Zimbabwe's Security Forces Sideline Government as Economy Crashes

(Bloomberg) --

Zimbabwe's security force leaders sidelined the nation's economic chiefs and forced the government to close the stock exchange and halt most mobile-money transactions, people familiar with the situation said.

The June 26 order that sought to stabilize the nation's currency came after pressure from the Joint Operations Command and was made without notifying the central bank, which regulates the mobile-money industry through which almost all of Zimbabwe's commerce takes place, the people said. They asked not to be identified because the role of the JOC hasn't been disclosed publicly.

The measure is further evidence that senior ruling party and military officials are growing impatient with the administration of President Emmerson Mnangagwa. Inflation has surged to 786%, the currency has crashed and the country is facing shortages of food and fuel.

READ: As Zimbabwe Economy Crumbles, Mugabe Successor Courts Unrest

The JOC includes officials from the military, police and secret service and is the highest body in terms of coordinating state security, though it doesn't usually pronounce on economic matters. It stepped in after deeming that Finance Minister Mthuli Ncube and central bank Governor John Mangudya failed to take action to address the crisis, one of the people said.

While the military holds power in the country and can exert influence on the government, political analysts aren't predicting a coup. Military takeovers are rare in the region -- an attempt by the army to take power in Lesotho in 1997 was put down by a Southern African Development Community-backed invasion.

Defense Minister Oppah Muchinguri, who chairs the JOC, wasn't immediately available for comment, said a person who answered her mobile phone when Bloomberg sought comment. The government denied the order came from the JOC.

“The order came from government after taking input from all agencies and departments,” said Nick Mangwana, the government spokesman. “Evidence linking the mobile-money platforms to money laundering as well as illegal foreign-exchange trading and money creation had been uncovered.”

Mobile Money

Central bank officials were unaware of the order when called by mobile money companies on June 26, two of the people said. Mangudya didn't answer his mobile phone or respond to a message left with his assistant when Bloomberg sought comment on Tuesday.

“It is not correct that the Reserve Bank and the Ministry of Finance were not involved in the decision or were not aware of the developments leading to the suspension,” Secretary for Finance George Guvamatanga said in response to questions sent by mobile phone text message. “This was a further follow up of work that the Financial Intelligence Unit was already working on which led to a court ruling against one of the mobile operators.”

Zimbabwe's biggest mobile-money platform, with more than 10 million registered users, is Econet Wireless Zimbabwe Ltd. unit Ecocash. The Zimbabwe Stock Exchange is privately owned. It was last suspended in 2008 when inflation surged to 500 billion percent and the Zimbabwe dollar was scrapped the following year.

Econet declined to comment on the government allegations.

Soaring Stocks

The ZSE's benchmark industrial index has risen sevenfold this year as shares are used as a hedge against inflation. Mobile money was used to buy shares and then that money was moved out of the country, the Information Ministry said in the June 26 statement.

The JOC took action as the Zimbabwe dollar, reintroduced last year after a decade-long hiatus, plunged in value on the black market to below 100 to the U.S. dollar. That compares with an official rate of about 57. As recently as last year, Zimbabwe pegged its currency at parity with the greenback.

Core to the dispute are the various rates that traders use to exchange U.S. dollars into electronic money, which can reduce the value of Zimbabwe's currency.

The rate can depend on whether the funds are transferred to a mobile platform like Ecocash or into a bank account, while some companies transact business using what is known as the Old Mutual Implied Rate. The OMIR uses the difference between the prices of Old Mutual Ltd.'s shares on the Zimbabwe and London stock exchanges to predict the potential future rate of the Zimbabwean dollar.

As pressure grows on the administration of Mnangagwa, who succeeded longtime ruler Robert Mugabe in 2017 after a military coup, the leader has increasingly blamed the private sector for the nation's woes.

There is “a relentless attack on our currency and the economy in general through exorbitant pricing models by the private sector,” Mnangagwa said June 10 at a meeting of the ruling party's politburo. “We are fully cognizant that this is a battle being fueled by our political detractors, elite opportunists and malcontents who are bent on pushing a nefarious agenda which they will never win.”

The International Monetary Fund estimates the economy will contract as much as 10.4% this year.

©2020 Bloomberg L.P.