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S. Africa would extend rand to Zimbabwe in deal for reform

Section: Daily Dispatches

By Basildon Peta
The Sunday Independent, Cape Town, South Africa
Sunday, July 8, 2007

The Southern African Development Community (SADC) is preparing a dramatic plan to rescue the shattered Zimbabwean economy by extending the rand monetary area into Zimbabwe, according to sources.

Tomaz Salamao, the SADC executive secretary, is drafting the plan, which would also include the South African and Botswana reserve banks pumping millions into the Zimbabwe reserve bank, the sources said.

The aim of these measures would be to stabilise the exchange rate of the Zimbabwe dollar and curb inflation so that the country could buy foreign exchange and continue importing essential goods.

The rand would effectively prop up the Zimbabwe dollar, which has become almost worthless, with inflation now hitting 5,000 percent and the real exchange rate to the US dollar currently running at about 250,000, though it has gone higher.

But to get the rescue package, President Robert Mugabe would first have to agree to fundamental political reforms in the negotiations with the opposition Movement for Democratic Change (MDC), which are due to start at a secret venue near Pretoria on Monday.

Salamao is believed to have briefed the SADC leaders about his plan on the sidelines of the African Union summit in Accra, Ghana, this week. It is not clear what their response was, but he then visited Zimbabwe on Thursday to discuss his plans with the Zimbabwean government.

Details of the plan are not yet clear but sources said it would entail extending the rand monetary area -- now formally known as the multilateral monetary area (MMA) -- into Zimbabwe. The MMA now includes South Africa, Namibia, Lesotho- and Swaziland. The rand is legal tender in these countries and their currencies are pegged to it so that their exchange rates with foreign currencies such as the US dollar are the same as the rand's.

Sources said the Salamao plan would not immediately peg the Zimbabwe dollar to the rand but would stabilise the exchange rate by bringing it under effective South African monetary control.

John Robertson, a prominent Zimbabwean economist, said that if Salamao really intended extending the MMA into Zimbabwe, "the effect would be to displace the Zimbabwe dollar with the rand so that the dollar would become history."

Robertson said he had long advocated that measure as the only realistic option for saving the Zimbabwean economy.

The SADC leaders mandated Salamao to draft an economic rescue package for Zimbabwe at a special summit in Dar es Salaam in March. At the same summit, they mandated President Thabo Mbeki to mediate between Mugabe's ruling Zanu-PF and the MDC for a solution to the country's political crisis.

Mbeki is also understood to have briefed the SADC leaders in Accra about his progress.

He has arranged a series of preliminary negotiations between Zanu-PF and representatives of both MDC factions over the past few months, in which they agreed on a comprehensive agenda that includes the main demands of both sides.

This will be the agenda for the negotiations on Monday.

Sources said the political and economic plans were closely linked, as the SADC leaders believe the economic rescue package will be worthless without fundamental political reforms, including levelling the playing field for elections next year.

Their argument was underscored this week as Mugabe resorted to his own increasingly desperate and forceful political measures to try to control runaway inflation.

He had earlier ordered companies to restore prices to their June 18 levels after a sudden surge of inflation trebled or quadrupled prices within a week. This has already created a serious shortage of goods on shelves and forced some businesses to close rather than continue operating at a loss.

But Mugabe then threatened to nationalise companies that either defied his order to cut prices or decided to close down.

The state-owned Herald newspaper in Harare reported on Saturday that 17 business executives had been arrested, while Mugabe is believed to have ordered the army and the notorious Green Bomber youth militia to deploy this week to force businesses to obey his orders at gunpoint.

Some witnesses said that youths had already looted shops in Bulawayo and Masvingo.

Several businessmen are reported to have fled the country ahead of this expected government assault. Representatives of a South African company listed on the Zimbabwe stock exchange are believed to have had an emergency meeting with Mbeki to plead for intervention.

However, the big question is whether Mugabe will surrender effective control of his economy or make the necessary fundamental political changes, all of which will threaten his 27-year-long iron grip on power. Officials began gathering in Pretoria over the weekend ahead of the negotiations, which are so secretive that participants are not even allowed to bring switched-off cellphones into meetings.

The Zanu-PF delegation is led by Patrick Chinamasa, Zimbabwe's justice minister, while the two MDC delegations by are led by Tendai Biti and Welshman Ncube.

The Democratic Alliance argued this week that, because of the repercussions of Zimbabwe's collapse and the threats to South African companies by Harare, some kind of official information from Mbeki on the status of the dialogue was now necessary.

Aziz Pahad, the South African deputy foreign minister, said this week that Salamao had briefed the South African government about his fact-finding mission to Zimbabwe. He had reported that "the currency has to all intents and purposes collapsed" and that there was no new inward investment except in some sectors of mining.

Pahad added that there were now an estimated 3 million illegal Zimbabwean immigrants in South Africa -- which meant the crisis was "affecting us all."

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