DECISION DAY IN SEPT FOR ZIMBABWE.

Why is the IMF thinking of expelling Zimbabwe?

Robert Mugabe has sought assistance from China. The IMF is taking action because Zimbabwe has not paid interest on the money it has borrowed. The country has suffered five years in which its economy has shrunk, millions have been forced out of work, inflation has soared and the currency has tumbled. It has been ostracised by both the IMF and donors countries after an election in 2000, which many observers charged was rigged, and since it instituted a policy of seizing land owned by white farmers for redistribution to the black majority.
The seizures meant much of the agriculture sector, the country's biggest export earner, has withered away. In the midst of that, it is hardly surprising that the $295m it owes the International Monetary Fund in interest on loans taken out over the previous decades has till recently gone unpaid - although $120m was in fact repaid at the end of August. In total, the country is carrying debts of some $4.5bn. The IMF is prepared to keep Zimbabwe in the fold - but at the cost of stringent economic conditions, such as limits on spending, which the government of President Robert Mugabe refuses to consider.
Mr Mugabe blames his country's problems on interference from Western countries - in particular the UK, from whom it gained independence in 1980. But if donors are staying away anyway, what difference would an expulsion make?
The role of the IMF is to give short-term loans to countries in economic difficulties. Approval by the IMF is also seen as a signal by private lenders that it is safe to lend to that country. So getting kicked out of the IMF would effectively mean Zimbabwe was ostracised by the international economic community. That would make it more difficult for anyone wanting to do business with, or in, Zimbabwe to get loans.
In addition, the assumption has to be that whatever the current situation in Zimbabwe, it will one day want to return to seeking loans or even selling government bonds to raise money for public spending. Basic foodstuffs are sometimes in short supply. Expulsion from the IMF would mean much higher interest rates, much more stringent conditions - and therefore quite possibly a much longer haul back from Zimbabwe's current parlous economic state.
Just how serious a situation is Zimbabwe in?
One index of the gravity of Zimbabwe's predicament is its shrinking population. A census in 2002 suggested that as many as a quarter of its population, or up to 4 million people, have fled to neighbouring countries or headed for the UK, Europe or the USA. Some believe they face political persecution for supporting the main opposition party, the Movement for Democratic Change (MDC).
But others are simply desperate to find work to support their families. More than 70% of the Zimbabwean workforce is classed as unemployed. Inflation is currently running at more than 250% a year, while the cost of living - according to the Consumer Council of Zimbabwe - has tripled since the start of 2005. And while five years ago the official exchange rate was 55 Zimbabwean dollars to the US dollar, today it has plummeted to more than 24,000. The black market rate is about twice that. Key to the problem, economists say, is that both industry and agriculture have been devastated over the past half-decade - meaning a drastic shortage of goods both for domestic use and for export. Without exports, the country cannot raise foreign currency to buy fuel, import food to feed an estimated 4 million people suffering malnutrition, Oddly, through all of this the Zimbabwe Stock Exchange has soared - not least because speculation has been one of the few ways to make money.
Agricultural production has plummeted.
But during much of August there was no trading on the exchange, after the government threatened a 10% withholding tax on share deals and a rule change which would have forced pension funds to put much of their assets into government bonds rather than equities.
So what can Zimbabwe do?
The most concrete step came on 1 September, when Finance Minister Gideon Gono said the government had repaid $120m to the IMF as a sign of its sincerity about the arrears. The money, he said, had been raised from exporters and holders of overseas assets. But many observers doubt this would be possible, with South Africa's Business Day paper saying it might come from undeclared foreign exchange reserves - if true, hardly a situation likely to please the IMF.
Others have speculated that China may have come up with the cash. In July, President Mugabe travelled to Beijing to seek help. China has become a key trading partner when other countries have stayed away, and Chinese firms and individuals have now taken over many businesses and properties in Zimbabwe. Despite warm words, President Mugabe apparently came away empty-handed, but it is possible that a deal could have been struck.
Foreign exchange is needed to replenish fuel supplies.
Alternatively, there is South Africa, which is currently discussing a possible loan which would both provide working capital for the government in Harare and stave off the IMF expulsion. Media reports initially suggested US$1bn, but a more likely figure is thought to be US$200-500m. Still, South Africa has indicated that it, too, would require changes in economic policy to boost production and get inflation and the decline in the currency under control - conditions which Zimbabwean ministers say they refuse to accept.