President Mugabe's government faces a budgetary crisis after conceding to the war veterans' demands for compensation
War veterans are proving the most potent political and financial force in Zimbabwe this year. Their success, after one of the most strident political campaigns since Independence, in negotiating compensation packages of Z$50,000 (between US$ 3-4,000) each, has brought into question the government's ability to finance its 18-month budget reduction programme. The World Bank's withdrawal of a US$62.5 million balance of payments credit in October, mainly because of concerns over the financing of a potential Z$4 billion payments' package for the veterans, seems to have precipitated a broader crisis of confidence in the economic strategy. On 14 November the Zimbabwe dollar went into free-fall against the US dollar; at one point the exchange rate fell as low as US$1= Z$25 before recovering to US$1=Z$12-13 by 17 November. Bankers in Harare feared an Asian- style meltdown.
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