'Where did you get the money to pay us?'.

Dr Gideon Gono, governor of the Reserve Bank of Zimbabwe (the central bank) reflects on Zimbabwe-IMF relations. "It is against the overt bias and unfair treatment we received at the hands of the IMF on 8 March 2006, that Zimbabwe lodged a formal complaint to the IMF on 13 March 2006, for which no response has been received as yet in the spirit of cooperation as the IMF advocates for," Gono writes. "This demonstrates a lack of uniformity of treatment of member countries, which is supposed to be an overarching principle in a cooperative institution like the IMF."

**********

When Zimbabwe joined the International Monetary Fund (IMF) on 29 September 1980, its aspirations were to be an equal member in this grouping of global economies. Zimbabwe subsequently got financial assistance from the IMF during the 1990s, under various Fund-supported programmes.

An assessment of the stability rate of these programmes, however, indicates that of the total the IMF had committed to give to Zimbabwe, only around 45% of it materialised, with the rest being withheld mainly due to terminations of the programmes.

As the years passed, the country's relations with the IMF have become increasingly erratic, marked by stop-go Fund-supported programmes which has left the majority of Zimbabweans feeling deeply aggrieved as regards the impartiality of this multilateral institution.

Against the background of recurrent droughts, the worsening balance of payments position due to the commodity shocks in the late 1990s, aggravated by the genesis of bad media publicity against Zimbabwe, the country started to accumulate arrears with the IMF, which triggered the IMF to impose sanctions against the country, including the suspension of voting rights and access to more Fund resources and technical assistance.

From 2004, when Zimbabwe began to start clearing its outstanding obligations with the IMF, repeated Fund missions who jetted into the country insisted that this was to be maintained, as clearance of arrears was going to "trigger the reinstatement of your country's voting rights", so they said.

We've paid US$211m to the IMF

Within this framework, the country made a cumulative payment to the IMF amounting to US$210.6m between January 2004 and 7 March 2006.

Over and above this, the country also took and implemented bold decisions on both the fiscal and monetary policy fronts, including fiscal expenditure rationalisation, adoption of positive real interest rates, phasing out of price controls on some goods and services and the significant liberalisation in the exchange rate system.

All these progressive measures were implemented with full concurrence of stakeholders in Zimbabwe and the IMF.

As is now common knowledge, the IMF Board, however, took an unprecedented decision to maintain the penal sanctions against Zimbabwe for reasons which had everything to do with their original "charge sheet", on the back of which they had originally triggered proceedings to compulsorily withdraw Zimbabwe from the IMF community.

These retrospective reflections, therefore, seek to highlight the peculiarities surrounding the IMF Board's decision of 8 March 2006 and why we, as a country, formally complained to the IMF for redress.

[ILLUSTRATION OMITTED]

It is my humble submission as governor of the Reserve Bank of Zimbabwe, that this frank openness will help inform the general public in Zimbabwe as well as interested stakeholders in the SADC region and beyond, about our relations with the supra-national institutions such as the IMF. The aim is to promote constructive debate on how these institutions can be reformed for the benefit of all.

In view of the unfair treatment meted out to Zimbabwe by the IMF, there has been ongoing debate about the country's relations with the Fund, with some stakeholders suggesting that Zimbabwe should have cut loose its ties with the institution.

Others have been explicitly critical of why the Reserve Bank had gone ahead to pay the IMF, arguing that such settlement of debts was a waste of national resources, which could have been used for other priorities of the economy.

[ILLUSTRATION OMITTED]

Thus, essentially, as monetary authorities, we found ourselves pressed between two hard surfaces as we stood by our principled stance of honouring what we owed, and still owe, to the international community. Yet, at the same time, the same international community purposefully elected to remain aloof and exclusive regardless of Zimbabwe's genuine efforts towards re-engagement.

