Zimbabwe devalues currency to tackle economic crisis

Commercial banks reopened on Friday in Zimbabwe after a bank holiday, with queues outside no longer than usual. (Reuters)
Updated 22 February 2019
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Zimbabwe devalues currency to tackle economic crisis

  • Zimbabwe adopted the dollar in 2009 but introduced a parallel system of bond notes that it pegged at 1:1 to the US currency

HARARE: Zimbabwe’s central bank began trading a sharply discounted replacement currency on Friday, attempting to ease a cash crunch that has hobbled the economy and plunged millions deep into poverty.
Zimbabwe adopted the dollar in 2009 but, as a chronic hard currency shortage worsened, introduced a parallel system of bond notes that it pegged at 1:1 to the US currency.
Effectively reintroducing a national currency, the Reserve Bank of Zimbabwe (RBZ) said on Wednesday it would carry out a “managed float” of the surrogate, which fetches far less than a dollar on the black market.
The bond notes and electronic dollars, locked in individuals’ accounts for months due to a lack of cash, will be merged into a separate currency called RTGS — or real-time gross settlement — dollars, the central bank said.
It sold US dollars to banks at 2.5 RTGS dollars on Friday morning, Bank Governor John Mangudya told business leaders.
Commercial banks reopened on Friday after a bank holiday, but with exchange facilities from bond notes to US dollars at the same 2.5 rate limited to individual and corporate holders of foreign currency accounts, queues outside appeared to be no longer than usual.
Other members of the public should, in theory, be able to go to banks on Monday and buy US dollars with bond notes or electronic dollars.
But it is not clear how many US dollars the central bank, which only has enough foreign exchange for two weeks of imports, has sold to banks.
The bond notes and notional electronic funds have plummeted on Zimbabwe’s black market in recent months to around 4 per dollar.
Many foreign traders have stopped accepting bond notes as legal tender, leaving businesses such as millers, brewers and miners hamstrung.
Economists cautiously welcomed the central bank’s decision to allow its currency to devalue.
The RBZ hopes its new measures will temper demand for dollars on the black market and ease inflation as the new currency settles at fair value.


Foreign investors hope India dials back policy shocks after Modi win

Updated 24 May 2019
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Foreign investors hope India dials back policy shocks after Modi win

  • Modi’s pro-business image and India’s youthful population have lured foreign investors
  • After Modi’s win, about a dozen officials of foreign companies in India and their advisers said they hoped he would ease his stance and dilute some of the policies

NEW DELHI: Foreign companies in India have welcomed Prime Minister Narendra Modi’s election victory for the political stability it brings, but now they need to see him soften a protectionist stance adopted in the past year.
Modi’s pro-business image and India’s youthful population have lured foreign investors, with US firms such as Amazon.com , Walmart and Mastercard committing billions of dollars in investments and ramping up hiring.
India is also the biggest market by users for firms such as Facebook Inc, and its subsidiary, WhatsApp.
But from around 2017, critics say, the Hindu nationalist leader took a harder, protectionist line on sectors such as e-commerce and technology, crafting some policies that appeared to aim at whipping up patriotic fervor ahead of elections.

Opinion

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“I hope he’s now back to wooing businesses,” said Prasanto Roy, a technology policy analyst based in New Delhi, who advises global tech firms.
“Global firms remain deeply concerned about the lack of policy stability or predictability, this has sent a worrying message to global investors.”
India stuck to its policies despite protests and aggressive lobbying by the United States government, US-India trade bodies and companies themselves.
Small hurdles
Modi was set to hold talks on Friday to form a new cabinet after election panel data showed his Bharatiya Janata Party had won 302 of the 542 seats at stake and was leading in one more, up from the 282 it won in 2014.
After Modi’s win, about a dozen officials of foreign companies in India and their advisers told Reuters they hoped he would ease his stance and dilute some of the policies.
Other investors hope the government will avoid sudden policy changes on investment and regulation that catch them off guard and prove very costly, urging instead industry-wide consultation that permits time to prepare.
Protectionism concerns “are small hurdles you have to go through,” however, said Prem Watsa, the chairman of Canadian diversified investment firm Fairfax Financial, which has investments of $5 billion in India.
“There will be more business-friendly policies and more private enterprise coming into India,” he told Reuters in an interview.
Tech, healthcare and beyond
Among the firms looking for more friendly steps are global payments companies that had benefited since 2016 from Modi’s push for electronic payments instead of cash.
Last year, however, firms such as Mastercard and Visa were asked to store more of their data in India, to allow “unfettered supervisory access,” a change that prompted WhatsApp to delay plans for a payments service.
Modi’s government has also drafted a law to clamp similar stringent data norms on the entire sector.
But abrupt changes to rules on foreign investment in e-commerce stoked alarm at firms such as Amazon, which saw India operations disrupted briefly in February, and Walmart, just months after it invested $16 billion in India’s Flipkart.
Policy changes also hurt foreign players in the $5-billion medical device industry, such as Abbott Laboratories, Boston Scientific and Johnson & Johnson, following 2017 price caps on products such as heart stents and knee implants.
Modi’s government said the move aimed to help poor patients and curb profiteering, but the US government and lobby groups said it harmed innovation, profits and investment plans.
“If foreign companies see their future in this country on a long-term basis...they will have to look at the interests of the people,” Ashwani MaHajjan, an official of a nationalist group that pushed for some of the measures, told Reuters.
That view was echoed this week by two policymakers who said government policies will focus on strengthening India’s own companies, while providing foreign players with adequate opportunities for growth.
Such comments worry foreign executives who fear Modi is not about to change his protectionist stance in a hurry, with one offical of a US tech firm saying, “I’d rather be more worried than be optimistic.”