New moves to ease Zimbabwe crisis

By Peter Biles
Southern Africa correspondent, BBC News

The crisis in Zimbabwe has led to food, currency and fuel shortages

Zimbabwe's central bank governor has unveiled a series of measures aimed at easing the country's economic crisis.

A new currency will be introduced - striking more zeros off bank notes - in an attempt to curb the black market in currency, Gideon Gono said.

The main lending rate will also rise to 800% from 650% in a move to tame "angry and formidable" inflation, which is running at an annual level of 6,500%.

Restoring economic stability is one of the government's biggest problems.

Zimbabwe is currently experiencing the world's highest inflation and shortages of food, fuel and foreign currency.

However, economists say the latest measures unveiled by Mr Gono will have little effect unless fundamental problems in the country are tackled.

Cuts urged

So far, the government's only solution to its inflation problem has been to have the Reserve Bank of Zimbabwe print more money.

But observers say the key to resolving Zimbabwe's problems is to reduce government expenditure, though this looks unlikely in the short term.

While Mr Gono said inflation will fall in the medium to short term, he also warned that it would come under further pressure from spending ahead of the country's joint parliamentary and presidential elections in 2008.

Meanwhile, the country says it has secured a $200m credit facility to increase desperately needed fuel imports, though it is unclear how the government will repay the money.

Mr Gono has also urged parliamentarians to consult widely before going ahead with the controversial bill that allows black Zimbabweans to take a majority shareholding in foreign owned companies.

In a move probably designed to show a measure of independence for the central bank, he said that rushing through the legislation could be counter-productive.

President Robert Mugabe's government has proposed the new law in a bid to give Zimbabweans more control over the economy, despite fears it could further drive investors from the country.