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Imf advice Zimbabwe cause inflation { April 16 2004 } Original Source Link: (May no longer be active)    http://allafrica.com/stories/200404160514.html http://allafrica.com/stories/200404160514.html Government, IMF Haggle Over Cheap Industry Loans Financial Gazette (Harare) NEWS April 16, 2004 Posted to the web April 16, 2004 By Nelson Banya Harare THE government, desperate for external funds to stabilise its finances, is ironically playing hard ball with the International Monetary Fund (IMF) over the productive sector facility (PSF), which the international monetarists fear could fuel festering inflationary pressures. Finance and Economic Development Minister Chris Kuruneri confirmed to The Financial Gazette that the visiting IMF delegation, which was in the country for two weeks in March, had expressed concern over the potentially inflationary effects of the facility. He however said the government, whose desperate efforts to lure back the IMF after it slammed the door on Zimbabwe some seven years ago have so far drawn a blank, would not abandon the concessionary fund. The government decision to stick to its guns over the PSF could further stiffen the hand of the IMF, which has been accused of misplaced missionary zeal for fiscal rectitude to the detriment of most emerging markets. The Bretton Woods institution's balance of payments support for Zimbabwe was put on ice after protracted haggling over policy issues. "They had a lot to say about it and raised the issue that if the funds are not superintended properly, they could be inflationary and compromise our fight against inflation. "But we had to be firm on the usefulness of the fund, and indicated that we were relying on our sources for the funds. It is prudent to support our own producers in order to kick-start our exports," Kuruneri said. The IMF delegation, which was in the country from March 17 to March 31 on routine Article IV consultations, noted what it termed "strong policy efforts", particularly the tightening of monetary policy, but indicated that it was imperative to guard against a loosening of the new measures. The IMF, which has been accused of hard-headed stances on fiscal issues, stressed the need to consistently focus monetary policy on taming inflation and reducing pressure on the exchange rate. In line with this, the delegation had also pointed to the PSF, through which the Reserve Bank of Zimbabwe (RBZ) has advanced close to $1.5 trillion to the productive sector at a concessionary interest rate of 30 percent. Economists have also cautioned that should the facility lack sufficient monitoring, a huge portion of the funds could be channelled to speculative and consumptive purposes, which are inflationary. The RBZ has targeted to bring down inflation, which eased to 602.5 percent in February on a year-to-year basis, to levels between 170 percent and 200 percent by the end of the year. A Harare-based economic commentator who did not want to be named said the concessionary funds would not fuel inflation but help contain it through bolstering the supply side. "The facility actually has to be expanded, not shrunk. It is not inflationary because it is being monitored to see that funds are being applied to productive purposes. "It is necessary that we address the supply side of the equation in the fight against inflation," he said. The concessionary fund has been accepted by both the government and the private sector as a necessary evil as the productive sector struggles to cope with the recessionary pressures that have beset the country in the past five years. However, most producers have used the funds to retire debilitating debts, which had soared on the back of an interest rate rally late last year, while not much has been committed to actual production. The economist said any moves to scrap the facility in the current circumstances would be destructive. "We are being asked to destroy our infrastructure and our productive base. That advice (from the IMF) should be listened to but not taken. We are industrialising our economy, which will mean more jobs and less consumption of foreign products," he said. -------------------------------------------------------------------------------- Copyright © 2004 Financial Gazette.

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dollar { October 12 2007 } Long term rates stay low despite short term rates { September 20 2005 } Low interest trade deficit causes devaluing dollar Low value encourages investment outflows { January 5 2004 } Markets forcing fed to cut rates { September 2007 } No attempts to boost falling dollar Oil price strike puts inflation back on agenda { May 7 2004 } Oil soared as dollar fell { May 2008 } Overseas investors buy aggresively in US { January 20 2008 } Retail sales is two thirds of US economic Russia banks on europe not US Russia may switch to euro for currency stability South america plans single currency Strange dollar effect on the market Trade deficit swells to record 43bn { March 11 2004 } Trade gap narrows United nation pushing world currency US ballooning trade imbalances threatens world stability { April 7 2005 } US banks likely to fail over bad loans { May 29 2008 } Us issues color 20 bill { October 9 2003 } Us trade deficit threatens world economy { January 7 2004 } Us treasury may name currency manipulators { October 29 2003 } Venezuela dumps dollar reserves for euros { September 30 2005 } Warren buffett sees nowhere but down for dollar Weak dollar will help says greenspan White house says china is not manipulating money World bank board approves wolfowitz as next president { March 31 2005 } Yen sell off currency lower value Files Listed: 104

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