US embassy cable - 00HARARE2684

BEHIND THE POLITICAL CONFLAGRATION, ZIMBABWE'S ECONOMY IS BURNING TOO

Identifier: 00HARARE2684
Wikileaks: View 00HARARE2684 at Wikileaks.org
Origin: Embassy Harare
Created: 2000-05-19 05:46:00
Classification: CONFIDENTIAL
Tags: ECON EFIN EAGR PREL ZI
Redacted: This cable was not redacted by Wikileaks.
This record is a partial extract of the original cable. The full text of the original cable is not available.



                           CONFIDENTIAL     PTQ4593

PAGE 01        HARARE  02684  01 OF 04  190542Z 
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        /011W
                  ------------------58C8A8  190543Z /38    
FM AMEMBASSY HARARE
TO SECSTATE WASHDC 6076
INFO SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
USDOC WASHDC
NSC WASHDC
DEPTTREAS WASHDC
C O N F I D E N T I A L SECTION 01 OF 04 HARARE 002684 
 
SIPDIS 
 
STATE FOR AF, AF/S, AF/EPS, EB/IFD/ODF, EB/TPP/ODC 
TREASURY FOR ED BARBER AND GRACE SONE 
USDOC FOR 2037/ERIC HENDERSON 
STATE PASS USTR/RWHITTAKER 
NSC FOR SENIOR AFRICA DIRECTOR GAYLE SMITH 
 
E.O. 12958: DECL: 05/18/10 
TAGS: ECON, EFIN, EAGR, PREL, ZI 
SUBJECT: BEHIND THE POLITICAL CONFLAGRATION, ZIMBABWE'S ECONOMY IS 
BURNING TOO 
 
REF: HARARE 2081 
 
CLASSIFIED BY ECON/COMM OFFICER MARK PROKOP, REASONS 
1.5 (B), (D). 
 
------- 
SUMMARY 
------- 
 
1.  (C) WHILE RECENT ATTENTION, NOTABLY OUTSIDE ZIMBABWE, HAS 
FOCUSED ON THE POLITICAL VIOLENCE OCCURRING HERE, CONCURRENTLY A 
SERIOUSLY DETERIORATING ECONOMY IS BEING PUSHED RAPIDLY DOWNHILL BY 
THE ACTIONS AND INACTIONS OF A NEAR-TOTALLY DISTRACTED SENIOR 
LEADERSHIP.  THE LARGEST AND MOST SERIOUS THREATS CAN BE DIVIDED 
INTO TWO MAJOR CATEGORIES: 1) LAND INVASIONS AND THREATENED LAND 
SEIZURES AIMED AT THE COMMERCIAL FARMING SECTOR; AND 2) FUEL AND 
HARD CURRENCY SHORTAGES WHICH CRIPPLE THE INDUSTRIAL PRODUCTION OF 
MANUFACTURERS ALREADY FIGHTING FOR SURVIVAL IN AN EXTREMELY HOSTILE 
OPERATING ENVIRONMENT.  THESE TWO SECTORS UNDERPIN THE FORMAL 
ECONOMY, AND THE SERIOUS DAMAGE BEING DONE TO THEM WILL HAVE 
NEGATIVE CONSEQUENCES NOT ONLY THIS YEAR BUT IN YEARS TO COME, 
THOUGH NO ONE IN LEADERSHIP SEEMS TO CARE.  THIS IS CERTAIN 
REGARDLESS OF HOW GOOD OR BAD THE ELECTION PROCESS, RESULTS AND 
IMMEDIATE AFTERMATH ARE. 
 
