11.2 million % inflation! How is Zimbabwe surviving?

Zimbabwe’s inflation rate has just touched a stratospheric level of 11.2 million per cent! Yes, 11.2 million per cent, the highest in the world’s history!

Compare that to the rate of inflation in India — which is hovering at the 12 per cent level and causing so much turmoil for Indians as the cost of commodities rises sharply — and perhaps you can put things in proper perspective.

And while the world and its brother-in-law shed tears as the United States slips into a recession and major stock markets across the world plummet, spare a thought for Zimbabwe where money has no value, and hunger, poverty and death are constant companions. So why is Zimbabwe facing such times?

Why Zimbabwe is in this situation?

Zimbabwe is in the throes of an unparalleled economic crisis because of over a decade of economic recession, extreme food and fuel shortage, an unemployment rate of over 80 per cent, and lack of political will to do anything about it.

The other reasons also are the government’s ban on relief efforts by foreign NGOs, a debilitating drought, and the scourge of the AIDS epidemic.

There are more reasons for Zimbabwe’s terrifying condition. . .

War, mismanagement and excuses

The war in the Congo that Zimbabwe was involved in for over 5 years since 1998 too bled its coffers dry, as hundreds of millions of dollars fled from the economy.

Robert Mughabe & Zimbabwe Currency

Robert Mughabe & Zimbabwe Currency

Economists say that gross mismanagement and corruption in the Zimbabwean government has worsened the situation further.

Zimbabwe’s ruler President Robert Mugabe, however, puts the blame elsewhere. He says that financial isolation by the world, especially American and European institutions and governments, has led to such a state of affairs.

When did the problem begin?

Soon after the dogs of war were let loose and Zimbabwe took to arms in the war in the Congo in 1998, production levels, investment, education, peace, prosperity, growth. . . everything began to be hit hard.

And then in 2001 came President Robert Mugabe’s new orders. The Zimbabwean ruler, just a year after he took charge, and began to seize commercial farms owned by whites. This has caused huge shortages of foodstuffs and commodities in the southern African nation.

So how are Zimbabweans surviving?

Barely.

You can just about buy a loaf of bread for Z$1,000. And if you want a few bananas, you need to pay a bagful of cash.

The economy faces collapse with consumers resorting to barter as inflation and a slump in the Zimbabwe dollar erodes the value of cash.

Cash-strapped people are resorting to bartering fuel coupons for goods, such as household appliances and furniture. Some retailers prefer payment in coupons instead of local currency because of the rapid devaluation of the Zimbabwe dollar, report Zimbabwean newspapers.

What does this unprecedented level of inflation, or hyperinflation, mean?

Well, hyperinflation refers to a condition where prices of commodities rise to extreme levels quickly and the value of the nation’s currency declines alarmingly. It is primarily a state of affairs where inflation runs amok and is totally out of control.

With the nation’s inflation rate the highest in the world, the Zimbabwean government continues to print ever larger denomination notes to keep up.

What causes hyperinflation?

The collapse of Zimbabwe’s economy and the government’s response of printing more money to pay its debts have led to the highest inflation in the world. The Zimbabwwe dollar is currently trading on the black market at $30 million Zimbabwean for US $1.

Among the major causes of hyperinflation is a huge rise in money supply, decline in a flood of the nation’s market with money unbridled increase in the money supply or the devaluation of the local currency caused by economic depression, calamity, political or social cataclysms, or war. This, in effect, hits the productivity of a nation leading to a sharp decline in availability of goods and services. It also leads to widespread unemployment.

A tsunami of unparalleled proportions

Even attempts to print more and higher-denomination currency notes does not quell the inflationary tsunami as the pace of rise of inflation is much faster and even the newly minted currency notes quickly lose their value.

Hyperinflation leads to hoarding, flight of capital, even exodus of people, a complete halt to new investment, production and jobs. It is a condition from where the economic recovery of a nation is very difficult and could take years to come back on an even keel.

