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Zimbabwe’s security forces sideline government as economy crashes | Fin24

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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 stabilise 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.

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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.

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Defence 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.

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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.

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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.

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