It would be a serious omission not to acknowledge upfront that in the midst of this centrifugal dichotomy, our spirits and levels of enthusiasm, as monetary authorities, were sustained by the steadfast encouragement and total support we got from the Presidium, as they cleared and authorised every penny we paid to the IMF, all of this with honourable intentions.

Thus, the standpoint which our leadership took and, which they do continue to beseech that every Zimbabwean follows, is profound in its objectivity and elevation of Zimbabwe as a country that does not want to close up and refuse to pay what it owes to any of our regional and international creditors.

It is this honourable stance that will continue to guide the country's monetary authorities in our efforts to consolidate Zimbabwe's standing in the international arena of trade, commerce and finance.

Notwithstanding the heated debate and galaxy of hypotheses shunted by those who saw no reason why we paid the IMF, as monetary authorities, we deliberately and constructively chose to let the dust of emotions settle down before commenting on this very pertinent subject.

With almost two months having gone by now, it is our considered view that now is the opportune time to objectively comment on what exactly transpired on 8 March 2006, as well as the Reserve Bank's views on the way forward.

Shifting the goalposts

Perhaps at the onset, it is also imperative that we set straight the principles upon which our actions and programmes as a central bank are grounded in so far as our dealings with the world of trade, commerce and finance are concerned.

As a central bank, we subscribe to the irrevocable commitment to fully honour all that Zimbabwe owes to its international creditors, as part of our modest contribution to the turnaround and consolidation of the country's economic performance and general livelihood of the great people of Zimbabwe.

We consider this standpoint to be a matter of principle and honour, and a pivotal cog in the foundation of any country's sound relations with the international community, at both the micro counterparty business relations as well as at the macro and socio-political levels.

As we work to consolidate the country's economic fortunes, we will continue to abide by this principle of honouring the country's debts to our creditors, and yes, within a framework that fully recognises the competing priority demands of the economy on scarce resources.

The IMF Board's decision of 8 March 2006 to deny Zimbabwe its voting and related rights, as well as to deny the country access to technical assistance, clearly epitomised a classical case of small countries' rights on the international arena being trampled upon by merely a few vocal dominant players.

This reality becomes vivid if one traces the letter and spirit of the IMF rules of play, as stipulated in the Articles of Agreement, against the impromptu "on the table" adjustments that were made by the IMF Board on the 8 March 2006, simply to ensure that Zimbabwe remained penalised, notwithstanding the country's clearance of its General Resources Account (GRA) arrears with the Fund.

For concise, expository purposes, it is telling to start with what one could call the charge sheet of the IMF Management's complaint to the IMF Board on Zimbabwe upon which Zimbabwe's voting and related rights were forfeited.

On 3 December 2003, the IMF initiated the process of compulsory withdrawal of Zimbabwe from the multilateral institution, drawing from the following "charge sheet": Essentially, the IMF's complaints against Zimbabwe were on three levels, which are:

* Zimbabwe's arrears to the IMF--in particular, GRA arrears which, as stipulated in the Articles of Agreement, trigger compulsory withdrawal. No other arrears lead to compulsory withdrawal.

* Zimbabwe's perceived non-cooperation on implementation of comprehensive macroeconomic policies. It is imperative to note that whilst cooperation on policies is pertinent, nowhere in the rules of the IMF is it specified that a country's voting rights can be suspended due to non-cooperation on policies.

* The country's then strained level of cooperation on engagement and exchange of information with the IMF.

Since December 2003, Zimbabwe consistently worked to address the above points of complaint, which saw the country fully repay its GRA arrears, having paid a total of US$210.6m to the Fund.

Equally, the level of engagement with the Fund was intensified, culminating in several IMF missions to Zimbabwe, including the director of the IMF African Department, Mr Bio-Tchane's meeting with President Mugabe on 16 November 2004. If this is taken to be non-cooperation, indeed God help the developing world!

The level of cooperation was also elevated to include timely transmission of all data requests to the IMF, as well as swift responses to any other issues the Fund would have raised with the Zimbabwean authorities.

