Buy a Beer in Zimbabwe -- You'll Need It

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Posted by Michael Clemens at 11:52 AM, on http://blogs.cgdev.org/globaldevelopment

What's it like to live in a country whose economy has been shattered by its own leaders? Here's how a beer purchase in Zimbabwe looks these days:
That's $1 million Zimbabwe dollars, in four chunky packs of Z$500 notes--collectively, the price of a single beer purchased at a bar in Harare on November 24th. When the beer was quaffed, at the "official" (read: "fantasy") exchange rate, that was about US$33. At the "black" market exchange rate, that was just under US$1. Today, just twelve days later, it's only worth around twenty five US cents. Such an economic Twilight Zone forces anyone running a business with the smallest international component to choose between illegality and immediate closure.
Things have gotten so bad that, in a stunning development, enterprising employees of the Reserve Bank of Zimbabwe are selling Zim dollars at the unofficial rate inside the central bank itself to top up their scant wages.
The reason Zimbabwe has the highest inflation on earth is that the regime of President Robert Mugabe is recklessly printing money (PDF, 255k) to finance its expenditures. High inflation has been shown to markedly increase poverty (PDF, 359k) because nominal wages never quite seem to keep up with galloping prices. But why should mass poverty concern Mr. Mugabe, whose chauffeur whisks him around in a Rolls Royce convertible? Daniel Makina of the University of South Africa estimates (PDF, 85k) that about one million Zimbabweans have fled this sinking ship - to South Africa alone.
Most poverty on earth is so complex that its roots are difficult to trace. In Zimbabwe, the source of the recent surge in poverty is crystal clear. One can only hope that the death-grip Mr. Mugabe holds on his country will soon wither. Until then, Todd Moss and Stewart Patrick have some ideas on how to prepare for the aftermath.