“A hungry man is an angry man”
Gideon Gono, the governer of the Reserve Bank of Zimbabwe, has revealed his party’s worst fears by publically warning business and political leaders that there may be food riots in Zimbabwe. He said:
To quote the wisdom of General Constantine Chiwenga, ‘a hungry man is an angry man’, and he said we must do everything to ensure the army does not one day have to face angry hungry people on the streets
He also warned that “The country is … standing on the edge of a cliff which threatens to irreversibly take us downhill if we do not boldly move forward with speed to address most of our shortcomings”.
That’s not all: Gideon Gono also told us that Zimbabwe’s annual inflation rate will peak at record levels between 700-800 percent in March and then subside, falling to 220-230 percent by the end of the year. Can you even begin to imagine that? 700-800 percent! And the Financial Gazette took time to report on the fact that the Zimbabwe’s Reserve Bank money printing machines were very busy in 2005:
BROAD money supply, M3, grew rapidly from 177.6 percent in January 2005 to 411.5 percent in November 2005 due to excessive money printing by the central bank to finance grain and fuel imports. Gideon Gono, the Reserve Bank of Zimbabwe (RBZ) governor said the lender of last resort had to print more money to stabilise external payments and support quasi-fiscal expenditures. [...] “We chose to print money in 2005 in order to survive. If we had not intervened, agriculture would have collapsed completely,” Gono said.
That made me laugh! If only I had known that the solution was so easy (and if only I could afford to buy ink cartridges for my printer!) I think I would try to print a bit of Zimbabwe’s monopoly money myself !
We on the street felt Gono’s misery like a little earth tremor when things went a bit pear-shaped at the end of last week and the value of forex on the parallel and black-markets sky-rocketed overnight . Nobody is selling their US dollars, Pounds, Rands, Euro’s or Pula’s at the moment: those with forex to sell are waiting to see where the slide will stop to ensure they get maximum Zimbabwe dollars for their precious forex. (Read this Sokwanele article from July last year which describes the differences between Zimbabwe’s ‘offical’, ‘parallel’ and ‘black’ markets in foreign currency: “The Forex Market - A layman’s guide to how it works, and why it does what it does” )
ZimPundit writes about Gono’s rant at corruption as the root of evils, quoting Gono from comments published in ZimOnline
If we do not stamp out this growing cancer especially among people in positions of authority and influence, the so-called chefs, if we do not stamp out the indiscipline as we go about our business we will soon discover too late though that policy formulation and implementation, monitoring and decisions will be based on self interests, racial overtones, regional and tribal considerations at the expense of national interests.”
ZimPundit goes on to specuate on whether Gono himself is as free of corruption as he would like others to believe:
… I wonder if Gono himself was listening to his own reprimand. He is the alleged owner of a petrol station in Malbereign at which the precious commodity never runs out. Just over a week ago the reserve bank which runs an elaborate fuel “coupon” scheme (through which they sell fuel coupons for foreign currency) was telling everyone who was buying petrol coupons that there was no petrol in the country. A window staffer at the Homelink Center at the Reserve Bank on Samora Machel Avenue speculated that it could be weeks before supplies were reestablished. Interestingly a fuel tanker was seen making a delivery to the “Gono Station” were supplies never run dry within minutes of the Reserve Bank’s announcement of the absence of fuel.
Let’s not forget either that Gono, in his zealous efforts to stamp out corruption and control the forex markets, has a lot of questions to answer too with regards to his role in Operation Murambatsvina and the homelessness, suffering, poverty and HUNGER that resulted. The following extract comes from an article titled Gideon Gono ‘… in sheep’s clothing’ - the Role of the RBZ Governor in Murambatsvina, cirulated by Sokwanele in June 2005:
The conclusion is inescapable - when formulating his Policy Framework speech the Governor of the Reserve Bank was fully appraised of the social and economic tsunami that ZANU PF was just about to unleash on the nation. Not only so, but he clearly approved the basic tenets of the policy, witness his remark: “the rot needs thorough cleansing”. He knew that the blitzkrieg would cause massive upheaval and expected a strong voice of protest to be raised against it: “Let there be no outcry when the long arm of the law (sic!) extends itself to these sectors.” He was also aware of the timing “…as indeed we believe it will soon do”, which was no doubt deliberate; based on the ZANU PF’s reading of the post-election climate “… the marked peace and tranquillity prevailing in the economy forms a solid launch-pad to deepen our turnaround thrust”.
At the very least then Gideon Gono knew and thoroughly approved the massive assault on the civil liberties of the informal sector and the urban poor which was about be launched on the unsuspecting Zimbabwean public. Indeed, in terms of political philosophy and economic policy, Murambatsvina so closely fits the successive stages of the so-called anti-corruption drive of which Gono was the author that it is difficult to resist the conclusion that this too was his brain-child - perhaps the capstone of his intended reforms. So much for his professed strong Christian convictions - and the pious clichés that he trots out regularly to spruce up his personal image (as indeed do a number of other ZANU PF heavyweights who are equally guilty of the most heinous crimes against humanity).
Don’t you think it’s just a little too late, Mr Gono, for you of all people to realise that “A hungry man is an angry man”?
January 28th, 2006 17:49
Let´s get real.
´
It is correct that you have to look at items in real terms and not nominal terms. Real terms appear very simplistic, but they are the correct terms.
