‘Window guidance’, a battle against political culture

AChris Chenga T THE start of 2015, a blossoming cooperation between Finance and Economic Minister Chinamasa and a recently appointed RBZ Governor Dr John Mangudya became a potent source of confidence for many stakeholders.

At the time, post-election lethargy had become a stubborn impediment to actionable policy making and much needed structural reforms.

Two years after a 2013 election victory, some campaign promises highlighted within ZimAsset had not gathered any notable pace.

Actually, greater exertion was being committed to disenchanting factional stand offs, little effort to economic essentials.

An impatient wider citizenry and business community struggled to identify exactly how their interests of progress had any relevance within the underhanded political wrestling playing out in Government.

For a moment then, it seemed Minister Chinamasa and Governor Mangudya would be hopeful representatives to drive economic performance, albeit these hopes were on the mis- guided assumption that their incumbent posts positioned them to be minimally affected by the existing internal gridlock.

Furthermore, it was the Finance Minister and Governor’s proximity to once distant multilateral lenders, along with their warming relations with a wider global community, that gave optimism of economic stimulus.

After the elections in 2013, the Zimbabwean economy already had many factors going against it. A strengthening United States dollar made the currency a commodity not only internally, but amongst competing regional peers.

The slowing global economy affected countries overly reliant on resource exports as prices lowered on global markets.

Perhaps more profound, China intentionally moved to restructure its economy from being infrastructure construction driven towards more consumption focus.

So post- election factionalism, a maturing culture of patronage, rent seeking, and corruption tolerance, were the granite to harden what the nation risks to become - a boulevard of broken campaign dreams.

It is important to capture the last four years in proper context so as to understand the challenges we face moving forward, and their potential political implications.

We will encounter tough external economic conditions, which should not be expected to get better in the immediate near term.

Austerity-ridden western nations have reduced their favorability towards aid as their taxpayers demand better use of funds.

Bi-lateral lending has become less frequent as many western economies struggle with their own anaemic growth.

Commodity resources will see improved demand, but much of the global economy is poised to go through prolonged socio-political introspection before settling on the kind of ideological development agendas that sustain resource demand.

More importantly, and notwithstanding the aforementioned, the Zimbabwean economy itself is not structured on policy and competitiveness to attract ample investment.

Conclusively, the immediate near term will find us requiring internal solutions.

Yet, this reverts back to the political gridlock that has been a result of factionalism, a matured culture of patronage, rent seeking, and corruption tolerance.

The question then is where do we go from here?

More precisely, we can adopt “window guidance”. Encouragingly, much of the socio-political dynamics that existed in Japan reflect much of what we have here today; an expectation of distribution of wealth, employment and social investment into housing, health and education. The similarities reflect to an extent where Japan went through with its own process of land reform for social equity.

From an ideological perspective, the dominant economic management philosophy held by the Japanese Liberal Democrat government of the time has similarities to that of the Government in which the Finance Minister and Governor function.

Window guidance is a method used by central banks to persuade the financial sector, and capital markets, to pursue targeted lending and credit creation.

Fortunately, such a monetary policy is not unheard of to our central bank.

ZAMCO and its intent to clear bad credit within the economy is a similarity to window guidance, only that it contracts bad credit from the economy as opposed to expanding productive credit.

Window guidance, however, works to open lending channels for financial institutions to intended productive sectors of the economy.

Much of the monetary policy pursued by Governor Mangudya such as reducing bank charges is futile when interest income is not growing.

Advocating lower interest rates without attending to risky lending channels serves no long term purpose.

All these policies, while adorned by the general public, do not achieve the ultimate desire of making credit creation profitable to the financial sector.

As a central bank, the monetary authorities must engage the wider economy to find enterprises that require credit and can put it to productive use.

Indeed this is a process that requires a cohesive approach with the Ministry of Finance which designs the fiscal environment of which enterprises operate.

Consider Minister Chinamasa’s 2016 budget shortfall where Government could only allocate $77 million to water and sanitation infrastructure, far short of the required $189 million.

About 60 percent of the $77 million was financed by the same development partners who I previously highlighted will be reducing their aid appetite.

In prospective years who will fill that shortfall if not private enterprise? Indigenisation credits for the banking sector, a method of window guidance, could have been used to encourage productive use of loan credit through the construction of water and sanitation infrastructure.

Instead, rumoured to be because of the need to obey the IMF reform program, our central bank distanced itself from indigenisation credits.

In a situation where we do not print currency but rely on FDI, those credits are the easiest tool of window guidance.

We cannot pursue structural reforms off the recommendation of generic economic prescriptions.

Our reforms have to be driven by intentionally targeted economic outcomes through the policy of window guidance, and where need be instruments such as indigenisation credits.

Most structural reforms hoped for by Minister Chinamasa have struggled to gain traction due to the fact that they are inherent contestations to engrained interests of bureaucrat, politicians and their business cronies.

The broken value chains, market distortions, and regulatory loopholes that exist in our economy are intentionally retained.

Let’s not mistake that fact! So to expect that structural reforms will be welcomed and ultimately achieved through the persuasion of generic economic prescriptions is naïve.

If we are going to defeat the interests of turf lords, resource barons, and regulatory monopolists it should be through credibly competing economic design as identified by window guidance.

Window guidance is an inherently existential opponent to the broken value chains, market distortions and regulatory loopholes that exist in our economy.

For example, the uncompetitive stature of our manufacturing is due to the sector needing structural reform. Smuggled products, compromised inputs, and tax evasion, are not coincidental. There are interests at play that trace back to political vices.

These interests will only be defeated by shining manufacturing sector under a national spotlight of window guidance.

Then there will be greater accountability as the nation focuses desired outcomes from manufacturing.

Indeed these prescriptions may sound hypocritical coming from a proponent of free markets with less Government involvement in the economy.

However, fair open markets can only be achieved in an economy when the interests of bureaucrats, politicians and their cronies are dismantled.

This creates a ground for productivity and proper regulatory parameters, otherwise known as desirable economic structure.

The heavy hand strategy of window guidance by the RBZ and the Ministry of Finance would be an economically conducive strategy to break through the political gridlock hindering economic growth.

Likewise it reduces our dependence on desirable external circumstances that may not avail themselves in the immediate future.

We cannot pursue structural reforms off the recommendation of generic economic prescriptions. Our reforms have to be driven by intentionally targeted economic outcomes through the policy of window guidance, and where need be instruments such as indigenisation credits.