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Tuesday, October 02, 2007

Should we send a macro principles book along with the food?

From the BBC:
A new currency will be introduced - striking more zeros off bank notes - in an attempt to curb the black market in currency, Gideon Gono said.

The main lending rate will also rise to 800% from 650% in a move to tame "angry and formidable" inflation, which is running at an annual level of 6,500%.

Restoring economic stability is one of the government's biggest problems.

Zimbabwe is currently experiencing the world's highest inflation and shortages of food, fuel and foreign currency.

However, economists say the latest measures unveiled by Mr Gono will have little effect unless fundamental problems in the country are tackled.
Simply amazing. How anyone in charge in Zimbabwe can convince themselves that these policies will enact a positive change in their economy is beyond me. Given the past couple of years of policies, one wonders if intentional destruction of the economy is being pursued on purpose.

The article goes on to describe how the entire country of Zimbabwe will have a hard time paying back a $200m loan, whereas the city of Arlington, Texas, will have relatively little problem paying back $325m for the new Cowboys Stadium:
So far, the government's only solution to its inflation problem has been to have the Reserve Bank of Zimbabwe print more money.

But observers say the key to resolving Zimbabwe's problems is to reduce government expenditure, though this looks unlikely in the short term.

While Mr Gono said inflation will fall in the medium to short term, he also warned that it would come under further pressure from spending ahead of the country's joint parliamentary and presidential elections in 2008.

Meanwhile, the country says it has secured a $200m credit facility to increase desperately needed fuel imports, though it is unclear how the government will repay the money.
Of course printing money is one way to monetarize a debt, but it only works if the government isn't already destroying the currency through hyperinflationary policies.

It would seem difficult to make this stuff up, but there it is.

Comments:
Meanwhile in Venezuela...

http://www.iht.com/articles/ap/2007/10/01/business/LA-FIN-Venezuela-Currency.php

"Regulations that went into effect on Monday require retailers to post prices in the new currency — the "strong bolivar" — alongside prices in bolivars as a means of preparing consumers for a Jan. 1 monetary shift.

The change is relatively simple: shifting the decimal point three places to the left so that, for example, 1,000 bolivars become 1 strong bolivar."

http://www.bloomberg.com/apps/news?pid=20601086&sid=aGnQJ50l9M3w&refer=news

"Oct. 1 (Bloomberg) -- Venezuela's bolivar fell to a record low in unregulated trading after President Hugo Chavez vowed to tighten restrictions on foreign exchange trading...The bolivar dropped 2 percent to 5,100 bolivars per U.S. dollar in unregulated currency exchange, from 5,000 on Sept. 28, traders said. Venezuela's currency has fallen 33 percent this year."

Luckily they have enough oil money to keep them afloat despite the inflation!
 
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