US embassy cable - 00HARARE4883

C O N F I D E N T I A L SECTION 01 OF 02 HARARE 004883 
 
SIPDIS 
 
STATE FOR AF/S, AF/EPS, EB/IFD/ODF, EB/TPP/ODC 
TREASURY FOR ED BARBER, GRACE SONE AND HOFFMAN BARAK 
USDOC FOR 4510 ERIC HENDERSON 
STATE PASS USTR/RWHITTAKER 
STATE PASS NSC FOR SENIOR AFRICA DIRECTOR GAYLE SMITH 
 
E.O. 12958: DECL: 08/31/07 
TAGS: EFIN, PGOV, ZI 
SUBJECT: IMF BRIEFS US AT START OF ZIMBABWE VISIT TO 
CONDUCT AN ARTICLE IV REVIEW 
                       CONFIDENTIAL 
 
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CLASSIFIED BY ECON/COMM OFFICER MARK PROKOP, REASON 
1.5 (B), (D) 
 
REFS: A) HARARE 2927, B) HARARE 2684, C) HARARE 2081, 
D) HARARE 4084 
 
1.  (C) SUMMARY: ON AUGUST 29 THE IMF RESREP, ROBERT 
FRANCO, AND THE VISITING IMF ARTICLE IV REVIEW TEAM 
LEADER, PAULO NEUHAUS, MET WITH THE AMBASSADOR, USAID 
DIRECTOR, AND ECON AND POLOFF TO DISCUSS ECONOMIC AND 
POLITCAL CONDITIONS IN ZIMBABWE, POST ELECTION 
POLICIES AND LEADERSHIP, AND SHARE INFORMATION AND 
INSIGHTS.  NEUHAUS' PRELIMINARY ASSESSMENT OF 
CONDITIONS IN ZIMBABWE, AT LEAST FROM A POLICY AND 
PLANNING STANDPOINT IS, IN HIS OWN WORDS, "DISMAL; 
THERE ARE NO HARD PLANS OR DETAILS ON HOW TO DEAL 
WITH THE MANY CRISES FACING THE COUNTRY."  HAVING 
ONLY ARRIVED ON SUNDAY, AUGUST 27, THE TEAM LEADER 
HAD SO FAR JUST MET WITH THE MINISTER OF FINANCE, 
SIMBBA MAKONI, AND THE RESERVE BANK GOVERNOR, LEONARD 
TSUMBA.  NEUHAUS SOUGHT OUR FEEDBACK, WHICH WE 
 
SIPDIS 
PROVIDED HIM, ON KEY ISSUES SUCH AS THE ABILITY AND 
FREEDOM OF THE TECHNOCRATS TO FUNCTION, ON THE AREAS 
AND PROSPECTS OF GOZ SPENDING CUTS, AND WHERE LAND 
REFORM WAS HEADED. END SUMMARY. 
 
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DETAILS AND PLANS ARE LACKING 
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2.  (C) SOMEWHAT FRUSTRATED, NEUHAUS TOLD US THAT THE 
ANSWERS HE HAD RECEIVED FROM BOTH THE FINANCE 
MINISTER AND THE CENTRAL BANK GOVERNOR WERE 
DISAPPOINTING AND INADEQUATE.  "I SEE NO HARD PLANS 
FROM EITHER OF THEM OF HOW A HOST OF PROBLEMS ARE TO 
BE SOLVED OR THINGS TURNED AROUND," HE STATED.  "THE 
FINANCE MINSTER CANNOT TELL US WHAT THE FISCAL 
DEFICIT FOR THE YEAR IS GOING TO BE OR HOW IT WILL BE 
FINANCED.  ON HOW MUCH PRIVATIZATION CAN EARN AND 
WHEN, I ALSO GOT NO ANSWERS.  THE GUIDELINES FOR THE 
2001 BUDGET, WHICH IS IN PREPARATION NOW, ARE ALSO 
VERY VAGUE," HE CONTINUED, "AND THIS IS DISTURBING." 
WHEN I ASKED WHY THE DEVALUATION STOPPED AT 50, THE 
ONLY ANSWER I GOT WAS THAT IT WAS AN ACCEPTABLE 
"PSYCHOLOGICAL" LEVEL.  IN ANSWER TO THE AMBASSADOR'S 
QUERY ON THE EXCHNAGE RATE, NEUHAUS REPLIED THE RATE 
SHOULD HAVE BEEN ALLOWED TO SLIDE TO 65 OR 70, AS 
ONLY THEN COULD AN EQUILIBRIUM BE TESTED. 
 
3.  (C) COMMENTING ON THE RESERVE BANK (RBZ), NEUHAUS 
SAID THAT IT IS "CLEARLY, TOTALLY SPACED OUT, AND ANY 
LIMITS ON MONETARY GROWTH HAVE CLEARLY BEEN 
SUSPENDED.  THEY COULD ONLY TELL ME THAT THEY WILL 
STOP LENDING TO THE GOVERNMENT WHEN THEY HIT THE 
STAUTORY LIMITS."   "WHERE IS THAT LIMIT?" HE QUERIED 
OUT LOUD, CLEARLY DISAPPOINTED WITH THE SUSPENSION OF 
DISCIPLINE AT THE CENTRAL BANK.  BROAD MONEY SUPPLY 
GROWTH WAS SURGING AT 70 PERCENT AS OF MID-AUGUST, HE 
AND THE RESREP OBSERVED, AND THE INFLATION 
CONSQUENCES WILL BE TERRIBLE.  THE IMF TEAM LEADER 
TOLD US THAT ZIMBABWE CURRENTLY HAD NO PLANS TO 
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APPROACH THE PARIS CLUB FOR DEBT NEGOTIATIONS, AND 
THEY COULD PROVIDE HIM NO PLAN FOR HOW THE COUNTRY'S 
BALANCE OF PAYMENTS GAP COULD BE MET.  THE ABILITY OF 
THE RBZ TO MANUEVER OR STICK TO ITS COMMITMENTS, HE 
STATED, IS CLEARLY VERY LIMITED.  HE ADDED THAT THE 
MEETINGS HIS TEAM HAD SCHEDULED AT BOTH THE RBZ ABND 
THE FINANCE MINSTRY ON AUGUST 24 AND 25 WERE 
CANCELLED WITH NO EXPLANATION, AND THEREFORE THE 
REVIEW OF THE NUMBERS WAS SLOW IN STARTING. 
 
