South Africa mulls credit line for neighbour Zimbabwe

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The Independent Online

South Africa is considering opening a credit line to help neighbour Zimbabwe rebuild its shattered economy after years of political and economic crisis, the country's Financial Mail reported today.

It quoted Finance Minister Trevor Manuel as saying a credit line made sense given that most of the goods needed to restock bare stores in Zimbabwe would be bought in South Africa.

"We will look at the credit facility. There is an old (Reserve Bank) credit line from 1967 that goes back to (Rhodesia's) unilateral declaration of independence, and we are exploring using that," he said in an interview.

While a credit line will not solve the country's funding problems, it will allow private banks to lend money to wholesalers, retailers and producers to purchase goods using credit, and ultimately give millions of poor Zimbabweans easier access to essential products.

Zimbabwe has estimated it needs $1bn now to get farms, schools and hospitals working, and another $5bn later to fully rebuild the economy.

A new power-sharing government has raised hopes of an end to an economic meltdown in the once prosperous southern African country where inflation was last calculated in mid-2008 at 231 million per cent, and a cholera epidemic has infected more than 80,000 people.

Food and fuel are scarce and the currency virtually worthless, leading to widespread use of the US dollar and South African rand.

The Financial Mail said officials would not be drawn on the details of discussions, but analysts said a credit line was likely to have negligible impact on South Africa's reserves and sovereign credit ratings.

The $1bn in aid would still have to be sourced, although South Africa could consider a smaller grant. South Africa, the continent's biggest economy, has already transferred 300 million rand ($28.5m) to Zimbabwe for agricultural aid.

The bulk of the money will have to be sourced through international donors.

Western donors, however, remain sceptical about a Zimbabwe government still headed by President Robert Mugabe, and say money will be provided only when reforms are implemented.

A high-level International Monetary Fund (IMF) mission will visit Zimbabwe next week after a two year break to assess the country's economic situation and humanitarian crisis.

But the visit was not expected to lead to financial aid, and would rather give the lenders an idea of the direction of government economic policy, working closely with a parallel World Bank mission.

The IMF suspended Zimbabwe's voting rights in June 2003, barring it from participating in IMF decisions, as the Mugabe government fell behind on paying its debts to the fund.

The trip follows a call from southern African finance ministers two weeks ago for help to finance Zimbabwe's recovery.