US embassy cable - 04HARARE731

UNCLAS HARARE 000731 
 
SIPDIS 
 
STATE FOR AF/S 
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER 
USDOC FOR AMANDA HILLIGAS 
TREASURY FOR OREN WYCHE-SHAW 
PASS USTR FLORIZELLE LISER 
STATE PASS USAID FOR MARJORIE COPSON 
 
E. O. 12958: N/A 
TAGS: ECON, EAID, BTIO, EINV, PGOV, ZI, Economic Policy 
SUBJECT: Auction Rate Passes Diaspora/Exporter Rate 
 
1. Summary: The most noteworthy new policy announced in 
Reserve Bank (RBZ) Governor Gideon Gono's second policy 
statement may last just one week. End Summary. 
 
2. Gono offered unhappy exporters as well as recipients 
of Diaspora transfers a floor price of Z$5,200:US$, a 10 
percent bonus to last week's controlled auction rate.  In 
the two ensuing auctions, however, the RBZ has pushed the 
weighted average to Z$5,272:US$, leaving the incentive 
rate in the dust.  While Gono said the new rate could be 
"reviewed periodically," he has not readjusted it yet. 
If he leaves it at Z$5,200:US$, the most innovative 
aspect of his speech will have already faded into 
oblivion. 
 
Comment 
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3. Comment: Compared to his December 18 address, Gono's 
speech was poorly-conceived.  Buying U.S. dollars for a 
rate 10 percent higher than its own sell-price meant the 
RBZ had to cover the difference.  On the US$16 million it 
auctions each week, the RBZ would have subsidized 
importers to the tune of US$1.6 million.  As soon as the 
RBZ did the math, it no doubt decided to boost the 
auction rate. 
 
4. How sloppy was Gono's statement?  When discussing the 
$Z5,200:US$ rate, he said:  "To the extent that inflation 
is expected to decline, our expectations are that this 
floor price will be reviewed downwards . . ."  The RBZ is 
projecting - optimistically - a reduced inflation rate of 
200 percent by year-end, not deflation. 
 
Sullivan