Last year, I spent June rambling the roads of Zimbabwe's Eastern Highlands mountains. The human warmth of the Shona people and physical beauty of the rural landscape are world-class. My job should have been inspiring: election-observation for a regional team trying to document whether the parliamentary vote was free and fair.

But last June was a tragic time (1), because of the decay of Robert Mugabe's once- liberatory nationalist politics. Exhausted, corrupted, desperate and prone to violence, the Zimbabwe African National Union (ZanuPF) barely held off a challenge by the nine-month old Movement for Democratic Change (MDC), winning just over half the 120 contested parliamentary seats.

 Mugabe's socialist vision evaporated long ago, although he calls forth radical rhetoric periodically to confuse matters. "Talk left, act right" is the chosen formula, as Zanu(PF) continually seeks to revive popular memory of a time when the party was indeed a fish in the sea of the masses, while concurrently repressing those who protest vigorously from the Left.

 In early June, for example, Zimbabwe National Students' Union president Nkululeko Sibanda was tortured by Mugabe's secret police, the Central Intelligence Organisation, after the CIO accused him of "working with the MDC to topple the government." Sibanda is leading widespread student protest over unaffordable university fees and privatisation of campus facilities and services.

 But the topic of the gloomy present was replaced, during a recent weekend visit, by the question of Zimbabwe's very uncertain financial future. I flew two hours from Jo'burg to Harare, drove east for four hours and joined a dozen civil society strategists in a sunny, wintertime seminar up in the mountains bordering Mozambique.

 We gathered to debate the country's most durable economic problem, the buildup of foreign and domestic debt: $5 billion and $1.5 billion, respectively. Zimbabwe is considered only "moderately" indebted by the World Bank, but the burden of repayment is so brutal that Mugabe finally said no around a year ago.

 For two NGO activists, Davie Malungisa of the Zimbabwe Coalition on Debt and Development (Zimcodd) and Eunice Mafundikwa of the African Network on Debt and Development (Afrodad), the protests they joined at the spring meetings of the World Bank and IMF over the past two years took on new meaning as we reviewed a new debt study. The report's author, Masimba Manyanya, was formerly a chief economist for Mugabe's finance ministry but quit to join the trade union movement in 1999.

 All three thirty-somethings are progressive professionals who, while differing on party- political affiliations, share the concern that a national debate over economic policy has not yet even really begun, and that resolving the debt crisis has to be central.

 Zimcodd was founded last year by the main organisations in the social justice, church, women's, NGO and trade union movements. "Debt is already genocidal in Zimbabwe," insists Malungisa, "because so few of our urgent social priorities can be met. The last budget saw a 26% crash in health spending, for instance."

 Indeed, debt peonage couldn't have come at a worse time, given that life expectancy is falling into the thirties because of HIV/AIDS. By cutting living standards so dramatically, structural adjustment contributed to the opportunistic infections and breakdown of the state health system through which AIDS flourishes.

 Continues Malungisa, "Debt is a threat against which all Zimbabweans can and must unite. Otherwise we face a pauper's burial. Zimcodd is even joining the World Bank Bonds Boycott campaign to drive this point home where it counts: Jim Wolfensohn's wallet."

 Malungisa and the others are far out ahead of the political curve here. In next April's presidential elections, the MDC will probably win, vindicating the political courage of its founders, the Zimbabwe Congress of Trade Unions and its supporters, the mass of the urban poor, the youth, and the working-classes.

 But here arises another hurdle. In February 2000, the impoverished young party also welcomed big business, white farmers and even overseas supporters with imperialist designs, who gave enthusiastic financial and logistical support once the MDC defeated Mugabe by 55% to 45% in a referendum over a new constitution.

 If the MDC becomes the ruling party, it is likely to be pressured into adopting hard- core neoliberal economic policies (2). But that won't do the country any good, given the neoliberal roots of the current political tumult.

 The disaster of neoliberalism in Zimbabwe is not surprising news, no doubt (3). But it's worth returning to the debt issue because Harare has adopted some interesting emergency policies which any genuinely progressive government would want to consider amplifying.

