At last month’s World Economic Forum, Argentina's President, Javier Gerardo Milei, made a very memorable speech. Every snippet from the speech posted on social media has gone viral.
This is what he said: “If the state punishes capitalists when they are successful and gets in the way of the discovery process, they will destroy their incentives, and the consequence is that they will produce less.”
Basically, Milei argued that when a government gets in the way of an economy having a “market discovery”, its companies produce less.
No doubt, the biggest testament to this, in our case, is the government’s refusal to allow a market determined exchange rate.
The Zimbabwe dollar has reached its lowest point since its rebirth in June 2019, that is, US$1:ZW$13 466,41 and US$1:ZW$20 000 on the official and parallel forex markets, respectively.
When the currency bounced back, it traded at US$1:ZW$6,33 and US$1:ZW$10, respectively on both markets.
And, make no mistake, by having the willing-buyer and willing-seller platform, the forex auction market, and restrictions on how much money can be traded, the government interfered in the market discovery. Because of its interference, consumer and business incomes are being eroded daily with no end in sight.
In fact, businesses are entering into more debt just to keep production going as liquidity in the market dries up because the local currency has lost so much value and financial institutions are holding onto their foreign currency reserves for dear lives.
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This can be seen in the increase in trade payables from different companies.
How do companies produce in such an environment? They cannot!
Milei added, and to Zimbabweans, this sounds very familiar: “States don’t need to directly control the means of production to control every aspect of the lives of individuals. With tools such as printing money, debt, subsidies, controlling the interest rate, price controls and regulations to correct so-called market failures, they can control the lives and fates of millions of individuals.”
As Zimbabweans, we know the problems and it’s clear they are political.
Milei offered a solution in his speech: “Do not be intimidated by the political caste or by parasites who live off the state. Do not surrender to a political class that only wants to stay in power and retain its privileges. You are social benefactors. You are heroes. You are the creators of the most extraordinary period of prosperity we have ever seen.”
Basically, the market needs to tell authorities that things are not well.
The last time the market did that, the country entered a into Government of National Unity and had five years of constant growth, three of which were in double digits.
The market needs to be bold enough because the market pays the government!
