US embassy cable - 00HARARE5072

C O N F I D E N T I A L SECTION 01 OF 02 HARARE 005072 
 
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 
NSC FOR SENIOR AFRICA DIRECTOR GAYLE SMITH 
 
E.O. 12958: DECL: 08/31/07 
TAGS: EFIN, PGOV, ZI 
SUBJECT: IMF REVIEW TEAM PROVIDES A BLEAK OUTBRIEF 
                       CONFIDENTIAL 
 
 
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WITH NO NEW SURPRISES 
 
CLASSIFIED BY ECON/COMM OFFICER MARK PROKOP, REASON 
1.5 (B), (D) 
 
REFS: A) HARARE 4883, B) HARARE 4084, C)HARARE 2684, 
D) 1999 HARARE 6612 
 
1.  (C) SUMMARY: ON SEPTEMBER 12 THE IMF RESREP, 
ROBERT FRANCO, AND THE IMF TEAM LEADER, PAULO 
NEUHAUS, PROVIDED THE DONOR COMMUNITY WITH AN HOUR- 
LONG OUTBRIEF ON THE COMPLETED 2 1/2 WEEK-LONG 
ARTICLE IV REVIEW OF ZIMBABWE.  NEUHAUS PROVIDED NO 
NEW SURPRISES OR BOMBSHELLS, BUT DID REVEAL, AS 
ANTICIPATED, THAT "THE CURRENT ECONOMIC SITUATION IS 
VERY BAD AND WORRISOME, AND THE OUTLOOK IS AT BEST, 
MIXED."  LOOKING AHEAD, THE TEAM WILL NOW FINALIZE 
AND CIRCULATE THEIR REPORT IN WASHINGTON, THE GOZ 
ECONOMIC LEADERSHIP WILL MEET WITH TOP FUND 
MANAGEMENT IN PRAGUE, AND IN LATE NOVEMBER/EARLY 
DECEMBER A FORMAL ACTION RECOMMENDATION WILL BE PUT 
FORTH TO THE BOARD.  FOR POSITIVE ACTION TO BE 
RECOMMENDED, BETWEEN NOW AND THEN ZIMBABWE MUST: 
RESTORE THE RULE OF LAW; DRAFT AND PRESENT A CREDIBLE 
2001 BUDGET THAT DEMONSTRATES FISCAL RESPONSIBILITY 
WITH STRONG MEASURES; REVEAL WHAT THE LAND REFORM 
PROGRAM WILL ACTUALLY COMPRISE; AND ADDRESS THE 
INTERTWINED HARD CURRENCY SHORTAGE AND STILL 
OVERVALUED, NON-MARKET DETERMINED FOREIGN EXCHANGE 
RATE. 
 
                       CONFIDENTIAL 
 
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2.  (C) OTHER ECONOMIC DATA SHARED ARE THAT THE FUND 
PROJECTS YEAR-END INFLATION OF 80 PERCENT, THE 2000 
GOVERNMENT BUDGET DEFICIT WILL SWELL TO AT LEAST 23 
PERCENT OF GDP (VERSUS 3.8 PERCENT BUDGETED FOR), AND 
IN REAL TERMS THE IMF THINKS THE ECONOMY WILL SHRINK 
5 1/2 PERCENT THIS YEAR AND AT LEAST 6 1/2 PERCENT 
NEXT YEAR, BARRING "THE VERY REAL THREAT OF A 
MELTDOWN."  AT THE REQUEST OF THE AGRICULTURE 
MINISTER THE WORLD BANK IS CONDUCTING AN EMERGENCY, 
TWO TO THREE WEEK-LONG TECHNICAL REVIEW AND 
ASSESSMENT OF THE CURRENT, ILL-DEFINED, LAND REFORM 
PROGRAM. THIS REVIEW IS DESIGNED TO LAY OUT THE 
REALITIES, CONSEQUENCES AND COSTS OF THE CURRENT GOZ 
FAST-TRACK PROGRAM.  END SUMMARY. 
 
---------------- 
AT THE PRECIPICE 
---------------- 
 
3.  (C) THE IMF TEAM LEADER, PABLO NEUHAUS, PRESENTED 
A CONCISE AND FAST-MOVING SUMMARY OF THE CURRENT 
ECONOMIC SITUATION AND OUTLOOK.  THE HIGHLIGHTS ARE: 
YEAR-END INFLATION PREDICTED AT ABOUT 80 PERCENT; THE 
2000 GOVERNMENT DEFICIT ESTIMATED TO BE AT LEAST 23 
PERCENT OF GDP BASED ON THEIR AUDITS AND THE RECENTLY 
RELASED SUPPLEMENTAL BUDGET (LARGELY DUE TO INCREASES 
IN WAGES, INTEREST AND DEFENSE SPENDING); AND AN 
ESTIMATED 5 1/2 PERCENT REAL GDP SHRINKAGE THIS YEAR 
WITH AT LEAST A 6 1/2 PERCENT DECLINE EXPECTED NEXT 
YEAR.  ON THE PLUS SIDE, THE NEW ECONOMIC MINISTERS 
(SIMBA MAKONI - FINANCE AND ECONOMIC DEVELOPMENT AND 
                       CONFIDENTIAL 
 
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NKOSONA MOYO - INDUSTRY AND INTERNATIONAL TRADE) 
ADMIT THE GOZ'S ECONOMIC FAILURE TO DATE AND 
RECOGNIZE THE NEED FOR SWIFT AND STRONG MEASURES. 
THOUGH THE STEPS WERE TOO SMALL AND TOO LATE, THEY 
BROKE THE DEADLOCK ON A COUPLE OF KEY ISSUES, 
SPECIFICALLY DEVALUATION AND PUBLIC REVELATION OF 
SOME, BUT PROBABLY NOT ALL, OF THE COST OF THE 
MILITARY IN THE CONGO (Z $10 BILLION OR U.S. $200 
MILLION SINCE AUGUST 1998).  "AT LEAST THEY ARE NO 
LONGER IN DENIAL," SAID NEUHAUS, "AS THEIR 
PREDECESSORS WERE."  WHETHER THEY WILL HAVE THE 
LEEWAY TO BE MORE CONSISTENT AND RATIONAL "REMAINS TO 
BE SEEN," HE SAID, AND THEIR ACTIONS OVER THE NEXT 
MONTH OR TWO WILL BE EXTREMELY KEY IN DETERMINING IF 
THE RELATIONSHIP AWAKES FROM "ITS PRESENT DORMANCY." 
 
4.  (C) NEUHAUS THEN WENT ON TO LIST WHA