have become Zimbabwe's currencies since the local dollar was scrapped in 2009. "The banks may say 1:1, but here we say 2:1. We can't afford to pay the same as the banks. I'm running a business, not a bank," said Patience, a 32-year-old money-changer.

Given Zimbabwe's recent history of hyperinflation, the RBZ is keen to allay fears the printing presses are about to go into overdrive, and that the bond notes are a roundabout route to a new Zimbabwe dollar. In public statements, the RBZ has given assurances it will not exceed the $200m issuance ceiling.

But it has not clarified how bond note balances will be recorded in US dollar accounts, nor how ATMs will distinguish between greenbacks and bond notes when they issue cash.

After the bond notes' announcement, #ThisFlag and #Tajamuka, social media campaigns targeting the new system, drew the biggest anti-Mugabe protests in a decade before being crushed by riot police and the CIO.

Meanwhile, tens of thousands across the country lined up through the night to empty their accounts the moment their pay or pensions arrive, exacerbating the liquidity crunch.

Banks have responded with daily withdrawal limits: $100 one day, $50 another, none another. Customers have no idea until the banks open their doors at 8 am.

In July, veterans of the 1964-1979 liberation war that brought Mugabe to power broke ranks, accusing him of "dictatorial tendencies" and blaming him for the "serious plight" of the economy and discord in the ruling ZANU-PF party. "We are dedicated to stop this rot," they said in a statement.

As fears over the bond notes have grown and the battle to succeed Mugabe has intensified, they have continued to flex their muscle.

"Once you go wrong with us, you automatically go wrong with the whole state apparatus," veterans leader Chris Mutsvangwa said.

The veterans enjoy warm ties with the army and security services, and want Vice-President Emmerson Mnangagwa, a former security chief nicknamed "The Crocodile", to take over from Mugabe, political analysts say. On the other side is a faction attached to Mugabe's 51-year-old wife, Grace.

Mugabe responded to the growing pressure on November 19 with an address in which he admitted fallibility and gave a rare hint at retirement.

"If I am making mistakes, you should tell me. I will go," he said, before adding: "Change should come in a proper way. If I have to retire, let me retire properly."

Reuters

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