[ILLUSTRATION OMITTED]

On policies, Zimbabwe took the bold step of significantly liberalising the exchange rate from the previous regime where the rate had been pegged at Z$55/US$1 for an extended period, whilst positive real interest rates were adopted, all consistent with the advice the IMF missions were giving to the country.

All of this notwithstanding, alas, when 8 March 2006 came, the rules of the IMF had to be changed in the middle of the IMF Board meeting to effectively deny Zimbabwe its deserved voting and related rights.

This clearly demonstrated the intrusive prominence of political considerations in what, on paper, is supposed to be an objective and apolitical multilateral institution. In the process, the IMF Board meeting of 8 March 2006 had to be adjourned briefly to allow for the "on-the-table" modifications to the rules.

The substance and proof of this assessment is testified in the following truth of what transpired in the IMF Board room on the afternoon of 8 March.

The IMF Management, supported by their Legal Department, had tabled for the Board's decision by a simple majority vote, among other decisions, for the "termination of Zimbabwe's ineligibility of using GRA resources". Zimbabwe did indeed get the simple majority vote required on the decision!

It was post-voting that the IMF Board resolved to wash away this decision, focusing only on the other two decisions to deny Zimbabwe its voting and related rights, as well as maintaining the country's ineligibility to Poverty Reduction and Growth Facility (PRGF) funding.

No response

It is against this overt bias and unfair treatment that, as a country, Zimbabwe lodged a formal complaint to the IMF on 13 March 2006, for which no response has been received as yet in the spirit of cooperation of the IMF advocates.

For the avoidance of doubt and interpretational obscurity, we lay bare the core substance of Zimbabwe's formal complaint to the IMF, which in essence was in respect of the unfair treatment that the country received.

The IMF Board's discussion came after Zimbabwe's clearance of arrears to the GRA, and following a fact-finding staff mission to Zimbabwe, whose report "EBS/06/25" recommended the lifting of the remaining sanctions under the GRA.

The key authors of EBS/06/25 included the Legal Department of the Fund, which should have assured the Board that the staff recommendations underwent rigorous checking for their legal compliance with the IMF's Articles of Agreement.

In ruling on the decisions proposed in EBS/06/25, the voting pattern in the Board showed that there was the required simple majority for terminating Zimbabwe's ineligibility of using GRA resources (Decision 1).

The Board also rightly decided to maintain sanctions related to overdue financial obligations to the PRGF-ESF Trust (Decision 3) as Zimbabwe is still in arrears to the Trust.

Unfortunately, the Board also decided to maintain the ban on Zimbabwe's access to technical assistance from the Fund. Under very peculiar circumstances, the acting general counsel of the IMF proposed that "Decision 1" where Zimbabwe had received the needed simple majority vote be withdrawn. This "out-of-the-rules" recommendation was promptly adopted by the IMF Board, notwithstanding the clear inconsistency with the Fund's own set rules.

In justifying the maintenance of sanctions on Zimbabwe in the GRA, references were made to issues of policy implementation under Article IV. This was to be the first time that sanctions were applied to a country that was perceived to fall short of implementing wholesomely IMF policy recommendations in the context of surveillance.

As monetary authorities, we found that extending Board discretion in this manner was not in line with the spirit of the Articles of Agreement. Some directors in their circulated pre-Board (gray) statements, also made references to Zimbabwe's possible breaches of Articles VIII relating to restrictions on current account transactions (Section 2a), multiple currency practices (Section 3), and data reporting (Section 5), especially on disclosure of international reserves.

The IMF Staff's evaluation paper which was prepared for the IMF Board alluded to some problems in these areas, but did not recommend, nor was Zimbabwe notified that such concerns created sufficient grounds for continued sanctions.

