Mugabe no longer in danger over bond notes

HARARE – Bond notes — which have so far held their value against the US dollar — no longer pose an existential threat to President Robert Mugabe’s ruling regime, a research group has said, even though the cash-strapped country’s liquidity struggles continue.

This comes as stressed banks have continued to be plagued by long queues in and around their premises, as depositors continue to rush to withdraw the new currency, with many still struggling to access money from automatic teller machines (ATMs) .

BMI Research — a firm that provides macroeconomic, industry and financial market analysis covering 24 industries and 200 global markets — said the introduction of so-called bond notes was no longer likely to threaten the survival of Mugabe’s ailing government.

“We do not believe that the political unrest likely to follow from the introduction of so-called bond notes will be sufficient to topple Mugabe’s ailing government, unless perceptions of unmanaged inflation become the norm,” the report said.

“We believe the government will look to prioritise dollar access for those that are most crucial in preserving its hold on power, namely the military. This should be sufficient to prevent the ongoing protests from escalating into an existential threat to the Mugabe regime.”

Zimbabwe launched a “bond notes” currency on November 28 amid fears it could stock hyperinflation and possibly bring down Mugabe and his government.

The vivid green bond notes — ushered in by the central bank to incentivise exporters and relieve a scarcity of dollars — have so far been widely accepted by most businesses and black market traders.

Zimbabweans’ sentiment on the bond notes was also improving and worries around the surrogate currency had receded.

Following the May announcement on the plans to introduce the promissory notes through force of diktat to stem constant cash shortages and shore up declining US dollars that have traded as the main legal tender over the past seven years, there was an unprecedented run on banks.

The bank run was also an ugly reminder for Zimbabweans of a domestic financial crisis in 2008 when hyperinflation clocked 500 billion percent and Mugabe lost his first ever election after forcing bearer cheques into circulation.

The security establishment was also edgy that if the new currency crashes, it could draw to a close the 92-year-old leader’s 36-year rule.

But Charity Jinya, president of the Bankers Association of Zimbabwe (Baz), said in a recent bond notes distribution update that the surrogate currency has been well received.

“All banks have witnessed an encouraging uptake of bond notes since their introduction on Monday 28th November 2016,” Jinya said.

The RBZ released an initial $10m worth of bond notes and subsequently $7 million — guaranteed by the Cairo-based Africa Export and Import Bank (Afreximbank) — in small denominations of $2, with more cash to be gradually made available in the coming weeks and months, with $5 bond notes to be released into the market in due course.

This brings the total amount of bond notes disbursed so far to $17 million against a value of $70 million payable to exporters of goods and services under the Export Incentive Scheme.

Many have suggested that the central bank inject more capital in the form of bond notes into financial institutions. It was not immediately clear how much capital would be needed to shore up the stuttering banks, but the RBZ has indicated it was ready to inject more capital.

RBZ governor John Mangudya has said the apex bank would release bond notes “on a measured or drip-feed basis”.

BMI Research’s report noted that Zimbabweans were “highly sensitive” to the prospect of a return to hyperinflation after the rapid depreciation of the local dollar about 10 years ago.

But Mangudya noted that the current economic fundamentals are different from those of the 2008 hyperinflationary period when domestic production was almost non-existent and any new money that was injected into the economy became inflationary.

Opposition leader Morgan Tsvangirai had called on Zimbabweans to reject the version of the US dollar, warning that the country would “return again to the empty shops” of 2008.

Rejecting claims by the central bank governor that the new bank notes were merely meant to encourage exports; Tsvangirai had said “these bond notes are an attempt to rig the economy.”

Former Finance minister Tendai Biti and opposition PDP leader had also ominously warned that the bond notes will have “cataleptic consequences” to the remaining constructs of Zimbabwe’s pseudo economy and engineer a fresh wave of externalisation, under banking, tax avoidance and evasion.

But BMI Research said the introduction of the notes will be insufficient to topple Mugabe’s government, saying the key risk was the succession of Mugabe, which threatens to turn violent if plans are not put in place and set in motion prior to his departure, as competing vested interests struggle to fill the power vacuum left in his wake.

Source: Daily News

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