Why the Mugabe government would never accept HIPC to offset Zimbabwe’s debts

Zimbabwe has an external debt said to be worth US$ 7billion. Most of it has not been serviced for several years. As the value of the debt continues to creep up from accruing interest, there is little prospect of the debt being paid from the proceeds of slowly recovering economic activity. The MDC minister of finance is inclined to accept Highly Indebted Poor Country (HIPC) status as part of measures to address this debt. But as long as President Mugabe and ZANU-PF remain effectively in control, there are reasons why there is almost no chance of Zimbabwe following the route that other unsustainably indebted countries have agreed to in order to offset much of the debt and get a new start.

To put the debt of $7 billion in perspective, that is about equal to Zimbabwe’s GDP. The 2012 national budget amounts to $4 billion. Even of that low amount, a full $600 million is expected to come from scratching diamonds out of the shallow grounds of the new fields of Marange. This effectively means it is an easy windfall, rather than the result of more conventional, long term economic activity.

Zimbabwe’s debt, therefore, is huge in comparison to its present economy. Despite a project growth rate of 9% for 2012, it is hard to imagine improved economic activity in the next few years that would enable the country to make any sort of serious dent in this external debt.

Biti tried to argue that new diamond revenue from Marange should at least partly go towards debt service, but this was a lost cause. There have been too many unmet needs for too long. There are many politically influential sectors of the economy that immediately laid claim to the announced proceeds from Marange diamond sales. External debt service is politically a very low priority, especially in an early recovery phase, and just before a crucial election.

HIPC status would involve a raft of measures by the World Bank, the International Monetary Fund and other lenders that would include writing off some of the debt and rescheduling other parts of it. The country would also have to accept specific policy guidelines and some external supervision of its economic management. More attractively, it offers a ‘reset’ in the country’s credit rating, allowing it to have access to new credit.

There are clearly attractive factors about HIPC for a country deeply in debt with no way out, and with little further access to credit. Neighboring Zambia is one example of country that agreed to bite the HIPC bullet and did so without too much fanfare. At least by conventional macro-economic indicators, Zambia’s economy is back on course and ‘doing well.’

But HIPC is a hot potato in the charged atmosphere of Zimbabwean politics. Discussion and contemplation of it goes far beyond issues of accounting and economics, much more so than it was in a country like Zambia.

For Mugabe and ZANU-PF, antipathy to the idea of Western-controlled institutions like ‘demoting’ Zimbabwe to a HIPC would simply never fly. For Mugabe’s part of the ZANU-PF/MDC coalition government, every engagement with the West is suspiciously viewed through the prism of the latter’s perceived wish to ‘regime change’ Mugabe out of power. The West’s sanctions on Mugabe’s government are deeply resented by it.

Zimbabwe also has bitter experience, in the 1990s, with IMF-type ‘structural adjustment’ prescriptions for a country to get out of economic trouble. The many social services cuts and other ‘sacrifices’ that were required of the State as part of structural adjustment did not succeed in reducing the budget deficit, increasing competitiveness and exports or any of the other promised benefits. Instead, Zimbabwens remember the experience as an unpleasant one of hardship. It contributed to growing voter diasaffection with Mugabe’s government. Mugabe loudly abandoned structural adjustment after a few years of trial, which contributed to the beginning of his bad boy image in the West.

For all these reasons and more, the Mugabe government is generally very unfavorably disposed to and suspicious of the World Bank and the IMF, although it wouldn’t mind access to more loans if they were offered.

In the West, Mugabe is not only regarded as a vicious dictator, he is also considered an economic illiterate who impoverished his once prosperous country. In the West Zimbabwe’s economic troubles are seen as a result of Mugabe. For Mugabe, those troubles have been instead a result of Western hostility to his regime. Take your pick according to your bias.

