Has Zimbabwe’s Runaway Inflation Finally Been Tamed?

By a TIME correspondent inside Zimbabwe

zim_inflation.jpgSeated on a wooden chair inside his dilapidated shack in the Harare township of Mbare, primary school teacher Moses Majuru, 40, is both anxious and excited about the week ahead. Life has become a bit easier recen

The decision to "dollarize" Zimbabwe’s economy, one of the first acts
of the new unity government (including erstwhile enemies President
Robert Mugabe and Prime Minister Morgan Tsvangirai), has brought a
small amount of stability to the economically ruined country. All civil
servants now earn a monthly salary of U.S. $100, while shops and banks
accept dollars and rands.

The move to dump the Zimbabwe dollar has also stemmed the country’s
runaway inflation. This week the government announced that prices were
0.8% lower in January after years of multidigit increases. The last
official measure of inflation, in July last year, put it at 231 million

The change is more than welcome. Prices now stay constant for days a
novel concept in a country where shop owners had until recently
recalculated prices twice a day. "This allowance, though not enough,
sees me through the month," says Majuru. "I can plan what my salary can
and cannot buy since prices have stabilized. I could not do that when
our dollar was the official currency."

But not everyone is happy. Street vendors and people in the massive
black market have been hit as business shoppers are turning to the
formal sector for the first time in years. Competition has increased as
well. Shops have suddenly started stocking goods that were previously
unavailable. The goods range from basic commodities such as corn,
sugar, soap, salt and bread to furniture, which Zimbabweans have had to
travel to neighboring countries to buy. "Dollarization has thrown me
out of business. No one buys from me. People now buy from shops and
authorized dealers," says Tavonga Munjeri, who sells credit cards for
cell phones.

Zimbabwe is facing its worst economic crisis since independence almost
three decades ago. On top of its abandoned, worthless currency, the
once prosperous agricultural economy is bankrupt. The country’s new
Finance Minister, Tendai Biti, announced on Wednesday that Harare has a
monthly expenditure of about $100 million but can raise only $20
million a month. The government estimates that an average family of
five requires about $550 a month, far more than what most people earn.

International institutions and Western governments have said they will
assist Harare if the new government meets certain demands. "IMF staff
stand ready to continue to assist the authorities through policy
advice," the fund said in a statement on Wednesday, after its team
finished a two-week visit to the poverty-stricken country. But
"technical and financial assistance from the IMF will depend on
establishing a track record of sound policy implementation, donor
support and a resolution of overdue financial obligations to official
creditors, including the IMF." Zimbabwe owes the IMF and other
institutions more than $1 billion.


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