Efforts by both myself as governor of the Reserve Bank, and the minister of finance, Dr Herbert M. Murerwa, to explain clearly the circumstances surrounding the discrepancies between the IMF Staff's views and the country's, regarding reserves data, including the use of outdated data templates and the need for technical assistance, fell on deaf ears. The IMF Board, led by a few dominant countries, stood firm against Zimbabwe.

Many Fund members maintain multiple currency practices and restrictions on current account transactions but have not been penalised by the Fund.

As Zimbabwe, we considered it unprocedural some of the steps taken to maintain Article XXVI, Section 2 sanctions on Zimbabwe; withdrawing a decision that had been approved by voting, maintaining sanctions on Zimbabwe in the GRA on grounds of economic policies (Article IV), singling out and imposing sanctions on Zimbabwe for restrictions on current account transactions and multiple currency practices (Article VIII Sections 2(a) and 3), and imposing sanctions where the perceived shortcomings could be addressed by providing technical assistance (Article VIII Section 5), which again was denied.

Clearly in our view, this was not in line with the Articles of Agreement of the Fund and demonstrated the lack of uniformity of treatment of member countries, which is supposed to be an overarching principle in a cooperative institution like the IMF.

Moreover, the decision to continue denying Zimbabwe technical assistance came out as intended to weaken, rather than strengthen, Zimbabwe's cooperation in many areas.

During Zimbabwe's presentation to the IMF Board, the country raised concerns about the prospects of a biased decision given that powerful members of the Board did, and continue, to maintain political and economic sanctions against Zimbabwe.

With the benefit of hindsight, this likely extension of political influence by the powerful members of the IMF Board should be interpreted by the world for what it is, as it damages the image and credibility of the IMF, as well as undermines the spirit of cooperation.

We are of the view, weak as we may be, that the IMF should maintain high standards on issues of economic policy and resist political influences. The IMF should also practise what it preaches on issues related to the rule of law, uniformity of treatment, internal governance, respect for the voice of weaker members, and consensus building.

"Where did you get the money to pay us?"

Over the period leading to the 8 March 2006 review by the IMF Board, Zimbabwe in general and the Reserve Bank of Zimbabwe in particular was taken to task about the source of funds used to repay our IMF debt.

Various theories far removed from the truth on the ground were propounded by interested parties who sought to sow seeds of disbelief and diminish our credibility in the eyes of the IMF Board. Indeed, the IMF Staff in line with good corporate governance checked and cross-checked these rumours and allegations and the matter was finally cleared. None of those advancing these conceited theories has ever wanted to believe the simple truth about the actual source of funds for our repayment.

The truth of the matter, which I repeat here, is that we used funds from our export sources--from gold, platinum, tobacco, and manufacturing shipments, as well as free funds from individuals and companies who elected to sell their funds to the central bank.

We also used draw-downs from lines of credit successfully negotiated with certain international banks and the flows of all these funds were explained in detail to the IMF, with SWIFT payment and transfer instructions from international banks in the UK, USA, South Africa and other places being shown to the IMF. Thus, as a country, Zimbabwe found itself between the devil and deep blue sea, as not to pay would have attracted the ultimate penalty of expulsion, whilst to pay attracted heavy and intrusive scrutiny.

Expulsion of Zimbabwe from the IMF would have been akin to "curatorship" in banking language, and no self-respecting governor would live with that eventuality the rest of his life, and I am no exception.

As governor, that eventuality needed to be prevented, hence we used funds earmarked for fuel, grain and other necessities to defend the country's interests at its hour of maximum danger.

The question put to us (after payment) was: "Why did you pay us [IMF] instead of using the funds to stabilise your situation at home?" Against a given "ultimatum to pay all that we owed in the GRA window by a certain date or else we faced expulsion", this attitude represented, in our view, a serious change of goalposts.

For me, this was the first time in my 30-year working history that a creditor, having taken a debtor to court for non-payment, and on judgment day the debtor manages to pay, and, when payment is made and accepted, the debtor is taken to task by the same creditor as to why he or she paid-up the money leaving his family starving (no fuel, food imports, etc), and questions are raised as to where the money came from.