Mugabe is no worse than many other dictators that are warmly welcomed in Western capitals, and he is probably better than many of them. But he further sealed his fate as being an irredeemably bad guy in the West by expropriating land from white farmers and verbally attacking the West at every opportunity. Perhaps even more unforgivably, he compounded his sins in Western eyes by going on to survive the ensuing massive diplomatic, economic and propaganda onslaught against him.

So it is quite likely that Zimbabwe’s going cap in hand to the West to plead for HIPC status would be seen as the capitulation of Mugabe. The ‘rogue’ Mugabe whom so many other Western-supported efforts had failed to remove or bring to his knees would have been brought to heel by his country’s unsustainable debt.

Many of Mugabe’s detractors and enemies would crow about this for years. It would be the equivalent of someone delivering the Western-detested Mugabe’s head to London or Washington D.C. on a platter. Oh how many would rub their hands in satisfied glee! Zimbabwe’s HIPC-seeking would probably be a far bigger ‘event’ than that of any other country in recent times because of all the competing symbolisms Zimbabwe represents for different trains of thought, and the unusually strong pro and anti emotions Mugabe raises in different groups of people.

And that symbolism of a Mugabe-run Zimbabwe going to plead for HIPC that would for some in the West be full of a sense of delicious retribution, is also exactly why Mugabe’s government would never agree to seek such HIPC status.

About the only way this could be a seriously contemplated option in Zimbabwe is if the MDC party from which finance minister Tendai Biti comes were to assume effective power. Also possible but less likely than this scenario, a post-Mugabe ZANU-PF government may be more open to considering HIPC status as well. ‘Less likely’ because even for a ZANU-PF government without Mugabe at its head, HIPC would be seen by many as a surrender of national sovereignty to ‘the imperialists,’ represented by the World Bank and the IMF.

A closely related nationalistic argument is that while the country may be deeply indebted with no current plan out, “We cannot do that (HIPC) because we have resources and we are not poor,” as Reserve bank of Zimbabwe governor Gideon Gono sniped in a dig at his boss and foe, Biti. “We are sitting on platinum valued around $400 billion and we say we are poor. We just need to give industry its rightful place,” he said.

How to turn Zimbabwe’s vast potential wealth into actual wealth has of course been one of the country’s biggest challenges, and one that hasn’t been solved yet. Going from having billions of dollars worth of minerals in the ground to turning them into export income to pay debt, amongst other things, is far from easy or straightforward. But Gono’s statement is useful in presenting an important part of the argument of those opposed to Zimbabwe seeking HIPC status. It is essentially to reject the ‘national humiliation’ of having to agree that the country is ‘poor’ in return for debt forgiveness, debt restructuring and access to new credit.

For Mugabe and ZANU-PF, the political-ideological opposition to HIPC status is probably far greater than the inducement of the benefits that could come from it. The MDC, on the other hand, tends to almost reflexively accept conventional Western prescriptions, as if to show how they would be very different to the feisty, rhetorically anti-Western Mugabe if they were to assume power.

That background politics and ideology aside, there still remains the unanswered seven billion dollar question: how on earth is Zimbabwe going to liquidate its foreign debt?

Some kind of debt forgiveness and restructuring seems inevitable. Under Mugabe, it just could never be under the formal HIPC status programme. And regardless of which party is in power, many of Zimbabwe’s creditors would probably be open to agreeing to reasonable terms of addressing this now long outstanding problem, including write offs and new terms, even outside a structure like the HIPC. It would be better than the current situation of getting none or little of the debt serviced.

Biti’s noises in support of HIPC would probably only have strengthened the resolve of the ZANU-PF part of the coalition government against the idea. The thinking would be, “Biti is simply doing his party’s Western masters’ bidding, to give them one more excuse to poke their noses into our affairs.”

Ill-advised nationalistic pride and paranoia or otherwise, formal HIPC status for Zimbabwe under a Mugabe-led government is probably an absolute, non-negotiable non-starter.

The Zimbabwe Review