2.  (C) IN ADDITION, IT IS SIMPLY TOO EARLY AT THIS TIME TO MAKE ANY 
PREDICTIONS, BACKED UP BY CONFIDENCE, ON ZIMBABWE'S POST-ELECTION 
ECONOMY.  TO DO SO REQUIRES TWO CRITICAL INPUTS.  DOES THE MUGABE 
                       CONFIDENTIAL 
 
PAGE 03        HARARE  02684  01 OF 04  190542Z 
GOVERNMENT CURTAIL, CONTINUE OR EXPAND ITS USE OF VIOLENCE AND 
LAWLESS BEHAVIOR IN THE RUN-UP TO THE ELECTIONS AND AFTER THE VOTE? 
AND SECOND, WHAT WILL BE THE ECONOMIC POLICIES AND COMMITMENT LEVEL 
OF THE POST-ELECTION GOVERNMENT?  IT IS CLEAR THAT THIS YEAR'S 
ECONOMY IS SUBSTANTIALLY WORSE THAN LAST YEAR'S, AND EVEN IF THE 
GOVERNMENT RENEWS ITS RELATIONSHIP WITH THE INTERNATIONAL FINANCIAL 
INSTITUTIONS, HARD CURRENCY AND INVESTMENT WILL ONLY BEGIN FLOWING 
THE FIRST QUARTER OF 2001.  END SUMMARY. 
 
----------------------- 
THE LAND IS EVERYTHING! 
----------------------- 
 
3.  (C) THIS RULING PARTY CAMPAIGN SLOGAN ("LAND IS THE ECONOMY & 
THE ECONOMY IS THE LAND") CONTAINS, AT LEAST FROM THE PERSPECTIVE OF 
ZIMBABWE'S ECONOMIC HEALTH, MORE TRUTH THAN THE PARTY'S EX-SOCIALIST 
LEADERSHIP PROBABLY REALIZES.  COMMERCIAL AGRICULTURE ACCOUNTS 
DIRECTLY FOR APPROXIMATELY 20 PERCENT OF ZIMBABWE'S GROSS DOMESTIC 
PRODUCT (GDP), AND INDIRECTLY FOR ANOTHER 12 TO 15 PERCENT 
(COMPRISED OF EMPLOYEE WAGE SPENDING, TRANSPORTATION, SUPPLY AND 
EQUIPMENT SALES, SERVICES ETC.).  IN ADDITION, ABOUT 2 MILLION 
PEOPLE (OUT OF A TOTAL POPULATION OF ABOUT 12 MILLION) LIVE ON 
COMMERCIAL FARMLAND AND DERIVE THEIR LIVELIHOOD FROM WAGES AND THE 
FOOD THEY GROW ON THE FARMS.  THE WAGE EARNERS CONSTITUTE ABOUT A 
FOURTH OF THE FORMAL LABOR FORCE.  FURTHERMORE, THE 
INTERRELATIONSHIP BETWEEN FARMING AND INDUSTRY IS VERY CLOSE.  ABOUT 
HALF OF ZIMBABWE'S INDUSTRY IS AGRO-BASED, WHILE THE AGRICULTURAL 
SECTOR CONSUMES ABOUT 20 PERCENT OF TOTAL INDUSTRIAL OUTPUT.  IN 
OTHER WORDS, AT THE END OF THE DAY, COMMERCIAL FARMING PAYS THE RENT 
AND KEEPS THE LIGHTS ON IN ZIMBABWE.  DESTROY IT, AND THE COUNTRY 
COULD SINK LIKE A STONE.  DAMAGE IT, SAY BY TAKING AWAY 10 TO 40 
                       CONFIDENTIAL 
 
PAGE 04        HARARE  02684  01 OF 04  190542Z 
PERCENT OF ITS ACREAGE AND OUTPUT AND, AT LEAST IN THE NEAR TERM, 
THE ECONOMY WILL SUFFER COMMENSURATELY. 
 
