Originally Posted by John01
Whoops, this story seems to have disappeared. Bit like Zimbabwe's food resources.
It's still there, but here it is copied and pasted
By Lesley Wroughton
WASHINGTON (Reuters) - Zimbabwe's crackdown on urban slums to root out black market trading threatened to inflame the country's already dire economic problems, the International Monetary Fund said on Tuesday.
The warning came as state media reported the arrest of 14,706 people in the capital Harare on Monday, as the government continued a nationwide drive to clean up shantytowns and drive out illegal vendors, leaving hundreds homeless.
President Robert Mugabe's government defended the original "Operation Restore Order" crackdown in May saying it was meant to curb black market trade in foreign currency and other scarce commodities.
IMF staff documents, released together with the fund's 2005 review of Zimbabwe's economy, said such operations reduced informal market activity and incomes and "could contribute to lower GDP and upward price pressures."
The IMF review said the pace of the country's economic deterioration slowed last year but had resumed again in early 2005 due to rising inflation, foreign exchange shortages and low agricultural output, crippled by drought and a botched government land reform program.
It said gross domestic product should fall by 7 percent this year, further than the 4 percent GDP decline in 2004.
Western critics blame Zimbabwe's economic crisis on Mugabe's policies that collapsed agricultural output and led to unemployment of over 70 percent and chronic food and fuel shortages.
Between 1997 and 2003, the Zimbabwean economy tumbled by almost 30 percent, while agricultural production collapsed as white-owned farms were seized by the government for redistribution to landless blacks. Investment fell sharply and donors retreated.
The IMF said Zimbabwe's widening fiscal gap would contribute to money growth and likely fuel year-on-year inflation to over 400 percent by the end of the year from around 130 percent in January.
It said Zimbabwe needed a broad package of economic policies and reforms to lower inflation and boost growth.
"Without a bold change in policy direction, the economic outlook will remain bleak, with particularly detrimental effects on the poorest segments of the population," the IMF said.
The IMF said a sharp tightening in Zimbabwe's 2006 budget was needed to address mounting balance sheet losses.
"Given the high spending ratio, the bulk of the adjustment will need to come from spending cuts, especially in the wage bill, and subsidy and transfer payments" the fund added.
It said higher spending was likely to widen the fiscal gap in 2005 to 11.5 percent of GDP from 4.7 percent of GDP last year. The IMF urged the government to lower the deficit to 5 percent of GDP.
The IMF urged Zimbabwe to tighten monetary policy, sufficiently to ensure an inflation target of 80 percent by the end of 2005.
In IMF staff papers of their consultations with the government, the Zimbabwean authorities had a different view of the country's economic prospects and policies.
The IMF said the government estimated economic output declined only 2.5 percent last year and will grow by 2 percent this year, due to strong performance in tobacco, wheat and mining.
The IMF said authorities believed support prices and subsidized credit facilities for agriculture and manufacturing would stimulate a supply response and increase flows into the official market.
The government also disagreed with the IMF's inflation outlook.
"Moreover, they stressed that in comparison to the peak in early 2004, inflation had declined considerably by mid-2005 on account of their policies to turn around the economy," the IMF said of its discussions with authorities.
The IMF said the authorities indicated they had limited room for maneuver on the exchange rate, in part because of the lack of foreign financing and concerns about the inflationary impact.
The IMF said Zimbabwe's debt burden was "unsustainable," with data showing that about 70 percent of external debt is owed to official creditors with half of the total in arrears.