Inflation in Zimbabwe

In Zimbabwe, inflation was at 625 per cent in early 2004. In March 2007, it jumped to 1,700 per cent . By June 2007, inflation had shot up to 11,000 per cent. In July 2008, inflation skyrocketed to 2.2 million per cent.

And now in September 2008, inflation has reached uncharted area at 11.2 million per cent!

A $10 trillion note!

The Zimbabwean central bank cut 10 zeroes off its currency last month, revaluing the $10 trillion note to $1,00 Zimbabwe dollars, in a bid to ease widespread cash shortages as the country battles the world’s highest inflation rate.

The bank has introduced a series of new notes since August, after the central bank struck 10 zeros off the local currency.

Zimbabwe’s currency is trading around Zimbabwe $350 — $35 trillion in the old value — against the US dollar.

But this new Z$1,000 note can only buy a loaf of bread.

What is Zimbabwe’s economic mainstay?

Tourism, agriculture and mineral exports are the cornerstones of the Zimbabwean economy. These sectors are also the nation’s biggest foreign exchange earners.

Zimbabwe has some major tourist attractions, like the Victoria Falls, et cetera.

A never-ending crisis

Zimbabwe’s political crisis has worsened ever since President Robert Mugabe claimed victory in a ‘no contest’ election as Morgan Tsvangirai, leader of Zimbabwe’s main opposition party Movement for Democratic Change Morgan Tsvangirai, boycotted the polls in protest against violence against his party.

Mugabe has also been accused of massive violations of human rights, and many of the cricket-playing nations star players have quit the country to settle down in other nations.

A political problem

Zimbabwe’s leaders — who were set to sign a historic deal on September 15, 2008, to divide power among political rivals after months of ruinous standoff between President Robert Mugabe and the opposition — had raised the hopes of people as they buckled under huge inflation and poverty.

But the deal fell through as they rivals could not come to any agreement. The nation’s worsening political scenario is leading to more rise in inflation, food shortages and widespread unemployment.

Why have the talks failed?

A political deadlock over who will control the government has hindered efforts to ease Zimbabwe’s economic crisis.

The talks were aimed at ironing out the power-sharing deal. While the two rivals have broadly agreed that Mugabe will be President and Tsvangirai will become the nation’s prime minister, the demand that the prime minister will be the head of the government and the Cabinet has not gone down well with Mugabe.

However, efforts are on in right earnest to find a solution to this problem.

How will the political talks help solve the economic problem?

As soon as Zimbabwe demonstrates some political stability and the rival parties come to some agreement, the International Monetary Fund will help it with policies to stabilise the economy, improve social conditions and reduce poverty.

The IMF Managing Director Dominique Strauss-Kahn has urged the Zimbabwean government to take steps to show clear commitment to a new policy direction and to seek the support of the international community.

The IMF has, however, said that the country’s leaders must first make clear commitments to rescue the economy.

With political stability, Zimbabwe can look forward to foreign investment coming into its various sectors, a rise in production and jobs, better education leading to better manpower, improved life spans, and better times.

Although it might take a while, economic conditions in Zimbabwe can become better.

Courtesy :- Rediff

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7 Comments »

  1. 1

    Nice writing style. I look forward to reading more in the future.

  2. 2
    Bhakti Behere Says:

    Lots of information in the small size…. really appreciate that.

  3. 3
    battakiran Says:

    Thanks for all your comments.

  4. 4
    Bon Says:

    oh god thank you so much i havne’t start reading yet but this will really help my econ homework.
    tehre’s jus SO much info out there it’s so nice to read it all like that.
    thanks!

  5. 5
    dapatriot Says:

    wow this is very well written, it will help me alot with my presentation about Zimbabwe. Thanks to you!

  6. 6
    subalternate Says:

    good post, Battakiran!

  7. 7
    ramdeep Says:

    Very Good Post… Interesting Writing Style…. Keep up the great work… 🙂


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