4.  (C) THE CURRENT LAND INVASION (OVER A 1000 FARMS OF 
APPROXIMATELY 4400 HAVE BEEN AFFECTED) AND THE THREAT OF SEIZURE 
WITHOUT COMPENSATION HAS MANY IMMEDIATE AND NEAR TERM NEGATIVE 
EFFECTS.  FOR BANKS AND OTHER CREDIT-SUPPLIERS, THE COLLATERAL VALUE 
OF LAND AND IMPROVEMENTS HAS CLEARLY FALLEN, MAKING LENDING 
DIFFICULT.  UNCERTAINTY OVER THE ABILITY TO PREPARE FOR AND PLANT 
NEXT SEASON'S CROP MAKES LENDING ON A CASH-FLOW BASIS OVERLY RISKY. 
INDEED, EVEN FOR THAT VERY SMALL MINORITY OF FARMERS WHO DO NOT NEED 
THIRD-PARTY FUNDING TO OPERATE, THE INCENTIVE TO INVEST IN PRODUCING 
A CROP WHICH MAY WELL BE STOLEN (PERHAPS ALONG WITH THE LAND AND ALL 
IMPROVEMENTS), IS DEMOTIVATING, AT THE VERY LEAST.  FOR EXAMPLE, 
THIS YEAR'S WHEAT CROP PLANTING, WHICH SHOULD BE TAKING PLACE NOW, 
IS DOWN 30 TO 40 PERCENT FROM LAST YEAR WHICH MEANS THAT ZIMBABWE 
WILL HAVE TO IMPORT MUCH HIGHER AMOUNTS OF WHEAT IF BREAD IS GOING 
TO BE AVAILABLE.  WHERE THE FOREIGN EXCHANGE IS GOING TO COME FROM 
TO PAY FOR THE INCREASED IMPORTS IS ANYBODY'S GUESS.  ONE PIECE OF 
GOOD NEWS IS THAT DESPITE DISRUPTIONS OF HARVESTING AND GRADING 
CAUSED BY THE INVADERS, ABOVE-AVERAGE RAINS AND GOOD CONDITIONS HAVE 
RESULTED IN A TOBACCO (AS WELL AS MAIZE) CROP THAT SHOULD EXCEED 
LAST YEAR'S IN VOLUME (ABOUT 230 MILLION KILOGRAMS VERSUS 210 LAST 
YEAR).  THIS OPTIMISTIC PROJECTION IS TEMPERED, HOWEVER, BY SO FAR 
WEAK INTERNATIONAL PRICES AND THE FACT THAT THE LACK OF A 
DEVALUATION HAS MEANT THAT PROFIT MARGINS FOR MOST GROWERS WILL BE 
 
                       CONFIDENTIAL 
 
                           CONFIDENTIAL     PTQ4595 
 
PAGE 01        HARARE  02684  02 OF 04  190543Z 
ACTION AF-00 
 
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      CTME-00  DODE-00  DOTE-00  ANHR-00  SRPP-00  DS-00    EB-00 
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      INR-00   ITC-01   LAB-01   L-00     VCE-00   AC-01    NRRC-00 
      NSAE-00  OMB-01   OPIC-01  PA-00    PM-00    PRS-00   ACE-00 
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        /011W 
                  ------------------58C8BC  190543Z /38 
R 190546Z MAY 00 
FM AMEMBASSY HARARE 
TO SECSTATE WASHDC 6077 
INFO SOUTHERN AFRICAN DEVELOPMENT COMMUNITY 
USDOC WASHDC 
NSC WASHDC 
DEPTTREAS WASHDC 
 
C O N F I D E N T I A L SECTION 02 OF 04 HARARE 002684 
 
SIPDIS 
 
STATE FOR AF, AF/S, AF/EPS, EB/IFD/ODF, EB/TPP/ODC 
TREASURY FOR ED BARBER AND GRACE SONE 
USDOC FOR 2037/ERIC HENDERSON 
STATE PASS USTR/RWHITTAKER 
NSC FOR SENIOR AFRICA DIRECTOR GAYLE SMITH 
 
E.O. 12958: DECL: 05/18/10 
TAGS: ECON, EFIN, EAGR, PREL, ZI 
                       CONFIDENTIAL 
 
PAGE 02        HARARE  02684  02 OF 04  190543Z 
SUBJECT: BEHIND THE POLITICAL CONFLAGRATION, ZIMBABWE'S ECONOMY IS 
BURNING TOO 
 
MARGINAL OR NIL.  (THE OUTLOOK FOR TOBACCO SELLING SEASON SALES WILL 
BE REPORTED SHORTLY SEPTEL.) 
 
