Macroeconomics: Inflation Rates in Zimbabwe Under President Robert Mugabes Rule - Term Paper Example

Inflation Rates in Zimbabwe Under President Robert Mugabea’s Rule Zimbabwe The Republic of Zimbabwe is a country that is located in the southern partof Africa. The history of Zimbabwe dates back to the English Colony of Rhodesia. Zimbabwe is ruled by its President Robert Mugabea. Though the country has been under his rule for the past many years, Zimbabwe is one of the most mismanaged countries in the world. The problems faced by the country include both economical and human rights abuses. Zimbabwe was also characterized by high rate of unemployment and poverty.

All these factors took the country into a very bad economical and social situation. Inflation in ZimbabweHyper Inflation is the economic situation in Zimbabwe during Mugabea’s rule. It was in early 21st century that Zimbabwe started facing the problem of uncontrollable inflation. Hyperinflation was started reporting with an inflation rate of 623% in 2004. The next record was made when the inflation rate of the country crossed 1000% in the year 2006. IMF said that Zimbabwe has suffered the highest inflation in the world.

By 2007, the inflation rate of the country has crossed the 3000% mark. Inflation rate was continuing in an uncontrollable manner in the country. In May 2007, Zimbabwe reported an inflation rate of above 3700%. The rates were at an upward trend since then. With an inflation rate of 231,150,888.87%, Zimbabwe’s economy surprised the whole world. “By March [2006], inflation had touched 914 percent a year, at which rate prices would rise more than tenfold in 12 months.” (“How bad is inflation in Zimbabwe”, 2006) Inflation rate was not seemed to be stable at a particular rate; instead it was surging year on year.

Reasons for the inflationThe main reason for hyperinflation in Zimbabwe is the poor monetary policy of the government. The growth in the money of the country was not supported by corresponding growth in the output of goods and services. Apart from all these factors the central bank still kept on printing more money, thereby increasing the inflation further. “Zimbabwe’s hyper-Inflation is a result of the monetary authority irresponsibly borrowing money to pay all its expenses and funding quasi-fiscal activities (which are normally left to Central Government).

” (Muponda, 2009) A study shows that it is not the drought or foreign country interruption that destroyed the country’s economy, but misrule by President Mugabea. (Clemens & Moss, 2005) The government was also following a fixed exchange rate policy. Also the government intervention and regulations were higher in Zimbabwe, making it non-conducive for business activity. Reduced business activity due to all these factors reduced the economic activity in the country. (“Zimbabwe an Overview”, n. d.)Consequences of the inflationThe consequences of this hyperinflation in Zimbabwe are the uncontrollable increase in the prices.

The worst situation of the country can be expressed by the fact that a single sheet of toilet paper cost around $417 in Zimbabwe. The cost of living of the country kept on increasing year on year. The cost of postage stamps went up by 600% in a single week in 2007. One copy of ‘The Herald’ is around $10000. The worst case is that Zimbabwe’s Central Bank launched $200000 note. “The new note is worth US$13 at the official exchange rate or $1 on the black market.” (“Zimbabwe launched $200000 note”, 2007) The country faced acute food shortages.

Death rates increased due to inaccessibility to food and medicines. Measures taken to curb the inflationIn fact no material steps were taken by the authorities to control the hyperinflation of the country. Even when the inflation figures started to be reported in million’s percentages, the central bank of Zimbabwe kept on printing more money. One possible solution is to increase the production activity in the country so that the output of goods and services can be increased. But the private sector companies were not at all interested in operating in a market like Zimbabwe.

The government introduced unsustainable plans like making the shopkeepers cut the prices of goods. But, instead of curbing inflation such a solution has lead to food shortages.Thus, Zimbabwe can be said as a clear example for an economy that is killed by mismanagement. Despite being an economic specialist, Mugabea managed the economy of the country in a very pathetic manner. The hyperinflation did not stop it by itself. It further lead to problems like food shortages and violence. Therefore, the future of Zimbabwe’s economy remains a big question in front of the whole world.

Works CitedHow bad is Inflation in Zimbabwe? Retrieved April 25, 2010. From http://psdblog.worldbank.org/psdblog/2006/05/how_bad_is_infl.html Zimbabwe an overview. Retrieved April 25, 2010. From http://www.mbendi.com/land/af/zi/p0005.htm#20 Zimbabwe launches $200000 note. Retrieved April 26, 2010. From http://news.bbc.co.uk/2/hi/business/6924062.stm Gilbert, Muponda. (2009). How Zimbabwe lost control of Inflation. Retrieved from http://www.newzimbabwe.com/pages/inflation180.17386.html