It has been more than 15 years since the former Reserve Bank of Zimbabwe, Dr. Gideon Gono published his book, “Zimbabwe’s Casino Economy: Extraordinary Measures for Extraordinary Challenges.” He takes 232 pages to give context, understanding and defense to his monetary and extra monetary policies which were enveloped in a period of major economic overhaul in Zimbabwe, triggered by the land reform program. High inflation, quasi-fiscal monetary activities, speculation and international financial system dynamics all came to play which this article elaborates on providing the overall argument that Zimbabwe’s current economic climate of a second hyper-inflation period (2017-til present) is similar to the first and several key facts and results of Gono’s policies that he fails to mention in his treatise is tantamount to economic gaslighting for the lived experiences of Zimbabweans during that period.
The major precursor to the book which influenced Dr. Gono’s reasoning and policies was the land reform program in Zimbabwe which started earnestly in 1998 and was fast-tracked in 2000. The author notes that the United Kingdom through its Secretary of State for International Development, Clare Short, reneged on their commitment agreed upon in 1980 at the Lancaster House talks between Colonial Britain and Zimbabwe liberation leaders, to support the land reform programme financially. The Zimbabwe government of the early 2000s went ahead with the land re-distribution and Dr. Gono notes that before 1999, bank loans towards agriculture were 90% of their loan book but by 2003, it had dropped to 10%. With agriculture being a mainstay of the Zimbabwean economy at the time, this reduction in financing led to as Dr. Gono states "the joints of the economy's limbs had literally been drained of the necessary lubrication for business, households and industry to thrive.”
The economic downturn that inevitably followed the land reform program led to high inflation becoming commonplace in Zimbabwe’s economy and Dr. Gono argues that it was precipitated by two factors: financial speculators and financial sabotage caused by the economic sanctions. Regarding the former, financial speculators included economic and financial agents such as asset managers, stock exchange brokers, and bank tellers connived to create false cheques, money-laundered, false receipted exports and imports, and invested in the stock exchange creating profit-making cycles that drove inflation to new echelons on a weekly and then daily basis. These activities are the inspiration behind the title of the book including the term, ‘casino’, as Dr. Gono likens these speculative activities to those of gamblers betting against the nation.
The twin evil of the speculators are the sanctions that were promulgated by Western countries led by the United States of Americas’, Zimbabwe Democracy and Economic Recovery Act (ZIDERA) of 2001. Dr. Gono goes to great lengths to explain how the sanctions affected Zimbabwe’s ability to receive international credit from global institutions like the International Monetary Fund (IMF), World Bank (WB) and caused reduced finance in the country from United Nations branches such as the United Nations Development Programme (UNDP). He does a gallant effort to show how sanctions affect lines of credit, NGO funding, export markets, foreign loans, increased costs of loans with the country being seen as high risk. Dr. Gono succinctly concludes that, “The world's highest inflation rate is presently gripping Zimbabwe is in fact driven by the casino economy. This is an extraordinary circumstance with multiple causes of which the main ones are rooted in the negative and destabilizing response of some powerful western countries to Zimbabwe’s historic land reform programme that started in June 2000.”
Significant portions of the book detail how Dr. Gono and the Reserve Bank responded to the challenges of the economy at the time. In these sections, he explains quasi-fiscal monetary actions that Dr. Gono incorporated which requires some further explanation. Traditionally, monetary authorities operate in a defined area of collectively known as monetary activities. This includes monetary policy formulation and implementation, regulating and supervising banks, issuing banknotes and coins, custodian of gold and foreign assets, banker of the government, and the lender of last resort to banks. These operations are ideally done with the Reserve Bank being informed by but independent of government activity and influence. These monetary parameters according to the Governor were not enough to respond to the challenges that Zimbabwe was facing at the time, arguing, "When a national economy experiences real, persistent and unprecedented structural blocks and where those shocks transform the market economy into a bubble driven casino economy as happened in Zimbabwe from 2000 onwards, monetary policy must then necessarily do more by getting out of the traditional mandate-toolbox in order to take into account the contextual factors on the ground from a pragmatic point of view. "
This pragmatic view turned out to be the quasi-fiscal monetary activities. Quasi-fiscal activities are when a Central Bank carries out fiscal activities that are usually conducted by fiscal authorities such as line ministries, in Zimbabwe’s case, the Ministry of Finance as an example. These quasi-fiscal activities included the Farm Mechanization Programme, which procured agricultural equipment worth US$200 million through FISCORP, its wholly-owned subsidiary and the Basic Commodities Supply Side Intervention (BACCOSSI) to alleviate the acute shortages of goods in supermarkets. Dr. Gono argues that he had to take on these activities because of "marked accumulation of inexplicable backlogs of unimplemented fiscal projects whose primary effect was to blunt the overall responsiveness of the economy to policy stimuli." In other words, his defence is that because of the political stalemate between ZANU PF and MDC, he had to step in and carry out work to keep the nation moving along. He goes on to liken his quasi-fiscal activities to those of USA and Europe in response to the Global financial crisis of 2007-2008 where his counterparts at the Federal Reserve Bank and the Bnk of England pumped money into the economic system, commonly known as the Quantitative Easing programs.