 In particular, three recent government decisions are considered insane by conventional economists: running such a relaxed monetary policy since January that interest rates (15%) are at least 45% below the inflation rate; pegging the currency at 55 Zimdollars to one US$ when the black market rate is at least double that; and servicing foreign debt only haltingly.

 We need to look at these objectively, and the post-independence context is crucial. My own theory is that the foreign debt burden and the failure of the 1991-95 structural adjustment programme designed by the World Bank together drove Mugabe around the bend, in classical nationalist zig-zag mode, in mid-1997.

 Ironically, in 1995, the Bank had judged Mugabe's turn to neoliberalism as "highly satisfactory" (the highest possible ranking). Most macroeconomic, sector and financial objectives were "substantially" achieved (again, the highest mark), said an official Bank evaluation.

 In reality, the formerly well-balanced economy became deindustrialised and massively indebted. The social wage collapsed as budget cuts bit deep. Gender, race and class inequity soared. And Zimbabwe became much more vulnerable to international shocks.

 Over the period 1990-95, gross domestic product fell by a fifth, from $8.50 billion to $6.80 billion, as foreign debt soared 55%, from $3.25 billion to $5.05 billion, according to the World Bank's own debt tables.

 Meanwhile, grassroots protest was relatively erratic and easily contained. Finally in 1996- 97, trade unions, civil servants and farmworkers all challenged Mugabe from the left.

 Simultaneously, Mugabe was berated by several thousand of his former comrades from the 1960s-70s struggle who had received none of the spoils of liberation. In late 1997 he struck a deal with these war veterans, giving them a few thousand dollars as a pension in exchange for allegiance.

 Within a year, some of the most aggressive war vets had become a quasi-paramilitary force, harassing trade unionists and others who staged periodic strikes. (And within two and half years, the war vets had staged bloody occupations of more than 1,000 white-owned farms, which aided Mugabe's 2000 election campaign by reviving nationalist memories of the need to rid settlers from the best land.)

 But the pincer squeeze on Mugabe was tightening hard during the late 1990s, as local democracy activists and international financiers made contradictory demands. In 1998, the last full year Mugabe authorised repayment of the foreign debt, there was only one other country in the world (Brazil) paying higher debt-servicing charges in relation to its ability to earn exports. (That fact, embedded deep in the World Bank's latest Global Development Finance report, has never been reported in Zimbabwe.)

 After several years of spending $650 million annually on debt servicing, Zimbabwe coughed up $981 million in 1998, against just $2.57 billion earned from exports, an untenable ratio of 38%. But even though over the period 1994-98, Zimbabwe had paid $910 million more in debt servicing than it received in new loans, the debt actually rose over those five years from $4.54 to $4.72 billion. (At the same time, grant aid fell by half, from a peak of $310 million in 1995 to $150 million in 1998.)

 Because of repayment scheduling and the tyranny of compound interest, Mugabe found himself sliding backwards on the debt treadmill. Finally in early 1999, he jumped off, refusing to pay the IMF and Bank, thereby joining a list of rogue-financial states like Yemen, Iraq and the Democratic Republic of the Congo (DRC).

 The costs of short-term IMF "help" now finally outweighed the benefits. Those costs included three main conditions attached to $200 million in IMF credit promised in 1999. Mugabe was ordered to immediately reverse the only redistributive policies he had adopted in a long time, namely a) a ban on holding foreign exchange accounts in local banks (which immediately halted the easiest form of capital flight by the country's elites); b) a 100% customs tax on imported luxury goods; and c) price controls on staple foods in the wake of several urban riots.

 Mugabe resisted the IMF, and was cut off after the first small tranche of the loan. But hatred of the Zanu(PF) leader continued to grow in the cities when he deployed 10,000 troops to the DRC war, partly as an act of solidarity against the US-backed Ugandan/Rwandan invasion of the east of the DRC.