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THE MILLENIUM ECONOMIC RECOVERY PLAN (MERP) 
------------------------------------------- 
 
4.  (C) NEUHAUS RESERVED HIS MOST STINGING CRITICISM 
FOR THE GOZ'S TURNAROUND PLAN, DUBBED THE MERP.  "WHY 
MAKONI EVER ADOPTED THIS THING I DON'T KNOW," HE TOLD 
US. "IF THIS IS THE PATH FORWARD," HE CONTINUED, 
"MAYBE THE AUTHOR SHOULD HAVE BEEN APPOINTED FINANCE 
MINISTER."  (COMMENT: THE PRINCIPAL AUTHOR IS THE 
FORMER HEAD OF THE ECONOMIC PLANNING COMMISSION, WITH 
MANY OF THE RECOMMENDATIONS DRAWN FROM MALAYSIA AND 
THAT COUNTRY'S EXPERIENCE.)  "THE MERP IS ALL FLUFF 
AND NO SUBSTANCE," NEUHAUS CHIDED, "AND THE FEW 
ACTUAL RECOMMENDATIONS IT CONTAINS ARE DRAWN FROM THE 
 
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                           CONFIDENTIAL     PTQ9114 
 
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ACTION AF-00 
 
INFO  LOG-00   NP-00    AID-00   AMAD-00  CEA-01   CIAE-00  CTME-00 
      DODE-00  SRPP-00  DS-00    EB-00    EXIM-01  E-00     VC-00 
      FRB-00   H-01     TEDE-00  INR-00   IO-00    ITC-01   LAB-01 
      L-00     VCE-00   AC-01    NSAE-00  NSCE-00  OIC-02   OMB-01 
      OPIC-01  PA-00    PM-00    PRS-00   ACE-00   P-00     SP-00 
      SSO-00   STR-00   USIE-00  FMP-00   PMB-00   DSCC-00  DRL-02 
      G-00     NFAT-00  SAS-00     /012W 
                  ------------------809D8C  011040Z /38 
P 011038Z SEP 00 
FM AMEMBASSY HARARE 
TO SECSTATE WASHDC PRIORITY 6990 
INFO SOUTHERN AFRICAN DEVELOPMENT COMMUNITY 
USDOC WASHDC 
DEPT OF TREASURY WASHDC 
 
C O N F I D E N T I A L SECTION 02 OF 02 HARARE 004883 
 
SIPDIS 
 
STATE FOR AF/S, AF/EPS, EB/IFD/ODF, EB/TPP/ODC 
TREASURY FOR ED BARBER, GRACE SONE AND HOFFMAN BARAK 
USDOC FOR 4510 ERIC HENDERSON 
STATE PASS USTR/RWHITTAKER 
STATE PASS NSC FOR SENIOR AFRICA DIRECTOR GAYLE SMITH 
 
E.O. 12958: DECL: 08/31/07 
TAGS: EFIN, IMF, PGOV, ZI 
SUBJECT: IMF BRIEFS US AT START OF ZIMBABWE VISIT TO 
CONDUCT AN ARTICLE IV REVIEW 
                       CONFIDENTIAL 
 
PAGE 02        HARARE  04883  02 OF 02  011040Z 
 
FAILED ACTION PLANS OF THE 1950'S IN LATIN AMERICA 
SUCH AS INTEREST RATE CAPS, ILL-TARGETED TAX BREAKS 
AND THE LIKE."  "THIS PLAN IS NOT GOING TO SOLVE ANY 
OF THE PROBLEMS," HE SUMMARIZED.  "WHILE I HOPE TO 
HAVE GOOD NEWS TO SHARE WITH YOU ON SPTEMBER 12 (THE 
SCHEDULED DATE FOR THE TEAM'S OUBRIEFING TO THE 
DONOR COMMUNITY), IT DOES NOT LOK GOOD NOW."  HE 
CONCLUDED, "I AM AFRAID OUR COMMNIQUE WILL NOT BE 
GOOD NEWS FOR THE COUNTRY". 
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COMMENT 
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5.  (C) THE TEAM LEDER'S OBSERVATIONS AND 
CONCLUSIONS AFTER ONLY 48HOURS IN THE COUNTRY IS 
NOT, IN OUR OPINION, A POPITIOUS START TO THE REVIEW 
OF ZIMBABWE.  HIS HIHLIGHTED AREAS OF CONCERN MATCH 
THOSE WE HAVE REORTED ON AND WHICH WE TRACK CLOSELY. 
WITH THE IM COMING UP EMPTY-HANDED ON THE POLICY AND 
PLANNIG FRONT, WE FEAR THAT THE DEPTH AND BREADTH OF 
TE BAD NEWS COMING OUT OF THE AUDIT AND NUMBER- 
CRNCHING WILL CONSTITUTE A DOUBLE DOSE OF 
UNFAVOURBLE REVIEW RESULTS FOR ZIMBABWE.  FOR THE 
NEAR TRM, BLEAK IS LOOKING BLEAKER.  END COMMENT. 
 
MCDNALD 
 
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