When populism gets in the way of economic wisdom

Picture this: You are the Finance Minister of a severely distressed economy and you are engaging international finance institutions (IFIs) and other creditors in order to open gateways to access credit.

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By Alex T. Magaisa

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mugabe

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You hope this might give the impaired economy a boost and perhaps a chance for recovery. You know that these IFIs are not impressed by your country’s lack of fiscal discipline and reckless economic policies. So in preparation for the trip to Washington D.C. to meet these IFIs, you make a bold announcement which indicates a serious intention to cut down on recurrent expenditure.

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It is a bold statement which on the face of it, communicates the message that we are prepared, as a nation, to make some serious sacrifices, and therefore to implement some austerity measures. You know it will disappoint a lot of people and probably make you very unpopular but it is necessary and has to be done.

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So you convene a press conference and make your big announcement. Then you make your trip to the meetings, saying to them, look, we are serious. You are at the meeting when your boss takes to the podium at a national event and publicly humiliates you, saying the announcement to suspend civil servants bonuses is invalid and will not be implemented.

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He reverses your bold announcement and although he does not say where the money will come from, he promises that civil servants will still get their bonuses. All this notwithstanding the fact that the same government has struggled to pay the previous year’s bonuses.

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But there you are, meeting with the people to whom you are giving a list of things that you are going to do to cut government expenditure and your boss drops a bomb on you, effectively nullifying one of your key policy interventions. It makes you look like a fool. A self-respecting person would throw in the towel and save his dignity and integrity.

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This is what happened last weekend to Patrick Chinamasa, Zimbabwe’s Finance Minister.

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After making his bold statement cancelling civil servants’ bonuses for two years, his boss, President Mugabe at the weekend publicly rebuked him and said the bonuses will be paid. For some strange reason, bonuses for civil servants are regarded as a right. They are not linked to individual or general economic performance – every civil servant gets a 13th cheque.

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Chinamasa was reported to be in Washington D.C. where he had gone with his delegation for the Spring meetings with the IMF and the World Bank. There he was most probably making a case for resumption of credit lines and other support. He was probably telling them how the government is going to cut expenditure by suspending the payment of bonuses. This bold statement was supposed to impress creditors and financiers, but just as he was doing so, his boss was saying the opposite, publicly humiliating him. It’s a hard job being Finance Minister in Zimbabwe. But Chinamasa is not the first to face this kind of behaviour.

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Tendai Biti recently narrated how, when he was Finance Minister in the Government of National Unity (GNU) era, President Mugabe announced out of the blues at a public event that there would be a wage increase for all civil servants. All along, Biti had been saying there would be no wage increase because there was no money. This had earned him unpopularity among civil servants. Even some of his comrades thought he was playing bad politics.

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Politically, Biti had every reason to play good boy in order to appease civil servants. He did not have to make these unpopular decisions. He could have been generous to the point of recklessness, increasing wages for civil servants and playing Father Christmas every month of the year and making civil servants believe the MDC would give them more money if they were in power. After all, Biti was the Secretary-General of the MDC and populist economic policies could have endeared him and his party to the ordinary people. But he was sensible and he took the unpopular but necessary line, saying we eat what we kill and that if we, as a nation, kill a mouse we must not expect to eat the meat of an elephant.

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Then, as now, Mugabe took to the podium at a public event and announced that there would be a wage increase for all civil servants, contradicting his chief of Treasury. In recounting the episode, Biti says he was exasperated by his boss’ behaviour and that they haggled over the issue. He says eventually, they found a compromise because when Mugabe had made his announcement he had not specified the magnitude of the wage increase. He had just said there would be an increment but not by how much.

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The compromise then was to settle for the lowest possible increase. But even that small increase was not motivated by economic sense but by populist politics. President Mugabe is a man who wants to appease and when economic rationality gets in the way of appeasement, the latter wins all the time.

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As many have observed, back in 1997, President Mugabe faced an unusual threat from veterans of the liberation struggle. They protested at a public event, unhappy that senior government officials were corruptly benefiting from the War Victims Compensation Fund and their perks of government.

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After that public protest, Mugabe promptly agreed to meet with them. At the meeting, he succumbed to their heavy demands. It was immediately announced that each war veteran would receive $50,000 and monthly payments of $2,000 in addition to other benefits.

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When the then Finance Minister, Herbert Murerwa complained that there was no money in the budget, this was ignored. He had to find the money. In the end, the veterans got their largesse and economists blame these large and unbudgeted payments for the sharp drop in the local currency on a day generally referred to as Black Friday (14 November 1997). It was the beginning of the fall of the Zimbabwe Dollar, a downward spiral from which it has never recovered. Then again, as now, populist politics had got in the way of economic sense and the result was a disaster.

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It is not clear how President Mugabe’s rant against his Finance Minister will have affected his presentations to creditors and financiers in Washington D.C. But it would have been awkward for him and his delegation. These cannot be easy moments for professionals who know there is no room for populist rhetoric in business meetings.

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Chinamasa has taken his humiliation, saying in response to his boss that he made a “mistake”. His explanation for the so-called “mistake” is, however, quite telling. He lists a number of challenges that the government is failing to meet. Among them are the bonus payments from last year, pension payments for civil servants, wages for staff at foreign missions, medical aid contributions for staff and repayment of debts to creditors.

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In essence, while Chinamasa is admitting to having made a “mistake”, he is actually giving justification for his earlier announcement to suspend bonuses and demonstrating the irrationality of his boss’ reversal of his policy announcement.

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Alex Magaisa can be reached on wamagaisa@yahoo.co.uk. You can visit his blog on https://newzimbabweconstitution.wordpress.com/

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