Liberalise the market to tame speculators, Cross
Government has done a lot of ‘hard-work’ in stabilising the macro-economic environment in the country and should now consider liberalising the market for the economy to start enjoying the fruits of stable fundamentals, according to economist and businessman, Eddie Cross.
While acknowledging the adverse effects of the prevailing inflation instability, which is linked to exchange rate volatility and rampant market indiscipline, he says the new Government has since coming into power, worked hard to restore fiscal and monetary stability.
Instead of maintaining tight controls on the market, Cross says liberalisation will yield more good than harm, especially when backed by prevailing stable economic fundamentals.
In an interview on the sidelines of the recent Infrastructure Summit and Expo in Victoria Falls, he said the authorities’ tightening of screws on exchange rate movement through constraining money supply and the recent suspension of payments to contractors and suppliers, for instance, would hurt the private sector and cripple the economy in the long-run.
“The Government claims some success with the measures being rolled out but, in the process, they are doing damage to the private sector by not paying contractors and not paying suppliers in a bid to limit the amount of money in the market,” said Cross, a former member of the Reserve Bank of Zimbabwe (RBZ) Monetary Policy Committee.
“That’s not the solution, the solution is to liberalise, remove controls.”
While authorities tend to fear losing control when markets are liberalised, Cross said the position that was adopted by the Government on in February 2009, when then Finance Minister Patrick Chinamasa lifted all exchange and price controls including on gold, was a prime benchmark of the good that liberalisation would bring. This was the time when Zimbabwe adopted the multiple-currency system that was dominated by the use of the US-dollar and the rand, which helped tame inflation pressures.
A member of the Africa South Business Group, Cross said the justification for liberalising the market must be higher now as the country has achieved stable economic fundamentals, which were not there during the hyperinflationary period leading to 2009.
“In a turn of hours (in 2009) this was a different country. If we did that (liberalising) today, I think we will see a dramatic improvement because all of our fundamentals are sound, our exports are more than our imports, we have a balance of payment surplus and we have a stable fiscus. We’ve done all the hard work as a country and now it’s time to reap the fruits,” said Cross.
He said the Government should not be afraid to liberalise as other economies within the region have successfully embraced similar models. Instead, where authorities keep a firm hand on market controls, the scenario has tended to create ground for arbitrage and speculation, which has seen some businesses and individuals manipulating the situation for unjustified profiteering.
“Yes, authorities cold fear loss of control and some people don’t trust the market but the market forces will help us solve the problem. Let everything be subjected to market forces and let the market find its own level,” said Mr Cross.
“We’ve seen this in Zambia, Somalia, Mozambique and in those countries with stable currency and lower inflation.
“If you look at Zambia now, their currency is of late stronger than the rand and yet our exports and (Gross Domestic product) GDP are much higher than those of Zambia,” he added.
“If we liberalise like Zambia has done, we would have the situation stabilising immediately and our own currency will then become very strong.”
Cross said Zimbabweans and every business do not mind trading and transacting using the local currency as it has many advantages but what was problematic was inflation instability, which forces preference for hard currency.-ebusinessweekly