5.  (C) THE NEGATIVE EFFECTS OF A SERIOUS DISRUPTION TO COMMERCIAL 
FARMING INCLUDE: 
 
 -- A WORSENING OF THE HARD CURRENCY SHORTAGE, AS EXPORT EARNINGS 
DECLINE WITH ALL THE ATTENDANT NEGATIVE CONSEQUENCES (FOR EXAMPLE, 
FUEL AND ELECTRICITY SHORTAGES, MOUNTING EXTERNAL DEBT ARREARS, 
INABILITY TO IMPORT NEEDED INPUTS); 
 
 -- INCREASED UNEMPLOYMENT AS FARM WORKERS ARE LAID OFF AND 
SIMULTANEOUSLY EJECTED FROM FARM HOUSING (BESIDES RENT-FREE HOUSING, 
COMMONLY PROVIDED SERVICES INCLUDE WATER, ELECTRICITY, SEWAGE, BASIC 
MEDICAL CARE AND SOMETIMES BASIC EDUCATION); 
 
 -- INCREASED URBAN MIGRATION TO ALREADY OVERBURDENED CITIES WITH 
TEEMING UNEMPLOYMENT; 
 
 -- INCREASED INDUSTRIAL SLOWDOWN AND BUSINESS CLOSURES; 
 
 -- A DETERIORATING SOVEREIGN CREDIT RATING; 
 
 -- AND THE POSSIBILITY OF NEAR-UNIVERSAL DISAPPROVAL, POSSIBLE 
SANCTIONS AND FUNDING CUTOFFS SHOULD THE GOVERNMENT-SANCTIONED 
VIOLENCE ESCALATE, FURTHER WORSENING THE DOWNWARD SPIRAL. 
 
6.  (C) WE ALSO POINT OUT THAT ZIMBABWE IS, STATISTICALLY AT LEAST, 
                       CONFIDENTIAL 
 
PAGE 03        HARARE  02684  02 OF 04  190543Z 
LONG OVERDUE FOR A DROUGHT.  THE LAST OCCURRED IN '93/'94, AND THE 
GOOD RAINS OF THE LAST FOUR YEARS CANNOT REALISTICALLY BE EXPECTED 
OR RELIED UPON FOR UPCOMING GROWING SEASONS.  THE NEGATIVE EFFECTS 
OF A DROUGHT (WHICH CAN DROP TOTAL AGRICULTURAL PRODUCTION BY 20 TO 
40 PERCENT) ON TOP OF HITS CAUSED BY THE LAND INVASIONS AND SEIZURES 
COULD CAUSE MASSIVE SHORTAGES.  THE COUNTRY, LIKE SO MANY OTHER 
AFRICAN ONES, WOULD THEN REQUIRE MASSIVE FOOD AND HUMANITARIAN AID 
FLOWS IF WIDESPREAD STARVATION IS TO AVOIDED. 
 
--------------------------------------------- --------- 
MANUFACTURING AND THE SERVICES SECTOR ALSO UNDER SIEGE 
--------------------------------------------- --------- 
 
