Monday, July 30, 2007

Zimbabwean Aid

I must've missed this article in The Economist last Friday.

It should not be a surprise that foreign aid going to Zimbabwe is given to NGOs, the UN, etc, given the madhouse run by Mugabe. But!
By Zimbabwean law, all official foreign-currency transactions must go through the central bank. With hyperinflation, a gap of around 10:1 has opened up between the official exchange rate operated by the bank and the true rate reflected in the black market. Were donor agencies fully to comply with this requirement and transact their aid at the official rate, around 90% of the value of their aid would be captured by the central bank...

Faced with this dilemma, most donors...have negotiated special rates with the central bank—usually around the mid-point between the official rate and the black-market rate, though even this implies that the central bank captures around half of official aid.

But Norway's aid agency has gone even farther. Apparently it feels obliged by its principles of good governance to transact all its aid at the official rate, at times inadvertently handing most of its aid to the central bank. As conventional tax revenues to the finance ministry have dwindled in the face of economic collapse, the central bank has increasingly become the locus of government finance, thanks both to its capture of foreign exchange and its printing of money. It must be the world's only central bank that itself imports tractors.

It would be fairly arrogant to assume I can attach value-added over The Economist.

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