Cheated by central bank, all hope of compensation gone (Feature)

By Jan Raath Jun 29, 2010, 3:47 GMT

Harare - The wild excesses of a central bank governor who looted depositors accounts to prop up an octogenarian dictator, printed mountains of worthless paper money and wrecked the economy, have come home to roost.

The Reserve Bank of Zimbabwe is bankrupt, and insiders say it owes 1 billion US dollars to pensioners who lost their savings, families whose holiday money disappeared, companies and non-governmental organizations it stole from, and the suppliers who trusted its title as lender of last resort.

Since late last year, creditors have been queuing up with high court orders for the attachment of central bank property. A cabinet minister has evicted the bank from its offices in the western Zimbabwean city of Bulawayo after rent fell seriously into arrears.

Staff are suing for non-payment of wages and complain about the once sumptuous canteen in its Harare headquarters offering cabbage soup. New concerns were aroused last week after three employees were arrested after they allegedly were able to diddle the bank out of 400,000 US dollars.

Last week, President Robert Mugabe issued a presidential edict to stop the haemorrhage of central bank property, declaring the central bank's debts to be state liabilities. Zimbabwean law carries a prohibition on the attachment of state property, and creditors are obliged to wait until the government has the money to pay for it.

Finance Minister Tendai Biti said the government intervened when it became clear that some individuals and companies are acting like vultures and stripping public assets.

Legal sources who asked not to be named said that the last straw for Biti was when a local businessman, who had sold 100 luxury buses to the central bank, got an order for the vehicles to be auctioned to pay off the debt. With privileged information, senior managers in the bank bought most of the buses at a quarter of their value, the source said.

Gideon Gono, a crony of the 86-year-old Mugabe, was appointed governor of the bank in 2003. Soon after, Mugabe's regime was beginning to feel a severe economic squeeze in the wake of the war he declared on white farmers, whose properties were invaded by mobs of youths and guerrilla-war veterans.

Agriculture, the engine of the Zimbabwe economy, began to collapse and with it the tax revenues from farmers and the businesses that served them. The burgeoning manufacturing and tourism sectors crashed, and investment dried up.

It was then that Mugabe needed large sums of hard currency to finance elections and to deploy thousands of ruling-party militias around the country for a violent terror campaign against pro- democracy supporters.

At the same time, the government had to keep sweet its dwindling numbers of supporters, so the central bank imported thousands of top- of-the-line tractors, combine harvesters and all manner of farm implements to bribe rural voters. Gono also provided judges, ministers, generals and police chiefs with Mercedes Benz limousines.

And with famine becoming a chronic national condition, the government had to import food, as well as seed, fertiliser and fuel, and the central bank stepped in here, too. Despite the massive supply of farming inputs, production continued to plummet as beneficiaries sold their largesse.

One of the ways Gono raised money was to force banks, building societies and pension funds to lodge 35 percent of their cash assets with the central bank. The institution stopped paying gold mines for the gold for which it was the sole legal buyer. The same happened to the tobacco growers it undertook to pay for the hard currency their crop earned.

With government expenditure ballooning and the treasury empty, Gono simply printed banknotes of the Zimbabwe dollar in ever- increasing denominations. Predictably, that drove the local currency into a worthless rate of 6 trillion to 1 US dollar, and pushed inflation to 500 billion per cent. Gono's lame explanation was that unusual situations require unusual measures.

In early 2008, business people began to notice they were unable to draw on special foreign-currency accounts, which had to be lodged with the central bank. Months went by before depositors realised their accounts had been emptied by the central bank.

In August, the Geneva-based Global Fund to Fight Aids, Tuberculosis and Malaria announced that it was suspending further aid to Zimbabwe until the central bank had paid back 12 million US dollars seized from its hard-currency account.

Another depositor was Zimplats, the country's giant platinum mine, which lost 43 million US dollars that it is trying to have set off against royalties to the state. Thousands of individuals, companies and NGOs found their accounts raided.

With Mugabe's edict last week, many thousands of depositors have been left seriously out of pocket.

'We had 18,000 US dollars stolen from us by Gono,' said the chief executive of chemical company who spoke on condition of anonymity. 'And now it's theft again, because the government is stopping us from getting our money back.'

The central bankers 'seriously abused their powers in ways that destroyed the currency and incurred debts they couldn't pay,' economist John Robertson said.

'They believed they had authority to rewrite the rules of sound banking. They thought they could print their way out of it and escape the consequences. Now look.'