As stated above, I can confirm to the world here and now that all the funds used to settle our IMF/GRA obligations were legitimate, own-sourced funds, and no help was extended by any country towards that payment.

It was a matter of principle that Zimbabweans had to sacrifice and pay from available funds which had to be switched from other uses to meet this obligation. That is how much we value our membership in the IMF!

Conviction vs conformity

We, at the central bank, were also taken to task for engaging in quasi-fiscal operations. In simple terms, the issue was why did the Reserve Bank of Zimbabwe (RBZ) and not the Ministry of Finance provide resources to fund dam construction, fund irrigation systems, infrastructure development, support our railways (NRZ) systems, upgrade water reticulation systems in our cities and towns, support our sole coal producers (Hwange), provide funds for importation of grain to feed the nation, import seeds and fertilisers, fuel, and some such critical activities.

The argument is that these programmes should have been funded by the Ministry of Finance and our doing so was inflationary.

Section 6 (d) of the Reserve Bank of Zimbabwe Act under which the RBZ was created obligates the Bank "to advance the general economic policies of the government", while Section 8 which defines the Bank's relation with the nation states that "the bank shall act as banker to the state" and Section 8 (2) states that "nothing in this section shall prevent the state from carrying on transactions in such a manner as the state may require and, if so requested by the state, the bank shall make the necessary arrangements to this end."

Everything we did in dealing with our quasi-fiscal operations was within the law and mandate given to the Bank, including approvals, knowledge of, and authorisations by the Ministry of Finance.

Survival first, inflation second

We explained to the IMF Staff and Board that, yes, we agree such activities do indeed fuel inflation through excessive money. But what was clear to me as governor is that the 8 March 2006 decision on Zimbabwe had nothing to do with the original economic charge sheet which had given rise, in the first place, to the action to move towards compulsory withdrawal of Zimbabwe from the IMF.

The charge sheet was to do with GRA arrears which we cleared. Economic policies are never an event but a process which yields results over time, while payment is an event expected to happen on a particular day. An event had led to our sanctioning and that event was dealt with.

One understands the difficulties the IMF Board was faced with given that apart from the case of Czechoslovakia 60 years ago, there was no precedent to go by. Thus, I would not want to see Zimbabwe's grossly unfair treatment forming the basis of a precedent of treating other members like that in future, whether these members are from the developed or developing countries.

On our part as monetary authorities, we pledge not to insist, in future, on application of Zimbabwe's treatment as the standard or precedent on anyone else. It's simply a bad precedent. As things stand, we remain suspended from exercising our 0.0001% voting rights, remain ineligible to technical assistance from the IMF, remain barred from accessing any funds from the global lender, remain ostracised till we fully pay the US$119m still owing on the PRGF window.

We seek no quarrel(s) with those to whom we owe money for past assistance, and as a country remain committed to paying and meeting all Zimbabwe's obligations to the world, both multilateral and bilateral lenders. It is a matter of national duty, obligation and pride that Zimbabwe meets all of its obligations in the fullness of time, and it is my determination as governor to see that we do our best to clear the country's debts through legitimate, transparent, and sustainable forms of repayment.

As no other country or central bank governor has been faced with the situation I find myself in at least 60 years (since a country was last expelled from the IMF), and with no precedent to go by, it is my hope that no brick-bats will be thrown at me for these reflections. If there was a known "reaction-precedent" to go by, I would have followed it. But there is none on record.

The way forward

As monetary authorities, we continue to believe that being party to regional and international institutions of mutual cooperation is a strategic requirement in the competitive global space of today. Thus, notwithstanding the clear unfair treatment the country received at the hands of the IMF Board, influenced by just a few powerful seats, there still remains scope for beneficial cooperation between Zimbabwe and the international community.

