Will This Cause Inflation?

There is a bit of concern that the introduction of the new 2000 rupiah note will lead to inflation as merchants jack up their prices with a view to not having to give change. However, these concerns have been dismissed by the Finance Minister, Sri Mulyani Indrawati, as "theoretically impossible".

I have been hearing that the notes are pretty popular in the lead up to the Idul Fitri (Eid ul-Fitr) celebration. Indonesians tend to give crisp new notes as gifts to young children in recognition of the end of the fasting month.

There is a press release on the currency release here (in Indonesian).

Zimbabwe -- The $100 Billion Bank Note

The Zimbabwean Central Bank has started to issue $100 billion bank notes. The new notes are in reality a bearer cheque and have an expiry date of 31 December 2008 and they are to be introduced from Monday.

Sadly, with an official inflation rate of 2.2 million percent $100 billion does not buy you very much of anything. The photo is of a $500 million note.

Zimbabwe -- Out of Control Inflation

The tragedy that is Zimbabwe sees the official inflation rate stated at 2.2 million percent. This is the rate used by the Zimbabwean Central Bank. The unofficial rates suggest that at some point over the previous 12 months the inflation rate has been as high as 70 million percent. External analysts to the Central Bank estimate inflation to be running at about 12.5 million percent.

The constant instability that afflicts Zimbabwe is contributing to the continual spiking inflation rate. If Robert Mugabe loved Zimbabwe and Zimbabwean independence half as much as he says he does then he would step down immediately and allow some normalcy to return to the political spectrum. Unfortunately, Mugabe is an egotistical narcissistic dictator and tyrant who has no interest in anything but his own legacy. This legacy will never be viewed in a positive light. Any positives that he might have acquired in the early years have been erased, utterly and completely.

One job that I would most definitely not want is that of Governor of the Central Bank of Zimbabwe. Trying to formulate financial policy in an economic environment that sees inflation running in the millions of percent is not only a challenge but impossible if current conditions persist much longer. Nevertheless, Gideon Gono (pictured), Central Bank Governor, ploughs forward. Most of his statements seem to firmly cast the blame on the exponential rise in inflation on the black market and profiteers.

Basic goods such as soap and cooking oil have increased 70 million and 60 million percent respectively. Sugar is up some 36 million percent. The Central Bank is introducing a coupon system to ensure that the need will get some access to basic necessities.

The official exchange rate has the USD 1 buying 20 million Zimbabwe dollars. However, the black market rate which is more likely to reflect the real exchange value of Zimbabwean Dollars has USD 1 buying some 90 million Zimbabwe Dollars.

I have this sinking feeling that things are going to get worse in Zimbabwe before they get better.

Rising Fuel Prices

A recent study by the CSIRO in Australia, Fuel For Thought, suggests that fuel (petrol) could reach AUD 8 per litre within ten years. This is expected to add about AUD 220 per week to the expenses of anyone running a medium sized car by 2018. This rapid rise is premised on an ever-decreasing supply in a time of ever-increasing demand. Simple economics really.

It would therefore make sense that now is a good time for investment in cars that are more fuel efficient and perhaps even into alternative fuels. It is much more than just reducing our carbon footprints and saving the world from a self-induced inferno. There is a genuine need for us to innovate with respect to energy in order to survive.

Once we have burned all our fossil fuel supplies and we have drilled every where there is to extract each and every last drop of the black gold, then what? Then what will be our chance to see Darwinian theory up close and personal, as only the fittest will survive!

Perhaps the report is not all gloom and doom, but it certainly does not paint a rosey picture of the future. There are a lot of assumptions and theorizing in the report that seems to require certain things to happen and certain times and quite often simultaneously in order to make the numbers work.

In a move to alternative fuels such as ethanol from maize there are inherent problems. One such problem has already come to the fore. More people are planting maize and selling it to fuel producers because they get a better price for it. This means that there is less maize in the market place and there will ultimately be food shortages which in turn drive up the cost of foodstuffs generally. Pressure from another angle.

These pressures will increase as the world reaches the peak oil limit. Peak oil simply is where production rises to a peak and then begins to decrease as no new reserves come on line or are discovered.

What is clear is that we should expect an increase in the price of petrol at the pump.

The report deals with the impacts in Australia. I might have to write a post on how peak oil might play out in the very inefficient Indonesian setting. It is scary just to think about as oil is still heavily subsidized here. The photo was taken from here.

Zimbabwe

The Dictator

The Opposition Leader

The Economy

I am not a person that has an in-depth knowledge of Africa or the African Continent and perhaps I am batting out of my league with this post. However, that is not the point as I am not intending to provide any analysis of the situation per se but rather pose a question or two.


The economy in Zimbabwe is spiralling out of control with inflation running at more than 1000% and this is forcing the government to print money (above picture) and this then puts even more pressure on the economy. It is sad that the Zimbabweans have gone from being the bread basket of Africa to being its biggest basket case.


The current leader is proud of being compared to Hitler and has gone on the record as saying he would like to be Hitler ten-fold. He is running an election campaign that is relying on violence to get the desired outcome. This has surprisingly brought out a little spine in the British government, the former colonial masters, who have publicly named the individuals that they believe are orchestrating the campaign violence.


The opposition leader, Morgan Tsvangirai, has pulled out of the run-off poll. This means a default win for Mugabe. Yet, Tsvangirai has a point in that the risks to people to come out and vote are high, particularly when one considers that Mugabe appears intent on keeping power by any means necessary. Reports of intensifying violence are increasing.


It seems abundantly clear to me that Mugabe is a tyrant and a dictator determined to do whatever it takes to cling to power. This includes not only running the Zimbabwean economy into the ground but also arbitrarily arrest, torture, and kill his own people if necessary in order to cling to power. The only difference that I see between Mugabe and Saddam Hussein is that there is no false claims about Mugabe having weapons of mass destruction and Zimbabwe has no oil.


So, here is my question:


Why is it that the US felt the need to go into Iraq to remove a nasty dictator and then call on the rest of the world to come into a coalition and support them, but they do not seem to feel there is any need to do the same thing with an increasingly violent dictator in Zimbabwe?


Call me a cynic but is it because there is no oil?