What are the real values of items in Zimbabwe? (Right now, we have to agree that we will use money as the unit of account to describe “items”: that is, all items – even pre-monetary items - will be described in monetary terms.)
First, we have to know how many different type of “items” there are in Zimbabwe and why we landed up with more than one type of item. At the basic level there is only one item in any economy, namely real value items. Everything has simply a real value, but, in practice we have three types of “items” in our economy. They came about as follows:
Everyone knows that very long ago our economy was a barter economy. There was no money and all items were non-monetary items (see above). In fact they were (1) variable real value non-monetary items since their real values varied depending on supply and demand. Today’s examples of variable real value non-monetary items are land, buildings, machinery, vehicles, raw materials, finished goods, services, quotes shares, foreign exchange, etc.
Next we invented money and we had (2) monetary items. Obviously, monetary items can only be actual money or accounted values only of money. In the beginning money consisted of actual metal coins and had an intrinsic value. Today all bank notes and bank coins in all economies have no intrinsic values in themselves. Today we have money created by government fiat or decree. We have fiat money. Examples are actual bank notes, bank coins, bank balances, capital amounts of money loans, etc.
Round-about 1300 we introduced the double entry accounting model into our economy which brought about the third item, namely (3) constant real value non-monetary items. Examples are salaries, wages, rent, fees, interest, taxes, dividends, issued share capital, retained income, accumulated losses, provisions, capital reserves, share premiums, share discounts, etc. These items have constant real values.
How come the real values of all these items are hyper destroyed daily in the Zimbabwe economy? As follow:
Variable real value non-monetary items are valued in terms of International Accounting Standards at, for example: fair value, market value, net realizable value, recoverable value, present value and so on. In Zimbabwe you have to value variable real value non-monetary items always at the parallel rate at the date of costing, sales and payment receipt. The costing, sales and trade debtors/trade creditor values relating to these items have to be updated every time the parallel rate changes. In that way no value is destroyed. Basically you keep these values at US Dollar values. When you do not do this, you destroy real value in these items all the time. You obviously have to ignore the Historical Cost Accounting stable measuring unit assumption.
Constant real value non-monetary items have to be valued at the parallel rate too and have to be updated every time the parallel rate changes. When you all do that all the time no value will be destroyed. You only destroy the real value of these items because your accountants follow the stable measuring unit assumption which is what Historical Cost Accounting is based on. In low inflation countries we know that low inflation rates continuously destroy the real value of our money, but we regard the change in the real value our money ( Euros, US Dollars, etc) as of not sufficient importance to change the real values of our constant real value non-monetary items. We destroy them at our annual rate of inflation in all our low inflation countries.
Your accountants do the same to your real values and your companies and the capital in Zimbabwe. But, not at the rate of two per cent per annum in Europe whereby we destroy 51 % of the real value of all our retained income over the next 35 years. You do it very, very quickly in Zimbabwe. You do it at the rate of value destruction as expressed in the parallel rate. That is : 1375 per cent in 2005. You and your accountants destroy your constant real value items extremely quickly.
When all your accountants update all the above constant real value non-monetary items all the time – as allowed under IAS 29 – you will stop destroying their real values.
So, that deals with your non-monetary items in Zimbabwe: to summarise – all non-monetary items have to be updated every time the parallel rate changes. When you all do that all the time no real value is destroyed. When you all fail to do that every time the parallel rate changes, you all destroy the real value in all your non-monetary items all the time.
Now we have to deal with your monetary items, i.e. the Zim Dollar. You are a society and an economy that creates value every day. You do have a banking system. The only way the banking system can work is when a bank lends out money at a real rate of interest. In Zimbabwe the real rate of interest is the following: the parallel rate plus what a bank needs to make a reasonable after tax rate of return. That will depend on the efficiency of the bank. It will most probably be the parallel rate plus 7 to 12 per cent per annum – depending on the bank.
For example: a Zimbabwean commercial bank has to lend Zim Dollars to a business at the parallel rate plus 8 per cent per annum. That means the borrower has to pay back the loan updated at the parallel rate at the date of repayment plus the 8 per cent interest per annum also calculated at the repayment date rate. The Zimbabwean business person takes the Zim Dollars and buys consumer products to resell. This business person updates all non-monetary items in the business at the parallel rate all the time. That includes Trade Debtors when this person sells on credit. The business is a viable business since it sells a product in good demand; the markup and margin allow a net profit to be made. The business person thus receives updated values all the time and pays the bank back at the parallel rate plus 8 per cent per annum – calculated at the parallel rate at the date of repayment. It is very simple to understand: it is the same as dollarizing your economy.
Running your economy at real values does not automatically mean that you will prosper. You have to run profitable businesses (at the parallel rate), you have to maintain those profits at real values (at the parallel rate) and you have to have a stable society with open trade with everybody.
Nick Smith
RealValueAccoutning.Com(The Book) – The next step in our fundamental model of accounting.
realvalueaccounting@yahoo.com
January 29th, 2006 13:44
“The country is standing on the edge of a cliff which threatens to irreversibly take us downhill if we do not boldly move forward with speed ”
If you are standing on the edge of a cliff, moving forward with speed is a bad idea. It is indeed what the current Zimbabwe government is likely to do.
Turning around and going back is a better plan.