As we progress to consolidate our macroeconomic policies, we also expect, even if this expectation is ridiculed as we think it will be, nevertheless that the IMF will revert to its core values as espoused in the covenants sworn by members when the institution was conceived back in the 1940s. The painful experience of exploitation and abuse of voting muscle as happened against Zimbabwe on the dark day of 8 March 2006, clearly amplifies the calls by the developing world for radical reforms on the mechanics of voting rights and weights in international institutions.

At the local level, stakeholders should, nevertheless in unity, reinforce the country's resolve of reducing inflation, creating jobs, generating foreign exchange, attracting foreign investment, upholding the rule of law, respecting and protecting investor property, improving all-round productivity and capacity utilisation at the factory, mine or farm level, while shunning all forms of corruption, intolerance and indiscipline as well as improving the general standards of living for the majority of Zimbabweans. It is only through our own hard work, blood and sweat that the turnaround of this economy will be achieved. One day the international community will see value in supporting us whole-heartedly. Prior to that day, Zimbabwe's fate rests in our own honest efforts.

As monetary authorities, we will not tire of playing our part.

I rest my case!

IMF facilities to Zimbabwe (US dollars)

                                      Charges/Interest
Year  Disbursements   Repayments      paid              Total paid

1984    2,058,441.00    9,189,470.71  18,985,086.62      28,174,557.33
1985               -   22,900,962.97  23,303,349.37      46,204,312.34
1986               -   60,478,119.84  21,419,329.47      81,897,449.31
1987               -  114,556,150.93  16,884,911.18     131,441,062.11
1988               -   78,193,116.36   8,992,334.15      87,115,450.51
1989               -   39,367,902.13   4,779,218.81      44,147,120.94
1990               -   24,754,612.63   2,496,190.70      27,250,803.33
1991               -    6,928,645.31     387,546.40       7,316,191.71
1992  216,150,000.00               -   5,834,309.25       9,306,504.96
1993   65,656,168.00               -   9,306,504.96       9,306,504.96
1994   76,642.125.00               -  10,415,336.32      10,415,336.32
1995   75,492,900.00               -  12,691,643.46      12,691,643.46
1996               -    8,005,549.55  10,924,019.13      18,929,568.68
1997               -   26,095,487.46  10,383,791.80      36,479,279.26
1998   53,802,392.00   48,799,591.68  10,025,386.75      58,824,978.43
1999   32,233,993.40   58,785.127.25   8,389,059.65      67,174,186.90
2000               -   67,096,814.70   9,562,703.63      76,659,518.33
2001               -    9,475,942.80   2,660,623.13      12,136,565.93
2002               -    3,421,025.40     260,336.00       3,681,361.40
2003               -    4,973,710.20     171,040.76       5,144,750.96
2004               -   22,574,615.00              -      22,574,615.00

2005               -  168,848,794.07     151,205.93     169,000,000.00
2006               -   19,000,000.00              -      19,000,000.00

Zimbabwe history of lending arrangements with the IMF (in millions of
SDRs or Special Drawing Rights. As at 11 July 2007, 1 SDR = US$1.52254)

                            Date of
                            Expiration
               Date of      or            Amount   Amount  Effective
Facility       Arrangement  Cancellation  Agreed   Drawn   Support (%)

Standby        2 Aug, 1999  1 Oct 2000      141.4   24.7   17.5
  Arrangement
Standby        1 Jun 1998   30 Jun 1999     130.7   39.2   30.0
  Arrangement
Extended       11 Sep 1992  10 Sep 1995     114.6   86.9   75.8
  Fund
  Facility
PRGF           11 Sep 1992  10 Sep 1995     200.6  151.9   75.7
  Commitments
Extended       24 Jan 1992  11 Sep 1992     343.8   71.2   20.7
  Fund
  Facility
Standby        23 Mar 1983  22 Sep 1984     300.0  175     58.3
  Arrangement
Total                                     1,231.0  548.9   44.6

Source: Reserve Bank of Zimbabwe and Zimbabwe Central Statistics Office