Reserve Bank of Zimbabwe Defaults on Redemption of Bonds Issued to Gold Firms
The default is only the latest crisis at the Reserve Bank, which is said to be insolvent and in need of a bailout by the government
Economist Godfrey Kanyenze of the Labor and Economic Development Research Institute of Zimbabwe said the central bank’s default on the bonds had dealt a major blow to the mining sector as it struggles to recover The Reserve Bank of Zimbabwe failed Monday to redeem as scheduled bonds it issued to mining companies in lieu of cash payment for gold deposited with the central bank by mining companies, mining and financial sources said. The financially troubled Reserve Bank recently said it intended to extend the term of the bonds for six months pending the outcome of talks with the Ministry of Finance as to funding to redeem the debt instruments. The central bank failed to pay for gold delivered to it by mining firms in 2007 and 2008, leading to the issuance of the negotiable bonds. Blanket Mine, a subsidiary of Caledonia Mining Corporation, said it did not expect redemption of bonds with a face value of US$3.2 million. Other companies and small-scale miners dependent on government payments for extracted gold have also been affected by the default. Buletsi Nyathi, a member of the Youth in Mining Council of Zimbabwe, told VOA Studio 7 reporter Gibbs Dube that many mining operations will be crippled by the bank’s failure to repay the special bonds. “This has an effect on our operations since some of us will fail to pay our workers and are in the process of looking for equipment to expand our operations,” Nyathi said. Economist Godfrey Kanyenze of the Labor and Economic Development Research Institute of Zimbabwe said the central bank’s default on the bonds had dealt a major blow to the mining sector as it struggles to recover. “The miners are paying the price since they cannot have access to foreign currency to conduct their businesses," Kanyenze said. He said it remained to be seen how miners would deal with the RBZ in future as they are statutorily obliged sell the gold they have extracted to the bank. Monday's development was only the latest crisis at the central bank. The Office of the Sheriff recently attached five buildings belonging to the bank against US$2.1 million in payments owed to Farmtec Supplies and Implements for 60 tractors it delivered to the bank for a farm support program under the former government of President Robert Mugabe. Financial sources have told VOA that the central bank is insolvent and could collapse unless it is bailed out by the Finance Ministry. But the Movement for Democratic Change formation of Prime Minister Morgan Tsvangirai, whose secretary general is Tendai Biti, the minister of finance, has long been demanding the removal of Reserve Bank Governor Gideon Gono.