11.2 million % inflation! How is Zimbabwe surviving?
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K.Karthik Raja
Sep 18, 2008, 7:06:02 AM9/18/08
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11.2 million % inflation! How is Zimbabwe surviving?
September 18, 2008
Zimbabwe's inflation rate has just touched a stratospheric level of
11.2 million per cent! Yes, 11.2 million per cent, the highest in the
world's history!
Compare that to the rate of inflation in India -- which is hovering at
the 12 per cent level and causing so much turmoil for Indians as the
cost of commodities rises sharply -- and perhaps you can put things in
proper perspective.
And while the world and its brother-in-law shed tears as the United
States slips into a recession and major stock markets across the world
plummet, spare a thought for Zimbabwe where money has no value, and
hunger, poverty and death are constant companions. So why is Zimbabwe
facing such times?
Why Zimbabwe is in this situation?
Zimbabwe is in the throes of an unparalleled economic crisis because
of over a decade of economic recession, extreme food and fuel
shortage, an unemployment rate of over 80 per cent, and lack of
political will to do anything about it.
The other reasons also are the government's ban on relief efforts by
foreign NGOs, a debilitating drought, and the scourge of the AIDS
epidemic.
There are more reasons for Zimbabwe's terrifying condition. . .
War, mismanagement and excuses
The war in the Congo that Zimbabwe was involved in for over 5 years
since 1998 too bled its coffers dry, as hundreds of millions of
dollars fled from the economy.
Economists say that gross mismanagement and corruption in the
Zimbabwean government has worsened the situation further.
Zimbabwe's ruler President Robert Mugabe, however, puts the blame
elsewhere. He says that financial isolation by the world, especially
American and European institutions and governments, has led to such a
state of affairs
When did the problem begin?
Soon after the dogs of war were let loose and Zimbabwe took to arms in
the war in the Congo in 1998, production levels, investment,
education, peace, prosperity, growth. . . everything began to be hit
hard.
And then in 2001 came President Robert Mugabe's new orders. The
Zimbabwean ruler, just a year after he took charge, and began to seize
commercial farms owned by whites. This has caused huge shortages of
foodstuffs and commodities in the southern African nation
So how are Zimbabweans surviving?
Barely.
You can just about buy a loaf of bread for Z$1,000. And if you want a
few bananas, you need to pay a bagful of cash.
The economy faces collapse with consumers resorting to barter as
inflation and a slump in the Zimbabwe dollar erodes the value of
cash.
Cash-strapped people are resorting to bartering fuel coupons for
goods, such as household appliances and furniture. Some retailers
prefer payment in coupons instead of local currency because of the
rapid devaluation of the Zimbabwe dollar, report Zimbabwean
newspapers.
What does this unprecedented level of inflation, or hyperinflation,
mean?
Well, hyperinflation refers to a condition where prices of commodities
rise to extreme levels quickly and the value of the nation's currency
declines alarmingly. It is primarily a state of affairs where
inflation runs amok and is totally out of control.
With the nation's inflation rate the highest in the world, the
Zimbabwean government continues to print ever larger denomination
notes to keep up.
What causes hyperinflation?
The collapse of Zimbabwe's economy and the government's response of
printing more money to pay its debts have led to the highest inflation
in the world. The Zimbabwwe dollar is currently trading on the black
market at $30 million Zimbabwean for US $1.
Among the major causes of hyperinflation is a huge rise in money
supply, decline in a flood of the nation's market with money unbridled
increase in the money supply or the devaluation of the local currency
caused by economic depression, calamity, political or social
cataclysms, or war. This, in effect, hits the productivity of a nation
leading to a sharp decline in availability of goods and services. It
also leads to widespread unemployment.
A tsunami of unparalleled proportions
Even attempts to print more and higher-denomination currency notes
does not quell the inflationary tsunami as the pace of rise of
inflation is much faster and even the newly minted currency notes
quickly lose their value.
Hyperinflation leads to hoarding, flight of capital, even exodus of
people, a complete halt to new investment, production and jobs. It is
a condition from where the economic recovery of a nation is very
difficult and could take years to come back on an even keel.
Inflation in Zimbabwe
In Zimbabwe, inflation was at 625 per cent in early 2004. In March
2007, it jumped to 1,700 per cent . By June 2007, inflation had shot
up to 11,000 per cent. In July 2008, inflation skyrocketed to 2.2
million per cent.
And now in September 2008, inflation has reached uncharted area at
11.2 million per cent!
A $10 trillion note!
The Zimbabwean central bank cut 10 zeroes off its currency last month,
revaluing the $10 trillion note to $1,00 Zimbabwe dollars, in a bid to
ease widespread cash shortages as the country battles the world's
highest inflation rate.
The bank has introduced a series of new notes since August, after the
central bank struck 10 zeros off the local currency.
