What really caused the hyperinflationary currency crisis in Zimbabwe?Submitted by bad__karma on Tue, 11/17/2009 - 23:42
What really caused the hyperinflationary currency crisis in Zimbabwe?
Zimbabwe’s involvement in the Second Congo War, which began in 1998 and killed 5.4 million people, caused its government to spend billions. Its problems began to spiral out of control shortly thereafter. Following the confiscation and redistribution of land, agricultural output declined by 51% from 2000-2007, which contributed to a rise in unemployment (recently at an unbelievably high 94%).
To undermine the internationally unpopular President, Robert Mugabe, the U.S. passed the "Zimbabwe Democracy and Economic Recovery Act of 2001." This law imposed sanctions and eventually led the International Monetary Fund and financial institutions to abandon Zimbabwe. That loss of the ability to borrow money was the main catalyst of the out-of-control money printing in Zimbabwe. After its 2001 default on IMF loans and suspension of IMF voting rights, the government printed money in an attempt to repay these loans and regain its access to credit. This action failed to turn the tide.
In order to keep the military loyal, Mugabe raised their salaries -- and again, the only way to pay for it was via the printing press. Certainly, Mugabe’s government could have slowed government expenditures after the loss of external creditors, but he would have lost control of the government due to political unrest.
What conditions did Zimbabwe citizens have to deal with? In mid-November 2008, Zimbabwe’s inflation rate hit 79,600,000,000%, which is the equivalent of prices doubling every 24 hours (see the chart below for year-by-year currency values).