Subsidies and Corruption

Governor of Reserve Bank of Zimbabwe appears to be speaking out against his boss;

Outlining some of the ways that Mr Mugabe's attempts to subsidise his supporters had created "a fertile haven for corruption", he revealed how:

■The Government buys maize from farmers, who are often former soldiers and Mr Mugabe's supporters, at $Z52,500 ($A274) a tonne but sells it to millers for a mere $Z600 a tonne. The millers sell it back to the Government at the original price, pocketing the difference.

■Farmers are permitted to buy fuel at just $Z330 a litre, but can sell it on at the market price of $Z6500, making it vastly more profitable to deal in fuel than to grow crops.

■Subsidised electricity typically costs consumers $Z20,000 a month, equivalent to the price of a small bundle of firewood or two packets of candles.

The bank has had to bale out the state-run generating company. According to the bank, "illegal, intimidatory and mafia-style dealings" take place "day in, day out".

Last week, the poverty line for an average family was set at $Z938,000 a month, but a labourer earns on average just $Z65,000, while a lecturer only manages $Z80,000.

Related;
Zimbabwe's de facto prime minister

Last week Mr Gono, who likes to be addressed as Dr since he was awarded an honorary degree (not in economics) from the University of Zimbabwe a few years ago, was slagging off lazy "new" farmers who took over white farms, accusing them of being useless.

Working Papers
Zimbabwe's Export Performance: The Impact of the Parallel Market and Governance Factors
Zimbabwe: Selected Issues and Statistical Appendix

Suppressed Inflation and Money Demand in Zimbabwe

The paper investigates the divergence between inflation and monetary expansion in Zimbabwe since late 2003. The substantial decline in velocity and increasing levels of real money balances during 2004 are at odds with a record of inflation closely tracking the growth rates of monetary aggregates in the past. Possible explanations for the divergence include an unstable demand for money, a sudden shift in the underlying demand for real balances due to a sharp change in an explanatory variable, and a structural break or aberration in a normally stable money demand relation reflecting some unexplained factor such as repressed inflation (given administered prices) or measurement errors in the consumer price index. The results of the study point to the last possibility as the most likely explanation.