“Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.”
— Ronald Reagan
In the innocence of childhood, we often asked our father “Dad, why is there poverty in our country? Why doesn’t the government just print money and give it to all?”. Of Course, the explanation was beyond our understanding at that point in time. But now, we have an example of Zimbabwe to analyze the consequences of excess printing of money leading to hyperinflation and economic collapse.
Presenting some facts on Zimbabwe’s hyperinflation:
It was in June 2015 when the Reserve Bank of Zimbabwe gave up on all efforts to save the country’s economy. The Zimbabwean dollar was decommissioned at the rate of 35 quadrillions per US dollar. (Yes, You read it right: it’s like this – US $1= 35,000,000,000,000,000 Zimbabwe dollars, so many zeroes, right?). Further, any Zimbabwean dollar in circulation post 30th Sept 2015 was considered worthless.
Zimbabwe had already adopted US dollar as its main currency in 2009 despite Zimbabwean dollar in circulation. This had happened in the backdrop of extreme economic instability. The highest monthly inflation reached 79,600,000,000% in November 2008, with prices becoming twice every 25 hours. They were just short of Hungary’s record of 41,900,000,000,000,000% inflation in July 1946.
The current situation in Zimbabwe not only displays an economic breakdown but a complete political and governance failure. The President of Zimbabwe Robert Mugabe, after 37 years of the tyrannous regime, finally resigned on, Tuesday afternoon i.e. 21st Nov 2017 amid impeachment proceeding against him in the parliament. A week prior to that, the military took over. It put the President under house arrest and assured the citizens to bring back stability in the country. Such military coup was the result of Mugabe firing Mnangagwa, the Vice-President, in a bid to clear the way for his wife, Grace, to take over as President.
Well… the story has just started. It dates back to 1980 when Zimbabwe became an independent nation.
Origin: Where it began
After intense guerilla fighting and backlash, elections were held in Zimbabwe under the supervision of British regime in the year 1980. Zimbabwe African People’s Union and the Zimbabwe African National Union were two major political parties that emerged post the Independence struggle in Zimbabwe.
The Robert Mugabe led Zimbabwe African National Union won elections forming the first democratic government of the country. Both parties had signed Lancaster House Agreement according to which the newly formed government was not allowed to capture and seize the farmlands, majorly owned by whites for the next ten years. Any land acquisition could be done through willing seller and willing buyer concept. As a result of which Mugabe government could acquire only 40% of the targeted 8 million hectares of land.
As the agreement expired the first land acquisition act was implemented in 1992, which empowered the government to compulsorily buy lands at fair compensation criteria from the landowners. Further, in 1996, the government decided to acquire 50000 sq. km of land from the 120000 sq. km owned by whites and public corporations. As elections approached, the government decided to implement fast-track land acquisition from 2000.
Despite losing the referendum, which aimed at empowering the government to take away the lands from the white owners without giving them any compensation, the government started adopting violent measures against the landowners. To remain in power and for political appeasement, the government encouraged the army veterans and other supporters to wage a war against the landowners. As a result, white owners were thrown out of their lands without any compensation. Millions of black people working in those farms went unemployed thereafter.
In order to win the support of the war veterans, the government decided to pay them huge pensions with various other financial incentives. They were also encouraged to indulge in corrupt and illegal activities, allowing them to overthrow the white owners from their lands, illegally. This led to immediate food shortage followed by two years of bad harvest and ultimately to country’s worst famine in past 60 years.
In the midst of a shortage of basic food items, central bank printed money to finance the imports and hence leading to what we call Hyperinflation or Mega-inflation. On the top of that government shifted its focus from farms to mines. Therefore, thousands of military troop deployment was done by the Zimbabwe government in Congo in order to protect the mining investments made by Mugabe’s party leaders and elites in the Democratic Republic of Congo.
Robert Mugabe’s Role
Robert Mugabe as a philanthropic has played a very crucial role in shaping the Zimbabwean crisis. During the March 1980 victory speech, the then newly elected President Robert Mugabe spoke about finally achieving his vision of black majority government. “I urge you, whether you are black or white, to join me in a new pledge. To forgive our grim past, to forgive others and forget.”, said, Mr. Mugabe. People saw this as a reaffirmation of Zimbabwe’s bright future. But apart from a few things nothing much concrete hardly materialized and Mugabe’s radical policies remained more a rhetoric than a reality. Since then, foreign aid and investment have continued to flow in. Zimbabwean Literacy rate is considered to be amongst the highest in Africa thanks to the international aid organizations working tirelessly from the last few decades.
A defining moment in Mr. Mugabe’s arrangement of presidential reforms was the year 2000. He propelled “fast track” changes to empower a vicious takeover of cultivable land of white people, at that point the main contributor to the national economy. The vast majority of the land seized was given to the natives of Zimbabwe who wanted involvement in present-day rural practice; many were picked on the premise of their associations with Mr. Mugabe and his gathering, the Zimbabwe African National Union Energetic Front (Zanu-PF). This essential wellspring of fare income for the nation, Zimbabwe’s homesteads all of a sudden destabilized —and sent shock waves through the economy.
The financial circumstance had been extended as of now, with Mr. Mugabe having involved Zimbabwe in Congo’s civil war. His national bank started printing cash speedier, to pay off obligations and remunerate war veterans, seen as an essential mainstay of Mr. Mugabe’s help, and to balance higher costs caused by the economic failures. At a certain point in 2008, inflation hit the rate of 231,000,000%. The exchange rate became as huge as the $100trn Zimbabwe-dollar charge—worth about around 40 pennies at the season of its downfall.
Hyperinflation finished up when the Zimbabwean dollar was rejected by and large for a multi-currency framework in which the American dollar was dominating. Thus Zimbabwe had to adopt US dollar as its main currency. Mr. Mugabe’s dangerous monetary driving forces were tempered but only for a short period of time. In any case, since continuing complete control in 2013, he’s come back to his natural propensities.
Till now in order to support his various schemes, Mr. Mugabe has ended up spending recklessly without having the money, violating the basic legal principle “Nemo dat quod non habet“ throughout his administration.
What started as a democratic uprising has ended being an autocratic, undemocratic and oppressive rule causing all forms of sufferings. This has resulted in Mr. Mugabe bringing Zimbabwe to its knees due to gross economic mismanagement.
Robert Mugabe has resigned with immediate effect after 37 years of power in the top position of the country. Zimbabwe is thus entering a new era that seems hopeful but is equally uncertain. Zimbabweans, soon after the announcement of Mugabe’s resignation, rushed and crowded the roads of Harare honking car horns, waving flags, singing, dancing and cheering to what meant to them and the country, a big victory. No immediate details were given by the generals, allies or party members about the actions to be taken upon Mugabe and his family. It was certain that Mugabe would have negotiated well before resigning about his future in the current situation. His resignation served as a constitutional transfer of power which would otherwise have been the change in government effected at gunpoint.
As Zimbabwe will elect its new President and parliament in July next year, the new government’s biggest challenge would be to take the country out of its political and economic crises. And post-Mugabe’s resignation it is expected of the military to step aside and allow democracy to play its role and take Zimbabwe to a brighter tomorrow.
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