It is no doubt that Dr. Gono believed in his policies. The book which reads as a career auto-biographical piece elucidates the high levels of self-confidence which spilled over into an obsessive saviour complex fuelled by blind patriotism. His comparison of his policies being similar to those of the reserve banks of USA and England are what is known as a false equivalence. Although comparable, the contexts were very different. USA and England could print billions of dollars into their financial system because as the dominant currencies of the world, backed by the largest economies, they could take on such a bold policy and the markets would respond more favourably than they would to a developing country carrying out the same. In policy making, the capacity to carry out a policy is important. Dr. Gono’s quasi fiscal activities hastened hyperinflation in Zimbabwe rather than saving the nation from it.
Moreover, the approach the quasi-fiscal activities were executed were completely different. USA and England’s quantitative easing programs remained firmly in the financial sector as they saved failing banks, like what Dr. Gono did with the failed banks like Trust Bank, Royal Bank, Barbican Bank etc. However, taking over the administrative process of implementing policies such as the Farm Mechanization and BACCOSSI programmes was a step too far, evidenced by their abject failure. This quasi-fiscal exuberance was induced by a very close relationship between himself and President Robert Mugabe. Dr. Gono defends this relationship arguing that it is in no way different to the close relationship Alan Greenspan has enjoyed with American Presidents. An outsider would argue that such close relationships between monetary and fiscal authorities is the problem in both contexts. This becomes another case study about how the notion of the central bank being independent from government is in practise, extremely unfeasible.
This is not to say that his argument that sanctions had and have a crippling effect on the economy is incorrect. On this point, he is accurate. USA’s control and dominance in global financial system is unparallelled. The effect of sanctions on a nation’s financial system can be crippling as shown in case studies such as Iran. More so for Zimbabwe which as a former colonial state was highly dependent on western financial systems.
Dr. Gono repeatedly defends his policies arguing with a messianic tone that if it was not for his policies, the nation would not have survived this period. However, he doesn’t provide any policy results to show the impacts and outcomes his policies. This is mostly likely because his governorship’s impact was the highest inflation ever for a country, high emigration, and a steep increase in poverty levels. The pertinent outcome was that the Farm Mechanization Programme and high inflation resulted in a significant wealth transfer from the common person to national elites who received loans through the quasi fiscal programme which have been wiped out because of inflation or the loans have been transferred from the Reserve Bank balance sheet onto the country’s debt balance sheet which will have to be paid via taxes through the Debt Assumption Act (2015).
The context of Zimbabwe’s land reform is that it angered Western powers and Zimbabwe was used as an example to the rest of the developing world of what can happen when a nation is not prepared to take on hard line responses from developed nations that have their self interest in protecting property rights of elites of any kind, be it land, finance, intellectual property etc. This had adverse effects on the economy coupled with ZANU-PF’s need to cling onto power. The Reserve Bank of Zimbabwe became a pawn in ZANU PF’s continued control of the state and Dr. Gono was a compliant servant, maybe because he saw his work as serving a patriotic cause. However, the outcome is that his work and policies have served as a handbook used by the incumbent Governor, Dr. John Mangudya to balance out pressing national financial constraints and the need to retain political and economic power for the national elite. The cost is inflation which in political economy terms, is the process of stealing economic value from the common person directing it to the elites.
Comments