The world's worst inflation
How Zimbabwe's ruler ruined an entire economy - and why it will finally bring him down.
(Fortune Magazine) -- If purchased on the newsstand in Zimbabwe, the issue of Fortune you're holding would have cost you 270,543,825,555 Zimbabwean dollars. But don't worry about pulling your Weimar-era wheelbarrows out of storage. As of July you could pay for your magazine with three newly issued $100 billion bills.
This is what Robert Mugabe's government considers a reasonable strategy for coping with an inflation rate of more than 2,000,000%. Faced with the prospect of issuing ever more cash, Zimbabwe has opted for simply issuing bigger cash. And perhaps anticipating unwieldy arithmetic problems at the cash register, the government has also announced a longer-term plan to dispense with the zeroes entirely, turning $10 billion into $1.
The essential clumsiness of these responses betrays the government's lack of experience in remedying any policy problem with actual policy. Historically Mugabe's favorite, if only, policy tool is small and steely and comes in a variety of calibers. But at whom to point the gun? Market forces fail to manifest themselves in the form of persons who can be threatened with death and dismemberment.
If anyone is to blame for the economic crisis, it's Mugabe himself. In 28 years he has managed to take one of the wealthiest countries in sub-Saharan Africa and ruin it in a stupefying variety of ways. He annihilated the agricultural sector (once a leading exporter of corn and tobacco) by seizing commercial farms and giving them to cronies who failed to use the land. In 1998 he prosecuted a kleptomaniacal war in the Congo, spending $1 million (U.S.) a day in hopes of stealing enough land and resources from the Congolese to make a profit. When Zimbabweans have tried to vote him out of office, he has punished them with violence and economic repression. A passage from "The State of Africa," by Martin Meredith, recalls the explanation offered to citizens for cutting off their food supplies: "First you will eat your chickens, then your goats, then your donkeys. Then you will eat your children, and finally you will eat the dissidents."
But most of the dissidents left the country before anyone could stick a fork in them. The exodus of skilled workers crippled the economy further. Businesses lost management and assets, while unskilled workers became refugees in neighboring countries that didn't have the money to support them- the latter transforming Zimbabwe's economic crisis into a regional one.
That Mugabe has any resources left to plunder is a function of what is increasingly a remittance economy. Zimbabwean memoirist Peter Godwin points out that members of the diaspora are keeping Mugabe in power by sending money to friends and relatives in Zimbabwe. The funds must be converted into Zimbabwe dollars before being sent into the country, supporting the value of the currency. And the money itself helps the middle class survive and, by extension, postpones a revolution against the Mugabe government. (See correction at end of story.)
Zimbabwe's schools and health-care system have collapsed, but there's enough money left to pay for Mugabe's personal priorities: his mansions, wife Grace's shopping sprees, and loyalty-buying salary hikes for his security forces.
While Zimbabwe's self-destruction is extreme, other countries have managed to whip hyperinflation. Dollarization - a switch to a foreign currency - is one preferred remedy. Another remedy involves restraining government spending, a practice known as "shock therapy."
The first option is politically embarrassing for Mugabe (one can't very well issue daily polemics against the West and then adopt its dominant currency), and Mugabe is constitutionally incapable of the second. His only quick fix, then, as international pressure mounts and he is forced into talks with the opposition party, is to start from scratch - to move the decimal point a few spaces. But as long as he stays in power, there's nothing to stop the currency denominations from spiraling upward again as assets leave the country on the backs of the people. When will the moment of reckoning finally be at hand? When the bribery money runs out, as it surely will, his control of the military will erode, and Mugabe may find himself in a position familiar to the people he has oppressed- looking down the barrel of a gun.
Correction: An earlier version of this story incorrectly said that remittances from the Zimbabwean diaspora are often confiscated by the government. Zimbabwean memoirist Peter Godwin clarifies that while money sent to friends and relatives in Zimbabwe indirectly helps the Mugabe government, the government does not confiscate the money.