 However, Zimbabwe's intervention was soon unveiled as a ghastly mercenary-style arrangement with the soon-to-be-assassinated Laurent Kabila. The deal allows Harare's military and state elites to loot the wretched DRC's cobalt, copper and diamonds.

 Tellingly, the IMF permitted Mugabe to continue his DRC adventure at a crucial negotiating stage in mid-1999: "We have had assurances" about Mugabe's plans for further deployment, an IMF source told Agence France Press. "If there is budgetary overspending, there will be cuts in other budget sectors."

 In other words, health, education and other badly-defended sectors would suffer more pressure on behalf of Mugabe's military cronies.

 These are some of the reasons Malungisa says Zimbabwe's foreign debt should be considered "odious," not subject to repayment by a democratic successor.

 The foreign loans that Robert Mugabe signed for during the 1980s and early 1990s backed the ruling Zanu(PF) party's worst, most self-destructive tendencies, and were contracted in a non-transparent manner contrary to society's interests.

 A full audit of Zimbabwe's foreign debt would reveal systemic failure. Not only did loan conditionality throughout the post-independence period screw the poor. The credits also created space for degeneracy by elites, who used the hard currency to import inappropriate luxury goods and unsustainable machinery, to be repaid by the future generations.

 But the days of easy foreign credit ended by the mid-1990s, so government turned increasingly to domestic borrowing. The interest bill on local and foreign loans was projected by the finance minister late last year to reach a phenomenal 48% of the annual government budget--of about $2 billion--in 2001. (And that's even after Mugabe absurdly projected privatisation revenues of $200 million this year, a promise which no one believes he'll keep since parastatal corporations are vital to his political patronage system.)

 The only light I see at the end of the debt tunnel is that whatever party is ruling after the April 2002 election might, perhaps, learn from present circumstances that it's ok to default.

 Having failed to make key foreign debt payments since 1999, the government is now $600 million in arrears. Zimbabwe finance minister Simba Makoni promised the World Bank and IMF he'd spend about that sum this year to repay foreign loans, but it seems that Mugabe won't let him.

 Makoni, who is considered a reliably neoliberal technocrat, conceded to the World Economic Forum meeting in Durban a earlier this month, "We are committed to fulfilling these obligations, but it's clear that our economy is in no state to generate sufficient funds to clear these arrears."

 Even if the debt was serviced, the IMF's Stanley Fischer told Makoni that there won't be any new loans until Mugabe fulfills a set of new conditions, including getting war vets off the commercial farms they occupied last year.

 With the prospect of net repayment outflow, Mugabe appears justified in ignoring IMF repayment demands and instead hijacking a portion of foreign exchange earned by tobacco and other exports, for emergency purchases, including fuel. Even so, the price of petrol, which has been in very short supply this year, was raised overnight by 70% last Thursday. (A two-day general strike has been called by the unions for the beginning of July to reverse the increase.)

 An interesting geopolitical/economic question immediately arises: in the wake of having effectively defaulted on foreign debt and now facing chronic foreign exchange shortages, what further material punishment can the world economy impose on Mugabe?

 Aid has been withdrawn by most donors, or redirected to civil society. Trade sanctions proposed by Jesse Helms--which are not supported by the Zimbabwean opposition-- would in any case not bite much harder.

 The only country that could really finally push Zimbabwe over the economic cliff if it wanted to, is South Africa, through which most exports and imports flow. But Thabo Mbeki has repeatedly come to Mugabe's aid in various ways (although it appears that Pretoria is now finally ready to recognise the Movement for Democratic Change as the likely next government).

 In sum, Zimbabwe is down but not out. Periodic shortages--including essential drugs and California-style electricity load- shedding--contribute to the misery of daily life.

 Government justifies maintaining an official exchange rate half that which is available on the black market, on grounds it can't afford to pay for vital imports at the market rate. The private sector reverts to the higher rate for its own imports, while government insists on exchanging a quarter of all the hard currency revenues earned by exporters, but at the lower rate.