Zimbabwe's currency is trading around Zimbabwe $350 -- $35 trillion in
the old value -- against the US dollar.
But this new Z$1,000 note can only buy a loaf of bread.
What is Zimbabwe's economic mainstay?
Tourism, agriculture and mineral exports are the cornerstones of the
Zimbabwean economy. These sectors are also the nation's biggest
foreign exchange earners.
Zimbabwe has some major tourist attractions, like the Victoria Falls,
et cetera.
A never-ending crisis
Zimbabwe's political crisis has worsened ever since President Robert
Mugabe claimed victory in a 'no contest' election as Morgan
Tsvangirai, leader of Zimbabwe's main opposition party Movement for
Democratic Change Morgan Tsvangirai, boycotted the polls in protest
against violence against his party.
Mugabe has also been accused of massive violations of human rights,
and many of the cricket-playing nations star players have quit the
country to settle down in other nations.
A political problem
Zimbabwe's leaders -- who were set to sign a historic deal on
September 15, 2008, to divide power among political rivals after
months of ruinous standoff between President Robert Mugabe and the
opposition -- had raised the hopes of people as they buckled under
huge inflation and poverty.
But the deal fell through as they rivals could not come to any
agreement. The nation's worsening political scenario is leading to
more rise in inflation, food shortages and widespread unemployment.
Why have the talks failed?
A political deadlock over who will control the government has hindered
efforts to ease Zimbabwe's economic crisis.
The talks were aimed at ironing out the power-sharing deal. While the
two rivals have broadly agreed that Mugabe will be President and
Tsvangirai will become the nation's prime minister, the demand that
the prime minister will be the head of the government and the Cabinet
has not gone down well with Mugabe.
However, efforts are on in right earnest to find a solution to this
problem.
How will the political talks help solve the economic problem?
As soon as Zimbabwe demonstrates some political stability and the
rival parties come to some agreement, the International Monetary Fund
will help it with policies to stabilise the economy, improve social
conditions and reduce poverty.
The IMF Managing Director Dominique Strauss-Kahn has urged the
Zimbabwean government to take steps to show clear commitment to a new
policy direction and to seek the support of the international
community.
The IMF has, however, said that the country's leaders must first make
clear commitments to rescue the economy.
With political stability, Zimbabwe can look forward to foreign
investment coming into its various sectors, a rise in production and
jobs, better education leading to better manpower, improved life
spans, and better times.
Although it might take a while, economic conditions in Zimbabwe can
become better.
September 18, 2008
Zimbabwe's inflation rate has just touched a stratospheric level of
11.2 million per cent! Yes, 11.2 million per cent, the highest in the
world's history!
Compare that to the rate of inflation in India -- which is hovering at
the 12 per cent level and causing so much turmoil for Indians as the
cost of commodities rises sharply -- and perhaps you can put things in
proper perspective.
And while the world and its brother-in-law shed tears as the United
States slips into a recession and major stock markets across the world
plummet, spare a thought for Zimbabwe where money has no value, and
hunger, poverty and death are constant companions. So why is Zimbabwe
facing such times?
Why Zimbabwe is in this situation?
Zimbabwe is in the throes of an unparalleled economic crisis because
of over a decade of economic recession, extreme food and fuel
shortage, an unemployment rate of over 80 per cent, and lack of
political will to do anything about it.
The other reasons also are the government's ban on relief efforts by
foreign NGOs, a debilitating drought, and the scourge of the AIDS
epidemic.
There are more reasons for Zimbabwe's terrifying condition. . .
War, mismanagement and excuses
The war in the Congo that Zimbabwe was involved in for over 5 years
since 1998 too bled its coffers dry, as hundreds of millions of
dollars fled from the economy.
Economists say that gross mismanagement and corruption in the
Zimbabwean government has worsened the situation further.
Zimbabwe's ruler President Robert Mugabe, however, puts the blame
elsewhere. He says that financial isolation by the world, especially
American and European institutions and governments, has led to such a
state of affairs
When did the problem begin?
Soon after the dogs of war were let loose and Zimbabwe took to arms in
the war in the Congo in 1998, production levels, investment,
education, peace, prosperity, growth. . . everything began to be hit
hard.
And then in 2001 came President Robert Mugabe's new orders. The
Zimbabwean ruler, just a year after he took charge, and began to seize
commercial farms owned by whites. This has caused huge shortages of
foodstuffs and commodities in the southern African nation
So how are Zimbabweans surviving?
Barely.
You can just about buy a loaf of bread for Z$1,000. And if you want a
few bananas, you need to pay a bagful of cash.
The economy faces collapse with consumers resorting to barter as
inflation and a slump in the Zimbabwe dollar erodes the value of
cash.