7.  (C) MINING AND INDUSTRIAL PRODUCTION CONTINUES TO DECLINE, DUE 
TO UNABATED HIGH INTEREST AND INFLATION RATES, THE FUEL SHORTAGE, 
AND THE DEBILITATING LACK OF FOREIGN CURRENCY NEEDED TO IMPORT NON- 
DOMESTICALLY PRODUCED INPUTS OR EQUIPMENT.  IN THE LATTER AREA 
STOCKS OF RAW MATERIAL PLUS THE CONTINUED LOYALTY OF EXTERNAL 
SUPPLIERS HAVE KEPT THE PRIVATE SECTOR GOING DURING THE FIRST FOUR 
MONTHS OF THE YEAR.  HOWEVER, THESE RESERVES ARE RUNNING OUT AND 
DELIVERIES ARE SLOWING OR HALTING AS THE GOOD WILL RUNS OUT AND HARD 
CURRENCY REMAINS UNAVAILABLE.  ALSO SOUTH AFRICAN TRADE CREDIT 
PROVIDERS AND INSURERS WILL NOT UNDERWRITE RISK TO COVER EXPORTS TO 
ZIMBABWE, FURTHER EXACERBATING THE SITUATION.  AS THE SHORTAGES HIT, 
INDUSTRIAL OUTPUT WILL EXPERIENCE AN ACCELERATED DECLINE.  (OUR 
MANUFACTURING CONTACTS TELL US THAT CRITICAL LEVELS ARE BEING 
REACHED FOR PLASTIC FEEDSTOCKS, LIQUIFIED PETROLEUM GAS, ELECTRICAL 
COMPONENTS, AND NUMEROUS CHEMICAL INGREDIENTS AND ADDITIVES.) 
RETAIL SALES IN ALL PRODUCT AREAS ARE DOWN, AND TOURISM BOOKINGS ARE 
OFF MASSIVELY DUE TO PRESS REPORTS OF THE FARM INVASIONS AND 
VIOLENCE, AND THE FUEL SHORTAGE. 
                       CONFIDENTIAL 
 
PAGE 04        HARARE  02684  02 OF 04  190543Z 
 
8.  (C) THE ZIMBABWE COUNCIL OF TRADE UNIONS ESTIMATES THAT THE 
ECONOMIC SLOWDOWN HAS SO FAR THIS YEAR COST OVER 50,000 JOBS IN THE 
FORMAL SECTOR ON EITHER A PERMANENT OR TEMPORARY BASIS.  (THE LATTER 
COVERS OPEN-ENDED LEAVE WHEN EMPLOYERS DO NOT FORMALLY LAYOFF THE 
WORKER, OFTEN DUE TO THE SEVERANCE PACKAGE COSTS, EVEN THOUGH THE 
PROSPECTS FOR A CALLBACK TO THE FACTORY OR PLANT ARE SLIM TO NONE.) 
MANY LOCAL ECONOMISTS AND ANALYSTS ARE JUST NOW BEGINNING TO ACCEPT 
THAT THIS YEAR'S GOVERNMENT BUDGET DEFICIT MAY EASILY BE A SHOCKING 
20 PERCENT (PREDICTED IN REF B A MONTH AGO).  WE ALSO RECOGNIZE THAT 
THIS FIGURE COULD GROW, IF THE SLOWDOWN ACCELERATES AND GOVERNMENT 
REVENUE COLLECTION SUFFERS FURTHER.  (SOURCES IN THE FINANCE 
MINISTRY TELL US THAT REVENUE COLLECTION IN THE FIRST QUARTER IS 
DOWN AT LEAST 10 PERCENT FROM BUDGET.)  INCREASED VIOLENCE BETWEEN 
NOW AND THE ELECTION WILL ONLY ADD FUEL TO THE FIRE, INCREASING 
EMIGRATION BY COMMERCIAL FARMERS AND URBAN PROFESSIONALS, AND 
FURTHER ALIENATING THE WEST. 
 
------------------- 
AN UNCERTAIN FUTURE 
------------------- 
 
9.  (C) MAKING DEFENSIBLE, USEFUL PREDICTIONS OF ZIMBABWE'S ECONOMIC 
FUTURE IS AT THIS TIME NOT A USEFUL OR PRODUCTIVE TASK.  WE KNOW 
THAT THIS YEAR'S ECONOMIC RESULTS WILL BE WORSE THAN LAST YEAR'S, 
BUT DETERMINING THE EXTENT OF THE DECLINE BEYOND THAT IDENTIFIED TO 
 