 And then there's the 15% rate of interest government decided to pay domestic creditors for short-term loans, at a time inflation is roaring above 60%. The state forces institutional investors to purchase Treasury Bills, and in the process spreads the pain of debt payback to relatively wealthier savers who get a negative rate of return, after discounting inflation.

 The upside of the negative real interest rate is that only half the amount that was anticipated (nearly $1 billion) will be required to service domestic debt this year. And productive investment can be financed more cheaply than at any time in the last decade, for those very rare businesses interested in expanding during the midst of depression.

 But because institutional investors aren't getting the return on interest-earning assets that they want, they've pushed unprecedented funding into the Zimbabwe Stock Exchange, which was the fastest rising in the world over the last year. And the stocks they're buying are absurdly overvalued, so they'll lose again when normalcy returns and the market crashes.

 These contradictory policies aren't tenable over the medium-term. But if the MDC is ruling Zimbabwe next year it may have to drop the overall neoliberal formula for one simple reason. The debt has become so oppressive that there is only one way out: defaulting the foreign lenders and cheating the local institutional investors (and by extension savers, including some workers whose pension funds are now shrinking quickly).

 This leaves three other residual challenges:
* redirecting financial capital which is now flooding away from interest-bearing assets into the stock market;
* protecting the pensions of ordinary workers; and
* shielding the poor from inflation, for instance through well-conceived subsidies on basic needs.

 Even if he acted on these forcefully (which he won't), it's hard to envisage Mugabe holding on to power, no matter how much he intimidates the rural electorate to again vote Zanu(PF). Over the past few weeks, he lost three key nationalist militants--defense minister Moven Mahachi, employment minister Border Gezi and war vets leader Chengerai Hitler Hunzvi--in unexpected deaths (two accidental car crashes and illness, respectively). Rumours have circulated that a Zanu(PF) military clique is anxious to take over, possibly via a coup, if Mugabe continues to falter.

 Other support is also waning for the 77-year old president. Controversial information minister Jonathan Moyo, on whom Mugabe has come to rely for spindoctoring, had his wings clipped this month by cabinet colleagues. The judiciary still leans against the ruling party. And a string of smaller elections coming up will tire Mugabe in the run-up to the presidential race.

 But matters are not much rosier for the opposition. Former trade union leader Morgan Tsvangirai is likely to be the MDC's candidate for president, although Mugabe has him awaiting trial for threatening violence last September, which potentially could disqualify Tsvangirai from the election. And even if the MDC wins next April, it would not control parliament immediately, and would have an enormous struggle to establish political stability in such a divided society.

 The biggest struggle, though, looks to be about ten months away: if the MDC can extricate itself from the grip of big money and orthodox economic ideas (and right now, I'd bet no), how would they slay the debt monster? Tsvangirai, after all, said in an uncharacteristically slippery way last year, "I still hate the World Bank and IMF, like I hate my doctor."

 If the MDC can't shake off neoliberalism, will civil society groups offer as vibrant advocacy on socio-economic rights as they do today on political and civil rights?

 Late at night, next to the blazing Bvumba fireplace as our seminar came to an end, Davie Malungisa, Eunice Mafundikwa, Masimba Manyanya and the other folks chatting over local beers swore that in coming months, they'll be at the forefront of linking Zimbabwe's best grassroots activists to the international anti-neoliberal movement.

 (For those readers who want to see a democratic Zimbabwe without the burden of a $5 billion foreign debt, Zimcodd and the Jubilee South movement--http://aidc.org.za-- promote 100% cancellation. The best ways to help out are to join Davie, Eunice, Masimba and other Zimbabweans protesting at the Washington annual meetings of the World Bank/IMF in early October, and to support the World Bank Bonds Boycott: http://www.worldbankboycott.org)

 (1) ZNet, Commentary, 6/22/00: "Zimbabwe's Election: Who's Right, Who's Left?"

 (2) I address this dilemma more fully in the Journal of World Systems Research, current issue (http://csf.colorado.edu/jwsr).

 (3) ZNet Commentary, 4/30/00: "Zimbabwe's Crisis Showcases Reasons for IMF/World Bank Protest"

 Patrick Bond