Friday, October 21, 2005

ZIMBABWE CURRENCY IN CRISIS AGAIN.


Zimbabwe frees trade in currency.

The Zimbabwean dollar has plummeted in value this year. Zimbabwe's central bank is to allow the Zimbabwean dollar to trade freely, a move seen as a way to aid both exports and stocks of foreign currencies. The move is also seen as a means to reduce the vast difference between the official and black market values of the Zimbabwean dollar. The currency has been pegged against the US dollar for several years, recently at Z$26,000 per US$1. The black market rate for the Zimbabwe dollar can be as high as Z$90,000. Under the new system, exporters will be allowed to trade 70% of their foreign currencyearnings at the "market-determined rate", but 30% will have to be surrendered to the central bank, the Reserve Bank of Zimbabwe.
The government hopes this will encourage businesses to increase exports. Inflation in Zimbabwe is rampant, increasing by 360% so far this year, according to the government's own figures. Analysts say the liberalisation of trading in the Zimbabwe dollar will initially further increase inflation, until the official and black market values move together. "We should see the Zimbabwe dollar trading at around 60,000 (per US dollar) in the first week, while will be followed by a gradual depreciation to within parallel market levels, that's where it should settle," one Harare commercial bank told the Reuters news agency.
Economist Eric Bloch said Zimbabwe's exporters would benefit from the changes - but not immediately. "This move is going to be positive but it's not a quick fix to our problems," he said. "There is a time lag for [exporters'] response and I can't see that happening until around April next year." Zimbabwe's economy has been reeling from six years of recession caused, critics say, by the land reform policies of President Robert Mugabe.
Since 1999, the government and its supporters have seized white-owned farms, leading to widespread food shortages. Zimbabwe now has to import at least 37,000 tons of maize a week to help feed its population. The government blames the food shortages on poor rains in recent years.
However, in recent months the government has made renewed efforts to reduce its overseas debts, including making US$135m in payments to the International Monetary Fund (IMF). The IMF had earlier threatened to throw Zimbabwe out of the organisation, and continues to say it could return to this threat in the future.
BBC NEWS REPORT.

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