                       CONFIDENTIAL 
 
                           CONFIDENTIAL     PTQ4596 
 
PAGE 01        HARARE  02684  03 OF 04  190543Z 
ACTION AF-00 
 
INFO  LOG-00   NP-00    AGRE-00  AID-00   ACQ-00   CEA-01   CIAE-00 
      CTME-00  DODE-00  DOTE-00  ANHR-00  SRPP-00  DS-00    EB-00 
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      INR-00   ITC-01   LAB-01   L-00     VCE-00   AC-01    NRRC-00 
      NSAE-00  OMB-01   OPIC-01  PA-00    PM-00    PRS-00   ACE-00 
      P-00     SP-00    SSO-00   SS-00    STR-00   T-00     USIE-00 
      FMP-00   PMB-00   DSCC-00  DRL-02   G-00     NFAT-00  SAS-00 
        /011W 
                  ------------------58C8C3  190543Z /38 
R 190546Z MAY 00 
FM AMEMBASSY HARARE 
TO SECSTATE WASHDC 6078 
INFO SOUTHERN AFRICAN DEVELOPMENT COMMUNITY 
USDOC WASHDC 
NSC WASHDC 
DEPTTREAS WASHDC 
 
C O N F I D E N T I A L SECTION 03 OF 04 HARARE 002684 
 
SIPDIS 
 
STATE FOR AF, AF/S, AF/EPS, EB/IFD/ODF, EB/TPP/ODC 
TREASURY FOR ED BARBER AND GRACE SONE 
USDOC FOR 2037/ERIC HENDERSON 
STATE PASS USTR/RWHITTAKER 
NSC FOR SENIOR AFRICA DIRECTOR GAYLE SMITH 
 
E.O. 12958: DECL: 05/18/10 
TAGS: ECON, EFIN, EAGR, PREL, ZI 
                       CONFIDENTIAL 
 
PAGE 02        HARARE  02684  03 OF 04  190543Z 
SUBJECT: BEHIND THE POLITICAL CONFLAGRATION, ZIMBABWE'S ECONOMY IS 
BURNING TOO 
 
DATE WILL REQUIRE THE PASSAGE OF TIME AND THE UNFOLDING OF EVENTS. 
THIS IS BECAUSE WHAT HAPPENS IN THE RUN-UP TO AND AFTER THE 
ELECTIONS WILL HAVE SIGNIFICANT CONSEQUENCES, BOTH INTERNALLY AND IN 
TERMS OF ZIMBABWE'S RELATIONSHIP WITH WESTERN DONORS, INTERNATIONAL 
INSTITUTIONS AND THE REST OF THE WORLD.  SOME OF THE WILD CARDS THAT 
HAVE TO EMERGE FROM THE DECK ARE: 
 
RELATIONS WITH THE IMF AND WORLD BANK 
------------------------------------- 
 
THE ZANU-PF ELECTION MANIFESTO STATES THAT THE COUNTRY WILL NOT 
KNUCKLE UNDER TO DEMANDS MADE BY THESE LENDERS, DESPITE THE FACT 
THAT POST-ELECTION FINANCING NEEDS WILL BE HUGE.  ON MAY 15 WE 
LEARNED THAT ZIMBABWE HAD PASSED THE 60 DAYS IN ARREARS MARK IN ITS 
PAYMENTS TO THE WORLD BANK, WHICH PLACES IT IN TECHNICAL DEFAULT. 
WE SUSPECT THAT THE COUNTRY'S LEADERSHIP WILL WANT TO RELY ON THE 
SHORT MEMORIES OF THE IFI'S, AND PLEAD FOR RELIEF AND GO THROUGH THE 
COMPLIANCE MOTIONS SHORTLY AFTER THE ELECTIONS, SWEEPING UNDER THE 
RUG THE VIOLENCE AND HUMAN RIGHTS ABUSES IT SPONSORED. 
 
