Wananchi ,the Supreme Court Judgment in the matter of Standard Chartered Bank against China Shougang International refocuses attention on the country s crippling debt question and indeed the challenges of doing business in fragile states where enforcement of legal rights is tenuous and tedious. In this Judgment ,the Supreme Court held that a Bank had no defense against claims brought by a depositor for any amounts appropriated by the Central Bank during the Crises years of this economy. In the past Banks had argued that ,the acts of the Central Bank appropriating their FCA deposits were equivalent to State Acts of appropriation ,or acts of God ,vis majeurs which were beyond the control of the Banks themselves. The Supreme Court ,on other hand has ruled that ,once amounts are deposited in a Bank ,the Bank assumes dominium over same and they become the Bank s funds. This is in fact a trite principle of modern banking law. The total amount of bank deposits that were appropriated by the Central Bank ,in Foreign Denominated Accounts held by Banks was $ 413,9 million implying that a flood gate could be opened. I guess ,with the advent of the Constitutional Court ,Banks themselves will be making a constitutional application on the constitutional legality of the appropriations and at the end of the day ,the little law of prescription may come to their aid. For the ordinary citizen or investor whose amounts were caught up ,in this web ,this might not be good news at all. These are the kind of omissions and commissions that cloud the investment environment of this beautiful country of ours. A better solution may be to find a just and adequate way of State compensation that avoids the expensive lottery of the judiciary. However this solution ,as with demonitization of all Zim dollar accounts maybe be restricted by self evident budgetary constrains. The $413,9 million from FCA s was part of the Central Bank debt of $1,1 billion as at the end of 2008. Of this the remaining amount was $552,1 million short term credits advanced by various foreign partners including the PTA Bank and the African Import and Export Bank. The stock of debt at the RBZ does not take into account intra parastatal debt in excess of $ 1,2 billion which must also be added to the stock of domestic debt. To this must be added amounts that have accrued to service providers in respect of unpaid arrears . The spiral of domestic debt will be compounded by Local authorities unable to service their debt due to the election gimmick of forced cancelation of outstanding rates and water bills . State domestic debt does not include debt held by the private sector.Over the last months huge amounts of debt has piled up in the form of Non Peforming Loans to Banks ,whose ratio across the board must be at least 45%. Domestic debt also includes huge amounts of money owed to NSSA and ZIMRA by companies who are in serious wage arrears because of a contracting economy. The bottom line is that the country is caught up in a debt spiral ,that is toxic and suffocating . We are a nation wallowing in debt .As we used to say ,in the dusty days of primary school,a country whose head is swollen from debt. Debt default is a sign of a failed nation and a Brocken down social contract.It leads to a cash economy,which on its own is costly and primitive . ( I will deal with the US shut down and threatened default separately and soon) Regrettably to the extent that ,it is the Government itself that is sitting at the center of the toxic assets ,the strangulation effect of its default on the economy is cataleptic. The situation of Peter ,owing Maidei,who owes Mwendamberi ,who in turn owes MaDube is an unsustainable Ponzi scheme. This spiral of debt and absence of capital is at the epicenter of the massive deindustrialization that is killing this economy ,destroying jobs and human livelihood. This frightening domestic situation must be juxtaposed to the framework of a staggering domestic debt of at least $11 ,1 billion which is at least 103% of GDP. Domestic and foreign debt are the same side of the same coin. They have a toxic effect on an economy and solutions must be found. My biggest worry ,is that I see a mentality which does not understand the mechanics and suicidal nature of unsustainable debt. Unsustainable debt refers to a situation where the country s debt capacity ,measured along a set of macroeconomic criteria is no longer in existence. These include the measure of the debt per capita,the measure of debt to GDP and the measure of the debt to a country s exports. On all these criteria Zimbabwe is long of target off.The Sadc agreed Macroeconomic Convergence guidelines state for instance that debt should not be more than 70% of GDP and Zim is way above this target. The greatest challenge to this economy will remain that of capital. Every crook out there,every drug dealer with money to launder ,every terrorist organization with money to launder is aware of this. So as in the past Government ,one will be inundated by a harvest of these crooks ,vultures ( not to be confused with Vulture Funds ,although difference is marginal) who will descend in the capital ,seeking to foister huge amounts into the economy in return of a sovereign guarantee and some ridiculous interest . Many of these individuals are refined conman who go by refined Anglo Saxon names like Mr Smith but they can not utter a simple word of English . They will tell you they are investment consultants with a portfolio of $4 billion ,but their bulging biceps and ill hidden Russian accent alert you to the fact that you are probably dealing with an ex KGB arms dealer who in the new world of tighter money laundering laws ,is looking for a dry cleaner for his ill begotten moneys. I fear that these people will descent on this economy and the weak ,and uninitiated will gullibly imbibe to the detriment of a nation already struggling in debt. That is why it will be so important for Parliament to ensure that the country s laws on debt contraction are complied with.In particular the Public Finance Management Act as well as the new Constitution . In the desperate circumstances where the economy is stuck ,the temptation to sink into a feja feja economy is very high and the law must be mobilized against the seductiveness of huge tons of illegal money floating ,widely but homeless in the world today. Above all it is important to bifurcate the Central Bank s balance sheet ,so that it is relieved of its debt so that in this age of hot money it is able to play its role of supervision and monitoring more effectively. The new Money Laundering Act offers a real opportunity of dealing with mafia and preventing Zimbabwe from becoming a hub of capital chlorination . Something which may be difficult to prevent ,in a situation which as I suspect the State itself is the major player in breaking its own laws and the various protocols it has signed and ratified. We are in for a Long winter of shenanigans. A long winter indeed. Zikomo.
Posted on: Tue, 15 Oct 2013 04:35:11 +0000
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