Cash-strapped people are resorting to bartering fuel coupons for
goods, such as household appliances and furniture. Some retailers
prefer payment in coupons instead of local currency because of the
rapid devaluation of the Zimbabwe dollar, report Zimbabwean
newspapers.
What does this unprecedented level of inflation, or hyperinflation,
mean?
Well, hyperinflation refers to a condition where prices of commodities
rise to extreme levels quickly and the value of the nation's currency
declines alarmingly. It is primarily a state of affairs where
inflation runs amok and is totally out of control.
With the nation's inflation rate the highest in the world, the
Zimbabwean government continues to print ever larger denomination
notes to keep up.
What causes hyperinflation?
The collapse of Zimbabwe's economy and the government's response of
printing more money to pay its debts have led to the highest inflation
in the world. The Zimbabwwe dollar is currently trading on the black
market at $30 million Zimbabwean for US $1.
Among the major causes of hyperinflation is a huge rise in money
supply, decline in a flood of the nation's market with money unbridled
increase in the money supply or the devaluation of the local currency
caused by economic depression, calamity, political or social
cataclysms, or war. This, in effect, hits the productivity of a nation
leading to a sharp decline in availability of goods and services. It
also leads to widespread unemployment.
A tsunami of unparalleled proportions
Even attempts to print more and higher-denomination currency notes
does not quell the inflationary tsunami as the pace of rise of
inflation is much faster and even the newly minted currency notes
quickly lose their value.
Hyperinflation leads to hoarding, flight of capital, even exodus of
people, a complete halt to new investment, production and jobs. It is
a condition from where the economic recovery of a nation is very
difficult and could take years to come back on an even keel.
Inflation in Zimbabwe
In Zimbabwe, inflation was at 625 per cent in early 2004. In March
2007, it jumped to 1,700 per cent . By June 2007, inflation had shot
up to 11,000 per cent. In July 2008, inflation skyrocketed to 2.2
million per cent.
And now in September 2008, inflation has reached uncharted area at
11.2 million per cent!
A $10 trillion note!
The Zimbabwean central bank cut 10 zeroes off its currency last month,
revaluing the $10 trillion note to $1,00 Zimbabwe dollars, in a bid to
ease widespread cash shortages as the country battles the world's
highest inflation rate.
The bank has introduced a series of new notes since August, after the
central bank struck 10 zeros off the local currency.
Zimbabwe's currency is trading around Zimbabwe $350 -- $35 trillion in
the old value -- against the US dollar.
But this new Z$1,000 note can only buy a loaf of bread.
What is Zimbabwe's economic mainstay?
Tourism, agriculture and mineral exports are the cornerstones of the
Zimbabwean economy. These sectors are also the nation's biggest
foreign exchange earners.
Zimbabwe has some major tourist attractions, like the Victoria Falls,
et cetera.
A never-ending crisis
Zimbabwe's political crisis has worsened ever since President Robert
Mugabe claimed victory in a 'no contest' election as Morgan
Tsvangirai, leader of Zimbabwe's main opposition party Movement for
Democratic Change Morgan Tsvangirai, boycotted the polls in protest
against violence against his party.
Mugabe has also been accused of massive violations of human rights,
and many of the cricket-playing nations star players have quit the
country to settle down in other nations.
A political problem
Zimbabwe's leaders -- who were set to sign a historic deal on
September 15, 2008, to divide power among political rivals after
months of ruinous standoff between President Robert Mugabe and the
opposition -- had raised the hopes of people as they buckled under
huge inflation and poverty.
But the deal fell through as they rivals could not come to any
agreement. The nation's worsening political scenario is leading to
more rise in inflation, food shortages and widespread unemployment.
Why have the talks failed?
A political deadlock over who will control the government has hindered
efforts to ease Zimbabwe's economic crisis.
The talks were aimed at ironing out the power-sharing deal. While the
two rivals have broadly agreed that Mugabe will be President and
Tsvangirai will become the nation's prime minister, the demand that
the prime minister will be the head of the government and the Cabinet
has not gone down well with Mugabe.
However, efforts are on in right earnest to find a solution to this
problem.
How will the political talks help solve the economic problem?
As soon as Zimbabwe demonstrates some political stability and the
rival parties come to some agreement, the International Monetary Fund
will help it with policies to stabilise the economy, improve social
conditions and reduce poverty.
The IMF Managing Director Dominique Strauss-Kahn has urged the
Zimbabwean government to take steps to show clear commitment to a new
policy direction and to seek the support of the international
community.
The IMF has, however, said that the country's leaders must first make
clear commitments to rescue the economy.
With political stability, Zimbabwe can look forward to foreign
investment coming into its various sectors, a rise in production and
jobs, better education leading to better manpower, improved life
spans, and better times.
Although it might take a while, economic conditions in Zimbabwe can
become better.
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