WESTERN DONORS 
-------------- 
 
IN SIMILAR FASHION AND DEPENDING ON PRE- AND POST- ELECTION RESULTS 
AND BEHAVIOR BY THE GOVERNMENT, ZIMBABWE'S POSITION ON THE BILATERAL 
DONOR LOVE/HATE INDEX COULD RANGE FROM PARIAH TO DARLING.  THE 
DEGREE AND EXTENT OF STATE-SPONSORED VIOLENCE, AND THE GOZ REACTION 
TO NON-STATE INSTITUTED VIOLENCE, WILL BE THE PRINCIPAL DETERMINING 
                       CONFIDENTIAL 
 
PAGE 03        HARARE  02684  03 OF 04  190543Z 
FACTORS FOR WESTERN NATIONS. 
 
CURRENCY DEVALUATION 
-------------------- 
 
NOT IF, BUT WHEN AND BY HOW MUCH THE CURRENCY IS DEVALUED WILL HAVE 
A MAJOR IMPACT ON ZIMBABWE'S ECONOMIC FORTUNES AND RESULTS THIS 
YEAR.  (HOWEVER, A SENIOR GOVERNMENT OFFICIAL TOLD US THIS WEEK THAT 
AT THE LAST CABINET MEETING THE GOVERNOR OF THE RESERVE BANK ARGUED 
FOR AN IMMEDIATE CONTROLLED DEVALUATION (VIA THE INTRODUCTION OF A 
20 PERCENT TRADING BAND THAT WOULD SLIDE MONTHLY BY TWO TO FOUR 
PERCENT).  THE IDEA WAS NIXED BY THE MINISTER OF INDUSTRY AND 
COMMERCE, NATHAN SHAMUYARIRA, WHO ARGUED THAT THE WHITE BUSINESS 
COMMUNITY WOULD FIND A WAY TO BOYCOTT THE DEVALUATION, AS THEY DID 
IN LATE '98 WHEN THE CURRENCY FELL BY HALF WITH NO CORRESPONDING 
EXPORT PICKUP.)  WITH FOREIGN CURRENCY ARREARS BOTH PRIVATE AND 
PUBLIC ALREADY EXCEEDING ZIM $19 BILLION (OR AT LEAST U.S. $500 
MILLION), ANY DEVALUATION WILL INCREASE THE DEBT LOAD PLACED ON A 
FALTERING ECONOMY AND MAKE INFLATION ALL THE HARDER TO BRING DOWN. 
HOWEVER, THE LACK OF A DEVALUATION HAS MADE THE MAJORITY OF EXPORTS 
UNPROFITABLE, AND IS A MAJOR FACTOR BEHIND THE HARD CURRENCY 
SHORTAGE WITH ALL ITS DEBILITATING EFFECTS. 
 
THE GOVERNMENT'S POLICIES AND ACTIONS 
------------------------------------- 
 
ARGUABLY THE MOST IMPORTANT FACTOR IN ZIMBABWE'S ECONOMIC FUTURE IS 
WHAT ACTIONS AND POLICIES THE POST-ELECTION GOVERNMENT CHOOSES. 
AFTER WHAT WILL BE NEARLY SIX MONTHS OF DRIFT AND INATTENTION, 
TRIAGING THE ECONOMIC PATIENT SHOULD BE ONE OF THE HIGHEST 
PRIORITIES.  THE LIST OF POTENTIAL ACTION AREAS IS LONG.  IT 
                       CONFIDENTIAL 
 
PAGE 04        HARARE  02684  03 OF 04  190543Z 
INCLUDES CHOOSING TO PURSUE THE GOALS OF THE 18 MONTH MILLENIUM 
ECONOMIC RECOVERY PROGRAM, ACTING ON THE PRIVATIZATION OF 
PARASTATALS, RESURRECTION OF THE STALLED CORRUPTION DRIVE, 
ADDRESSING THE BUDGET DEFICIT, ENDING NOCZIM'S FUEL PROCUREMENT 
MONOPOLY AND HANDLING RELATIONS WITH THE MULTILATERAL LENDERS. 
ZIMBABWE'S RECORD OF ACHIEVEMENT IN EACH OF THESE AREAS, AT LEAST 
OVER THE LAST FEW YEARS, DOES NOT INSTILL WITHIN US AN OVERWHELMING 
SENSE OF CONFIDENCE IN THE NEAR TERM CORRECTIVE ACTIONS THE GOZ WILL 
TAKE. 
 
