Press Release No. 04/139

Press Release: IMF Considers the Complaint Regarding Zimbabwe's Compulsory Withdrawal from the IMF

July 8, 2004

The Executive Board of the International Monetary Fund (IMF) has reviewed Zimbabwe's overdue financial obligations to the Fund and considered the Managing Director's complaint regarding Zimbabwe's compulsory withdrawal from the IMF (see Press Release No. 03/210). Recognizing the severity of the decision at hand as well as the resumption of some payments from Zimbabwe and limited improvements in economic policy, the Executive Board decided to postpone a recommendation for compulsory withdrawal, providing Zimbabwe with another chance to strengthen its cooperation with the Fund in terms of economic policies and payments. The Executive Board will consider again the Managing Director's complaint regarding Zimbabwe's compulsory withdrawal from the Fund within six months and decide at that time whether to recommend to the Board of Governors of the IMF that Zimbabwe be asked to withdraw from the IMF.

The Board's decision does not impose further sanctions on Zimbabwe, but rather provides the country with an opportunity to significantly strengthen its cooperation with the IMF, with the aim of addressing its economic decline and resolving its overdue financial obligations, prior to the Executive Board's next consideration of the Managing Director's complaint.

Executive Directors expressed grave concern over the continued and sharp decline in economic and social conditions. GDP fell by 30 percent over the last five years and another 4-5 percent decline is expected this year. Year-on-year inflation reached 600 percent at end-2003, but decreased to around 450 percent in the year through May 2004, following a tightening of monetary policy and an appreciation of the average exchange rate since late 2003. Unemployment is very high and increasing, social indicators, which were once among the best in Africa, have worsened, and the widespread HIV/AIDS pandemic remains largely unchecked. Severe food shortages have necessitated massive food imports and donor assistance. Directors attributed these developments mainly to inappropriate macroeconomic policies and structural changes that weakened its economic base. In particular, the disorderly implementation of the land reform program has contributed to a sharp reduction in agricultural production. Concerns about governance and human rights, and the continued lack of clarity about property rights have severely damaged confidence, discouraged investment, and promoted capital flight and emigration.

Directors called on Zimbabwe to take decisive actions to improve cooperation with the IMF. In this connection, they strongly urged the authorities (i) to adopt a comprehensive policy package aimed at halting the deterioration of the socio-economic situation, restoring confidence and donor support, and restarting growth on a sustainable basis; and (ii) to increase payments. Directors noted the resumption of payments by Zimbabwe (totaling US$9 million to date in 2004), but regretted that these payments were insufficient to stabilize the country's arrears to the IMF.

Zimbabwe has been in continuous arrears to the IMF since February 2001. As of end-June 2004, Zimbabwe's arrears to the Fund amounted to almost SDR 200 million (US$295 million), or about 56 percent of its quota in the IMF. Compulsory withdrawal is the last step in a series of escalating measures that the IMF applies to members that fail to meet their obligations under the Articles of Agreement.