Row Erupts Over Money Issue in Zimbabwe

Central bank governor Gideon Gono pinned responsibility on Finance Minister Herbert Murerwa, rejecting comments from the minister that the bank was to blame.

"It is becoming sickening the extent to which public figures and officials are keen to misinform the nation," Gono said.

In his national budget proposals for 2007 made last month, Murerwa said the central bank's "quasi-fiscal operations," including paying freshly printed money to the government and loss-making state enterprises, fueled inflation to 1,070 percent this year -- the highest rate in the world -- and contributed to a massive 43 percent budget deficit in spending against revenues received by the state.

Murerwa said money supply grew by 1,000 percent over the past year without production earnings to back it up.

But Gono released a 16-page statement Sunday that included confidential memos ordering the Reserve Bank to provide cash to ministries and government departments that overspent on their annual budgets this year.

Gono rejected implications by Murerwa that he made "unbudgeted, unauthorized and allegedly illegal disbursements" of money.

His statement showed copies of memos signed by Murerwa, Agriculture Minister Joseph Made and other senior officials noting that legislation covering the central bank operations obliged it to pay out money required by the state when authorized by ministers.

It was Murerwa who signed most of the memos for purchases of wheat, the staple food that is in short supply, and bridging finance for government projects, it said.

Gono said the bank operated correctly under its mandate as the state banker, followed instructions and did nothing blameworthy.

"If fiction is not attended to and replaced by facts, that fiction will assume a life of its own in the hearts and minds of people," Gono said.

Murerwa, however, defended himself, saying he did not lay the blame on Gono or any individual.

"All I said was let's reduce quasi-fiscal operations because the source of the money was not sustainable," he told the independent Sunday Standard newspaper.

He acknowledged he authorized many of the payments.

"I wrote to Gono on several occasions asking to pay for certain commitments. He was able to provide support when we needed it," Murerwa said.

The central bank prints and controls the distribution of local currency.

Gono's statement said cash shortages were discussed at "fire fighting" meetings of President Robert Mugabe's Cabinet.

"The history of nations shows that quasi-fiscal operations are a necessary and unavoidable feature of crisis periods, a feature of hyperinflationary times and a necessary feature where ordinary ways of doing things have failed," Gono said.

With acute shortages of gasoline, food and imports and record unemployment, Zimbabwe is suffering its worst economic crisis since independence in 1980.

The meltdown is blamed largely on disruptions in the agriculture-based economy after the often-violent seizures of thousands of white-owned commercial farms.