Henry Munashe Jaji: Instilling public confidence key to the success of any government
By Henry Munashe Jaji
Adlai Stevenson, a former American vice President once said, “Public confidence in the integrity of the Government is indispensable to faith in democracy; and when we lose faith in the system, we have lost faith in everything we fight and spend for.”
This statement underscores the importance of public confidence as a test of the efficacy of a government. The fundamental principle of administrative law has always remained the same, namely, that in a democracy the people are supreme, and hence all State authority must be exercised in the public interest.
In light of the preeminence of people in a democracy, it is imperative that people feel that the administrative system is fair and efficient.
Since the purpose of administrative law is to ultimately serve the interests of the people and the people must be confident about the administrative functioning.
There has been a raging debate among economists with supply-side economists, arguing that to stimulate economic growth; a government must lower taxes, spending and regulation. Keynesians on the other hand argue that the government should raise taxes and increase spending in order to stimulate growth.
I am a fan of the supply side economists but in addition to their ideas, I believe a more urgent need in stimulating economic growth is to restore confidence in the future of our nation. Zimbabweans have lost faith in government institutions after the 2008 economic meltdown when the government badly mishandled what should have been a manageable financial crisis.
The 2009-2013 GNU ended the economic hemorrhaging but there is fear that the economy is going back to the dark experiences of 2008. The appointment of Professor Mthuli Ncube as the Minister of Finance in September 2018 was received by the public with great expectations.
Nine months down the line, the once celebrated technocrat has done little if not nothing to restore confidence and hope into the Zimbabwean public.
His announcement yesterday putting an end to multi-currency regime vindicated all those who have always argued that Zanu PF does not understand the nature and causes of Zimbabwe’s economic problems and can’t be able to solve them. The Minister officially de-dollarized the economy which has been dollarized for the past ten years.
Dollarization can be defined as the holding by residents of a significant share of their assets, in the form of foreign currency-denominated assets. Usually, it is differentiated between official (or de jure), and unofficial (or de facto) dollarization. The former refers to the case in which foreign currency is given (typically exclusive) legal tender status.
This implies that the foreign currency is used for purposes a currency may have, including as a unit of account for public contracts. De facto dollarization represents the situation of a foreign currency being used alongside the domestic currency as means of exchange (for transaction purposes, i.e., as currency substitution).
From 2009-2016, Zimbabwe had de facto dollarization and moved to de jure dollarization after the introduction of bond notes in 2016.
The major reason why Zimbabwe ended up dollarizing in 2009 was to stabilize the economy which was marred by hyperinflation caused by seigniorage, foreign currency shortages which resulted in black market premium, disruption of production especially in the agricultural sector and imported/cost-push inflation.
Ten years down the line the Minister has decided to de-dollarize ironically citing the same reason that he intends to stabilize the economy but the fundamental conditions have not yet changed. Inflation is skyrocketing, production is still subdued, the black market is still being trusted more than the official market and the economy is still suffering from imported inflation.
At the center of all this is a continued deterioration of public confidence. The government needs to shape public perception. There is a strong sense that our ship of state is rudderless in a treacherous economic sea.
The Minister is failing to deal with the basics, a dysfunctional regulatory system that has brought us bank failures in the past 2 decades remains in place, cobbled together with bailing wire.
John Panonetsa Mangudya remains the RBZ Governor regardless of him declaring that he was going to resign if bond notes were to fail. The same Mangudya who misrepresented that bond notes were not a currency but rather an export incentive.
Restoring confidence in our institutions requires the political will to fix what is broken. People are frightened by the policy inconsistencies that are characterizing Mthuli’s reign. Hardly three months ago, was the Minister on song swearing that the multi-currency system was there to stay.
A position that he changed a few weeks ago saying Zimbabwe was considering introducing a currency in nine months’ time and the currency came within a month.
With these inconsistencies, it is difficult for any serious business to plan and it is difficult for any citizen to have confidence in whatever the government is trying to do. Unfortunately for Mthuli Ncube, it is not what he is doing that matters, but rather what he is seen to be doing by the public.
The de-dollarization announcement of 24 June 2019 will put the final nail on the country’s economic coffin. In the short run retailers will likely respond by removing products from the shelves thereby creating artificial shortages forcing prices up.
These products will likely resurface on the black market and maybe sold in US dollars. In the long run the same retailers will struggle to restock since most of their products are imported from South Africa and they require foreign currency to restock.
In response to the rise in inflation, the RBZ is likely to respond by printing bigger bond notes denominations or bring them in a completely new Zimbabwe dollar currency. With government expected to increase civil servants salaries, they are likely to fund this rise using the printing press.
This increase in money supply which will not be backed by an increase in production will likely cause inflation to increase further. At the end of all this Zimbabwe will be back to where it was on the eve of dollarization in 2009 and the government at that time will have to dollarize again in-order to stabilize the economy.
Mthuli needed to consult all stakeholders before making his announcement because he needed all stakeholders buy-in for his new currency to see another day. June 24, 2019 will be remembered as a black Monday and Mthuli’s announcement will be remembered in history as the catalyst to a spectacular fall from grace of the stock of a once-celebrated technocrat.
Mthuli will be remembered as the worst Zimbabwe’s Finance Minister in history. History will remember him as one who failed to instill public confidence.
Henry Munashe Jaji is an Economics Phd Candidate based in Australia. He is also the MDC Australia Branch Chairman. He can be contacted on email:[email protected] or Twitter: @GosaWeHumba