Listing of auction abusers welcome

18 Jun, 2021 - 00:06 0 Views

eBusiness Weekly

Business Weekly

Last Word

The listing of 18 alleged abusers of the Foreign Currency Auction System as the first batch of those who are facing civil penalties under the new SI127, shows that the Reserve Bank of Zimbabwe is serious about having its directives followed and is willing to take action.

Presumably this is because the new regulations, which are civil regulations rather than criminal offences, has finally given the Reserve Bank an effective and practical way of enforcing directives. The regulations did not introduce anything new in the list of undesirable behaviour. A large chunk were already covered by tax law and other criminal codes and the rest were subject to directives by the Reserve Bank.

The main difference is that now action can be taken in finite time. Criminal prosecutions, especially when they are based on financial evidence, seem to take forever to reach a conclusion and legal challenges in court can spin that out even further. Directives from the Reserve Bank seem to have been regarded as light reading rather than as something to follow.

So we can all hope that the switch to administrative action by “designated officers” and the imposition of civil penalties will work. Court challenges are still possible, of course, but since it is administrative law that is being followed and there are no criminal convictions possible, those resorting to the courts have to show, with the burden of proof on them, that the “designated officer” making the decision was acting unreasonably. The officer does not have to be right, just reasonable.

The announcement does raise other issues and gives us all an indication of what is going on behind the scenes.

For a start, just 18 bidders were hit. This means that well over 97 percent of bidders were in the clear, although from previous announcements there might be another handful who are still under investigation. But even if more come onto the list soon, it still means that the large majority are not cheating and so presumably welcome the new system.

As with most things, many will follow rules so long as they are assured everyone else is doing the same. It is when some cheat, and get away with it, that the honest majority become disgruntled and the temptation arises to level the playing field by cheating as well.

This is how corruption, when so many seemed immune from investigation, became rooted in society until the Second Republic started arresting.

The second point is more worrying in some ways. There are now revealed to be some who are prepared to take large risks to mess around with foreign currency and have the attitude that controls are an infringement of their rights.

This implies that they regard dealing in foreign currency as the natural state of affairs, rather than just a preferred option as, and that is regrettable as well, many others might see business. And so that minority will try and find ways of maximising their holdings of foreign currency.

There are also, and these are the top level of that long chain that operates the street market for foreign banknotes, who want holdings in foreign currency to make external capital payments, that is move their wealth offshore. Controls have existed on capital transfers since the late 1950s after Holmes de Court moved a lot of cash to Australia, and that was even when both Southern Rhodesia and Australia were in the Sterling area and had their currencies fixed at par with the pound sterling, in effect using the same currency.

There can be debate on whether free movement of capital is a good thing or not, but generally speaking countries that are developing, or recovering from major wars, are dubious about gains from free movement of capital and tend to want to put in controls. Margaret Thatcher was the British Prime Minister who eventually opened the British floodgates ending the last of the restrictions imposed in the First World War and intensified in the Second World War.

But those who want to be able to move their wealth offshore need to be lobbying for this, rather than breaking the rules.

But the 97 percent plus of auction bidders who are compliant is a strong indication that the present sets of rules are not unreasonable and do not damage business, and we need to distinguish between what is not liked and what can make business too difficult.

Of course we have the difference between what just about everyone recognises as needed for the country as a whole, and what they as individuals would like to do. To take another example, most people agree that everyone should pay taxes because of all the necessary things that Governments need to pay for. But if they can evade then they are tempted. One cheat will still keep the system working, but will benefit the cheat, who now gets a double benefit of the Government still paying for stuff while they have more liquid cash.

It is much the same in foreign currency. Everyone wants enough to be available, with the rates being set by markets at reasonable and stable levels, but would like to have more of their own tucked away out of the control of the Reserve Bank. But you cannot have both.

There are still those who see foreign currency as a commodity, or for that matter as real wealth, rather than as a medium of exchange for imports or for charging foreign customers when exporting. So they like to hoard. A large block of the SI127 rules are to prevent that. Hoarding is still possible, but it has to be in bank accounts where the Reserve Bank and Zimra can see it.

In some ways it is difficult to understand why some are prepared to go to difficult extremes. The reforms we have seen over the last year have now allowed the productive sectors to buy as much foreign currency as they need without having to go down on their bended needs before some bureaucrat, or become best friends of someone who they think has influence.

They do not need to go to the street markets any more, and while the system is not perfect, as the recent backlog in filling currency purchase orders showed up, it works a lot better than anything we have had for the past 55 years. Those who have problems, or have good ideas for improvements, need to become more active in getting desired changes rather than trying to game the system.

Every single business in Zimbabwe needs a functioning economy, needs economic stability, and needs a rules-based system in place. Every business wins when there is a growing economy, since there are then more customers with more money.

Those disgruntled about being caught need to reflect that if everyone had been following their lead then the economy would not only stop growing but would probably tank. And they would be, along with everyone else, back in the First Republic’s mess of hyperinflation or the extraordinary fake money supply disaster of the last years of dollarisation.

That would be a return to making money by paperwork or fiddling the paperwork, rather than by making more money by making and selling more real things and providing real services. While there were winners among the paper shufflers, new wealth was not being created. Rather wealth was being destroyed and the paper shuffling simply redistributed that wealth, and largely redistributed it by concentrating it in ever fewer hands. To bet on being one of the lucky few survivors and winners is a bit like trying to fund a business through buying lottery tickets. It can work, but is unlikely to work for long, and the odds are that you will not be one of the winners.

All that said, we can hope that the Reserve Bank is going to be reasonable in implementing SI127. Sometimes rules can be complex and genuine mistakes can be made. A lot depends on scale. A small mistake in missing a banking day, for example, could be overlooked. In other words small sins of omission are not necessary proof of systematic cheating, just sloppiness.

Creating shelf companies, entering into positive agreements with suppliers to fake invoices, using weird pricing formulas and double dipping on the auction are positive actions that need to be hammered, no matter how minor they seem. These are what theologians call sins of commission and are almost always deliberate actions by those who know the rules and decide to break them.

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