US embassy cable - 04HARARE1420

UNCLAS HARARE 001420 
 
SIPDIS 
 
STATE FOR AF/S 
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, ETRD, EINV, PGOV, ZI, Economic Situation 
SUBJECT: Banks eye parallel market 
 
1. Summary:  In spite of the GOZ's strong-armed efforts 
to enforce a fixed (auction) rate, local businesses tell 
us parallel currency trading is becoming more widespread. 
NMB now discreetly offers its best customers access to 
the parallel market.  End summary. 
 
Zimdollar expensive at any rate 
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2. Business-to-business weekend trading generally took 
place within a Z$7,800-8,500/US$ band.  Because the 
parallel exchange is still covert and untransparent, many 
traders offered unwitting smaller clients as little as 
Z$6,200/US$.  Although the higher-end parallel exchange 
nets about 40 percent more than the official rate, it 
still overvalues the zimdollar by any historic purchasing 
parity measure.  Inflation, for example, has registered 
360 percent since August 2003, while today's rate is 
nearly identical to that of one year ago (Z$5600:US$ on 
Aug 22, 2003 vs. Z$5602:US$ at last Thursday's auction). 
Zimbabwe has become an expensive place to do business, so 
much so that Coca-Cola now considers Johannesburg a 
cheaper venue.  As a cost-cutting measure, the firm is 
relocating its top Zimbabwean executives from depressed 
Harare to the southern African business hub. 
 
3. GOZ enforcement requires parallel traders to adopt 
extreme precautions.  We have seen traders rely on 
multiple levels of intermediaries; we have heard them 
speak in code over phone lines.  Finance Minister Chris 
Kuruneri remains behind bars, however, as a grim but 
symbolic deterrent to parallel trading and foreign 
exchange externalization.  We understand repeat-offender 
NMB has again begun to tempt its best customers with 
parallel exchange rates, the first commercial bank to do 
so since January. 
 
Comment 
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4. Reserve Bank (RBZ) Governor Gideon Gono vilifies 
parallel traders as economic saboteurs.  Actually, they 
enhance his potency.  Since most prices for goods and 
services reflect the parallel exchange, Gono can offer 
select importers amplified profit margins by granting 
them discounted access to foreign exchange at the 
official rate.  (The RBZ formally dismisses most 
unsuccessful forex applications with a single word - 
"cause."  There is no further explanation.)  In effect, 
Gono has created a subsidy for privileged importers 
through an indirect exporter tax. 
 
Sullivan