------- 
COMMENT 
------- 
 
10.  (C) ZIMBABWE'S ECONOMIC PROBLEMS ARE GETTING WORSE WITH TIME. 
FROM WHAT WE HAVE SEEN, THE TURNAROUND PLAN OF THE OPPOSITION IS 
SOUND AND PRACTICAL.  WHETHER IT WILL HAVE THE OPPORTUNITY TO 
IMPLEMENT ANY OF ITS PLAN AND FROM WHAT LEVEL OF STRENGTH IS NOT YET 
KNOWN.  AS WE HAVE OFTEN STATED, DELAY ONLY INCREASES THE COSTS AND 
EFFORT REQUIRED TO GET BACK TO WHERE THE COUNTRY WAS ONLY A YEAR OR 
TWO AGO.  ZIMBABWE SO FAR RETAINS SUBSTANTIAL CAPITAL, BOTH HUMAN 
AND ECONOMIC, WHICH IT CAN CALL ON TO REVERSE THE SLIDE, BUTTRESSED 
BY THE TOP-CLASS AND DEMONSTRATED RESILIENCY OF ITS INDUSTRY AND 
PRIVATE SECTOR.  HOWEVER, THIS ACTION NEEDS TO COME SOONER RATHER 
THAN LATER, AND THE DAY AFTER THE ELECTIONS IS OUR RECOMMENDED 
LATEST START DATE.  END COMMENT. 
 
                       CONFIDENTIAL 
 
                           CONFIDENTIAL     PTQ4597 
 
PAGE 01        HARARE  02684  04 OF 04  190543Z 
ACTION AF-00 
 
INFO  LOG-00   NP-00    AGRE-00  AID-00   ACQ-00   CEA-01   CIAE-00 
      CTME-00  DODE-00  DOTE-00  ANHR-00  SRPP-00  DS-00    EB-00 
      EXIM-01  E-00     FAAE-00  VC-01    FRB-00   H-01     TEDE-00 
      INR-00   ITC-01   LAB-01   L-00     VCE-00   AC-01    NRRC-00 
      NSAE-00  OMB-01   OPIC-01  PA-00    PM-00    PRS-00   ACE-00 
      P-00     SP-00    SSO-00   SS-00    STR-00   T-00     USIE-00 
      FMP-00   PMB-00   DSCC-00  DRL-02   G-00     NFAT-00  SAS-00 
        /011W 
                  ------------------58C8C6  190543Z /38 
R 190546Z MAY 00 
FM AMEMBASSY HARARE 
TO SECSTATE WASHDC 6079 
INFO SOUTHERN AFRICAN DEVELOPMENT COMMUNITY 
USDOC WASHDC 
NSC WASHDC 
DEPTTREAS WASHDC 
 
C O N F I D E N T I A L SECTION 04 OF 04 HARARE 002684 
 
SIPDIS 
 
STATE FOR AF, AF/S, AF/EPS, EB/IFD/ODF, EB/TPP/ODC 
TREASURY FOR ED BARBER AND GRACE SONE 
USDOC FOR 2037/ERIC HENDERSON 
STATE PASS USTR/RWHITTAKER 
NSC FOR SENIOR AFRICA DIRECTOR GAYLE SMITH 
 
E.O. 12958: DECL: 05/18/10 
TAGS: ECON, EFIN, EAGR, PREL, ZI 
                       CONFIDENTIAL 
 
PAGE 02        HARARE  02684  04 OF 04  190543Z 
SUBJECT: BEHIND THE POLITICAL CONFLAGRATION, ZIMBABWE'S ECONOMY IS 
BURNING TOO 
 
MCDONALD 
 
                       CONFIDENTIAL 
 
> 

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