Zimbabwe poised to adopt rand

10_randNothing to fear in plan, say SA economists
ZIMBABWE could start using the rand as its currency this year. The countrys finance minister, Tendai Biti, said his ministry was exploring three options and a decision would be made by the end of the year.

One of the options is to join the rand monetary union. We will also consider continuing with the [current] regime of multiple currencies or bring back the Zimbabwean dollar and redenominate it either with the rand or the US dollar, he said.

Economist Dawie Roodt said South Africans should not be concerned if Zimbabwe adopted the rand.

Im very much in favour of such a move. People assume that the rand could go the same way as the Zimbabwean dollar, but that simply wont be the case.

Bitis comments come after ex-President Kgalema Motlanthe suggested in February that it would be a practical move for Zimbabwe as part of their economic recovery plan under its coalition government.

The idea was hailed at the time by economists. However, such a move would take away Zimbabwes powers over its monetary policies. It also means Zimbabwes interest rates and inflation levels will be the same as South Africas.

Biti said: Any such decision depends on the performance of the economy that would be the ultimate deciding issue.

He said there were signs of stability with the country expecting a growth rate for the year of 6 percent. Zimbabwe recorded a -1.1 percent inflation rate in April.

Just last month Biti announced that Zimbabwe would be receiving 400-million in credit lines from several African countries.

Chris Hart, an economist at Investment Solutions, said adopting the rand was an important step in terms of Zimbabwes recovery.

It effectively imposes a fiscal and monetary discipline with the Zimbabwean economy functioning on a basis where it does business that is more competitive on an international basis.

He said it could be painful initially because, among other things, our interest rates will be linked to theirs and they will have to cut back expenditure.

However, it would put their economy on a stronger footing in the long term.

Roodt said the only downside would be that, in the short term, South Africa would probably have to lend Zimbabwe rands to kick-start any switch-over.

We can either provide them a loan or they can earn it. The latter is probably best as then we dont have to run any major risk.

Last week the African Development Bank announced a short-term emergency recovery programme in Zimbabwe. The bank called for greater foreign assistance and an injection of private capital to resuscitate the economy.

Announcing the strategy that would cover the next 19 months to December 2010, the bank said it had eliminated the quasi-fiscal activities of the Reserve Bank of Zimbabwe and introduced cash budgeting, spending only what it receives in revenue.

The Times/SAPA/AP

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