Question: 1 What are key elements of country risk in Zimbabwe

1. What are key elements of country risk in Zimbabwe?
2. How has increased country risk affected Zimbabwe’s economy and living standards?
3. By how much is the Zim dollar at its official rate overvalued relative to its black market rate?
4. What caused the Zim dollar to be so overvalued? What effect does an overvalued official rate have on businesses and consumers in Zimbabwe?
5. According to the Wall Street Journal (February 19, 2008, A10), ‘‘Mr. Mugabe has blamed his country’s economic crisis on Western saboteurs hoping to return the country to white rule.’’ Comment on this statement.

Zimbabwe, formerly known as Rhodesia, used to be an industrial powerhouse in Africa, second only to South Africa in the region. It has roads, factories, telephones, fertile farmland, and some of the most educated people in Africa. But the country is now undergoing an industrial revolution in reverse. Its factories are grinding to a halt for want of power and spare parts; its great mineral wealth is staying underground; tourism has plummeted; and the shelves in its shops are largely bare. These tribulations can be laid at the door of President Robert Mugabe, leader of the party that liberated Zimbabwe from white rule, and his policies. To soothe disgruntled veterans of the war against white rule, he gave 50,000 of them huge bales of cash that he borrowed or printed (Zimbabwe already had a large budget deficit). To win over rural black voters, he offered them free land—not idle state-owned land, but land belonging to white commercial farmers (who tend to back the opposition party). The peasants who settled on this land did not have the skills or capital to properly farm it, so agricultural production plummeted, transforming Zimbabwe from Africa’s breadbasket into a basket case.

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