By Dr Tafataona Mahoso

READERS would have noticed that my April 30 2015 instalment ended without suggesting an alternative to the International Monetary Fund (IMF’s) prescription of imminent shrinkage and contraction of the Zimbabwe economy as the best path to ultimate recovery and growth.
I hope too that readers noticed that The Sunday Mail (May 3 2015) was forced to return to the national currency debate (to the extent of repeating the very same arguments) which my ‘African Focus’ column started there as far back as 2009.
But back to my last instalment: Before exploring alternatives to the IMF’s prescription of a policy of economic shrinkage and contraction for purposes of extracting higher debt repayments — more of its effects should be pointed out:
A policy of demand shrinkage and contraction in the face of increased tax extraction has the effect of defeating the national objectives of the President’s mega-projects programme.
This is so because contraction and shrinkage in the face of intensified tax collection has the effect of undercutting and even eliminating the would-be partners for the foreign firms bringing in Foreign Direct Investment (FDI) through mega-projects.
The foreign investors will have no one to trade with or to subcontract their operations to once in Zimbabwe, since these potential partners would have been destroyed through contraction, shrinkage and aggressive tax collection.
This would force the foreign investors to try to bring in self-contained projects whereby even sweepers and minor technicians have to be brought in from outside because there are no longer any meaningful local employers to provide the skills and organisational support which could otherwise be sourced locally.
The destruction of so many indigenous banks in recent years, for lack of national money, is a perfect example of the collapse of potential local partners for the foreign investor.
Second, shrinkage and contraction of the demand side in the face of aggressive tax collection have the effect of destroying the social sector — education, health services, medical aid, insurance — and triggering, ‘IMF riots’ which end up scaring away the same valued foreign investors.
Most foreign investors hesitate to venture into new economic environments where social services and amenities are perceived as deteriorating or where there are frequent strikes and riots.
Third, the real purpose of the policy of contraction and shrinkage of the demand side in the face of intensified tax collection is to increase short-term revenue for the purpose of meeting accelerated debt payments at the expense of medium-term and long term national interests and objectives.
After extracting increasing volumes of revenue and meeting a few tranches of debt repayment, most countries in such a situation find that there are fewer and fewer viable and growing entities to tax further.
The aggressive tax extraction will have left behind a near-wasteland of collapsed or shrinking companies and impoverished tax payers.
Fourth, the IMF-dictated policies arising from Staff Monitoring Programme (SMP) will increase mass poverty and inequality by reducing the real incomes of the majority and inducing the povo to borrow money to survive, to pay school fees, medical aid shortfalls and local government rates.
This has the effects of increasing debt at a time when GDP is also being depressed through the overall contraction and shrinkage policies.
When coupled with the absence of a national currency, the depreciation of the South African Rand and the appreciation of the US Dollar, these contraction and shrinkage measures have the immediate effect of flooding the country with agricultural and other products from the Rand area and therefore stunting if not wiping out Zimbabwe’s agrarian revolution by making it too expensive and by ensuring that it has no market even in the midst of drought at home.
The bond-coins programme of the Reserve Bank of Zimbabwe is a clear recognition of the dire need for a national currency, but this timid initiative complies with the IMF’s demand for continuing contraction and shrinkage by reducing the currency need to a change problem and by tying even our own change to the appreciating US Dollar.
The bond-coins programme, though welcome, is too timid to address the urgent need for locally-driven growth.
The currency challenge is far bigger than just a change problem.
For Zimbabwe, the short-termism dictated through financialisation and SMP amounts to a rhetoric that says it is wise to commit short-term suicide in order to live long in future, when in fact there can be no such long term future after the short suicide.
In other words, it was a strategic mistake for ZIMRA in 2014, for instance, to embark on aggressive tax collection blitzes back-dated to 2009.
Back-dating the blitz assumed the period from 2009 to 2014 was normal.
But the reality on the ground was that the apparent economic recovery from 2009 to 2011 was abnormal and temporary and the economic emergency of 2007-2008 was not yet over for most tax payers.
The alternative(s) to shrinkage, contraction and aggressive extraction of debt repayments
Gerald Epstein was interviewed by Adam Hersh on problems caused by the sort of financialisation imposed by the IMF and World Bank against what most economies actually require; Epstein said:
“But what economies primarily need are financial institutions that can mobilise long-term, patient capital and allocate it to dynamic and productive sectors of the economy — institutions that can help workers and investors save for important needs, such as education, housing, (health), and can diversify risks…
“Instead, financialisation has contributed to short-termism and impatient capital, diversion of resources to speculative investments, increases in risks for most workers and middle class investors.”
In other words, Zimbabwe, Venezuela, Greece and other countries need, “space to find policy solutions drawn from real (and comparable) success stories and their own institutional conditions for themselves…
At the regional and local levels, this policy space (being attacked by the IMF via SMP) must be used (by Madzimbahwe) to embed industrial, agricultural and social sectors of the (local) economy (in order) to provide long term capital and widespread financial services.”
Such an approach would meet what the Constitution of Zimbabwe calls “balanced development.”
As Zimbabwe found out in 2007-2008, long term investment in public education institutions was a real productive investment which saved the nation from a complete melt down because Zimbabwe’s skilled professionals employed abroad continued to send home critical remittances which saved the day.
Against that reality, present policy pronouncements arising from the IMF’s Staff Monitoring Programme have started once again to create the impression that investments in education and health are mere and sheer liabilities irrelevant to the need to attract foreign direct investment.
Yet the reverse is true.
Patient, long term investors of any integrity will value an investment environment boasting of quality primary, secondary, tertiary and higher education systems as well as first class health facilities.
They will value an investment destination where their workers and professionals are able to access quality health services, viable medical aid, sustainable of power, water, communications and transport.