Precious Dollars in Zimbabwe
By Patrick McGroarty in Johannesburg and Farai Mutsaka in Harare, Zimbabwe
Street
hawker Yvonne Chikotsa last visited a bank in 2008, near the zenith of
Zimbabwe's hyperinflation. She would wake each morning at dawn to beat
long lines and withdraw more than one trillion Zimbabwean dollars, which
was what a loaf of bread cost at the time.
"I still have mortal
fear of banks," said Ms. Chikotsa, who sells used clothing at a market
in Harare's impoverished Mbare district. She blames the Reserve Bank of
Zimbabwe for allowing the runaway inflation that destroyed the value of
her modest income. Now, she says: "My pillow is my bank."
Zimbabwe's
economy is growing, in part because the government in 2009 discarded
the country's currency in favor of the U.S. dollar. The move tamed
inflation and slowed a rush to the exits for investors. Yet deep-seated
distrust of the government's handling of money matters lingers among
ordinary Zimbabweans, depriving banks of the deposits they need to drive
a faster economic expansion that might ease some of the country's
tensions.
The uncertainty has turned Zimbabwe into a nation of
hoarders. The grubby graying American dollars on Zimbabwe's
streets-including bountiful supplies of $2 bills, last printed by the
U.S. Treasury in 2006-attest to a robust cash economy that largely
bypasses the country's banks. Deposits in Zimbabwe's banks have
recovered from $1.25 billion at the beginning of 2010 to some $3.3
billion since "dollarization," but people hold more than that amount-or
about $3.5 billion-outside of banks, according to the Bankers
Association of Zimbabwe.
Zimbabwe's cash-starved banks, and a
central bank that has lost control of its currency, mirror challenges in
other countries, including Greece, Malawi and Swaziland. But troubles
at Zimbabwe's central bank have reached a different level of
dysfunction.
Over the past decade, the reserve bank lent $1.5
billion to President Robert Mugabe's government for pet projects. The
bank now owes $1.1 billion to a cast of regional development and central
banks that it says it can't repay because the government hasn't
reimbursed it.
Gideon Gono, who has led the reserve bank since
2003, is also battling allegations he has embezzled millions in central
bank funds for personal use. Mr. Gono hasn't publicly addressed the
allegations, and in an email response to The Wall Street Journal, Mr.
Gono declined to comment in detail. He said he would "respond to
pressures" about the allegations "at the appropriate time."
In the
meantime, the bank can't even serve as Zimbabwe's lender of last
resort. The government is in talks with the African Export-Import Bank
to create a $100 million program to restart the lender-of-last-resort
facility.
Short of that, if the central bank can't step in to guarantee bank lending, liquidity will dry up, which is what has happened.
The
string of troubles has left Zimbabwe's financial system gasping,
depriving businesses of capital at a time of sky-high unemployment.
Zimbabwe officials estimate 90% of the country's working-age population
is unemployed.
After Zimbabwe abandoned its currency in favor of
the greenback, the economy grew at an annual rate of 6% in 2009 and 9%
in 2010. But growth dropped back to a rate of 6% last year and will fall
to 3.1% this year, the International Monetary Fund predicts.
The
crippled banking sector is contributing to the eroding growth rate, said
Yvonne Mhango, Renaissance Capital's economist for sub-Saharan Africa.
"Basically there is no monetary policy. I think they're out of ideas," Ms. Mhango said.
The banking troubles have dimmed an already bleak investment picture.
The
country has untapped deposits of platinum and rich agricultural land.
But few are willing to risk losing their investment to the
"indigenization" agenda of President Mugabe, which aims to transfer
farms and control of businesses and mines to blacks.
The Reserve
Bank of Zimbabwe's ideas for shoring up the financial sector have had a
similar effect, economists say. In February, the central bank demanded
that foreign banks, including Barclays PLC and Standard Chartered PLC,
keep at least 70% of local deposits and assets in the country. Mr. Gono
has promised meetings with banks and unspecified punishment for those
that don't comply.
A spokeswoman for Standard Chartered in Harare,
Lillian Muchafara Hapanyengwi, said the bank always tries to comply
with local laws. "All regulatory issues are given the highest
attention," Ms. Hapanyengwi wrote in an email. Barclays didn't respond
to requests for comment.
The demands have made banks hesitant to lend in Zimbabwe, hurting small domestic ventures that need capital to expand.
Tofara Kwenda, who earns $1,000 a month as a field officer for a
democracy-advocacy group, applied last year for a $2,000 loan from
Standard Chartered to open a candle-making business.
He says the
bank never ruled on his application, even after a bank official called
to scold him for complaining on his Facebook page about the slow
process. Eventually, he got a loan from one of the many for-profit
microfinance firms that have proliferated in Zimbabwe as traditional
banks have pulled back.
"The banks are not grateful," Mr. Kwenda
said. "I am just using my bank account as a conduit to get my salary,
which I immediately withdraw and keep at home."
The distrust of
banks is a problem for small domestic lenders that haven't been able to
rebuild deposit bases enough to expand their businesses, economists say.
Many of Zimbabwe's local banks have merged or sold majority stakes
after struggling to meet capital requirements. The government is pushing
for more consolidation.
Meanwhile, Zimbabweans are trying to get by without traditional loans and bank accounts.
Ms.
Chikotsa, the 33-year-old clothing merchant in Harare, said she had
never heard of Mr. Gono or Zimbabwe's reserve bank until her small
deposits started losing their value so rapidly.
"We were only
taught to count to a thousand when we were in primary school, but that
man, Gono, got us to know figures that we never thought existed," Ms.
Chikotsa said.
The government says it wants to compensate
depositors for the money they lost. But three years have passed, and Ms.
Chikotsa is still waiting.
Write to Patrick McGroarty at patrick.mcgroarty@dowjones.com ...
