Zimbabwe Grappling with Hyperinflation

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Zimbabwe Grappling with Hyperinflation

HBS Case

1. What happened in Zimbabwe and who are the winners and losers of hyperinflation?

2. What are the causes of hyperinflation in Zimbabwe?

Ans 1 &; 2:

There are various reasons of Zimbabwe’s hyperinflation. It started with the government trying to redistribute land which supposedly was unequally distributed. But this process slowed down over the time. The WBS program led to commercial farmers being forced to buy land. This process was at its peak during 2000’s. The government started unofficial farm invasions. This led to political and economic turmoil which deprived the country of foreign investors. Zimbabwe was already reeling under high poverty rate, with the foreign investor’s withdrawal the poverty issue deepened. The government had deficit of 18% in 2000 compared to 10% in 1999. The central bank of Zimbabwe also worsened matters by tweaking the fiscal policies. Although done with good intent, the strategy failed. To manage debt, Zimbabwe started printing excessive amount of currency. Food output capacity and manufacturing output fell, unemployment rose to magnum value.

Winners: Borrowers, Holders of Hard Assets (real assets)

Losers: People on fixed income, Salaried people who have income raise less than rate of inflation, people holding liquid assets (rate of return was less than rate of inflation).

Causes of Hyperinflation:

a) The main cause was the enormous and fast increase in the supply of money. The government was printing money to pay off its debt which in turn led to hyperinflation.

b) Output of Consumer Goods and Services had low growth

c) Imbalance in Supply and Demand

d) Loss incredibility of Zimbabwean currency (monetary assets, liquid assets, etc.)

e) Monetary Authority of Zimbabwe was borrowing money irresponsibly

f) Inability to convert local currency to gold or internationally recognized hard currency

3. What can/should policymakers...