US embassy cable - 04HARARE1495

C O N F I D E N T I A L SECTION 01 OF 02 HARARE 001495 
 
SIPDIS 
 
AF/S FOR BNEULING 
NSC FOR SENIOR AFRICA DIRECTOR C. COURVELLE, D. TEITELBAUM 
USDOC FOR AMANDA HILLIGAS, TREASURY FOR OREN WYCHE-SHAW, 
PASS USTR FOR FLORIZELLE LISER, STATE PASS USAID FOR 
MARJORIE COPSON 
 
E.O. 12958: DECL: 12/31/2009 
TAGS: ECON, ETRD, PGOV, ZI, EINV, Economic Policy 
SUBJECT: CENTRAL BANK GOVERNOR GONO: WOLF IN SHEEP,S 
CLOTHING? 
 
Classified By: Ambassador Christopher Dell. 
Reason: 1.5 d 
 
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Summary 
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1. (C) We are disturbed that Reserve Bank (RBZ) Governor 
Gideon Gono's expanding hegemony spells more trouble for 
Zimbabwe's flagging economy.  Although he is an ideological 
moderate by GOZ and Zanu-PF standards, preaching an 
uncharacteristic fervor for Western and International 
Monetary Fund (IMF) reengagement, recent RBZ policies reach 
far beyond conventional central bank parameters.  Most 
worrisome, it is becoming increasingly difficult for firms to 
survive without lobbying for and obtaining personal 
concessions from Gono.  His personal corruption is a source 
of concern for the country,s economic future. 
 
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Moderate in Tone, Machiavellian in Deed 
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2. (C) At first blush, Gono seems like an anomaly among 
Robert Mugabe's officials.  Unlike many, Gono has never 
misrepresented Western sanctions as the cause of the 
country's economic decline.  He courts Western embassies and 
the IMF.  He has personally rehabilitated many out-of-favor 
white Zimbabweans.  (Note: Before Gono took over at the RBZ 
in December, for example, outspoken Bulawayo accountant Erich 
Bloch was subject to recurring arbitrary detention; now he 
heads the RBZ's most important advisory committee.  Gono is 
similarly happy to be seen in the company of Commercial 
Farmers Union President Douglas Taylor-Freeme and University 
of Zimbabwe MBA department chair Tony Hawkins ) whom the 
GOZ's Herald often portrayed as enemies of the State.)  Gono 
has called for transferable 99-year leases for land 
redistribution beneficiaries, the most market-friendly 
position on land reform of any prominent Zanu-PF spokesman. 
In private talks, he derides the GOZ's estimate of a 2.4 
million ton maize harvest and land-grabs by prominent 
ministers. 
 
3. (C) However, since Gono took office, the GOZ has 
imprisoned, marginalized, or exiled nearly every one of his 
rivals, often through allegations of investment abroad 
("externalization of foreign exchange"), a serious crime in 
Zimbabwe.  Authorities have chased into London exile Gono's 
main contender for the RBZ post - Barbican CEO Mtuli Ncube - 
as well as the country's most revered indigenous banker ) 
Intermarket CEO Nicolas Vingirai.  The GOZ has neutralized 
the Ministry of Finance's two most powerful policymakers, 
jailing Minister Chris Kuruneri and offering Permanent 
Secretary Nick Ncube a largely ceremonial appointment as one 
 
SIPDIS 
of three RBZ deputy governors.  (Ncube now complains to us 
about his shrunken workload.)  We cannot state for certain 
what Gono's role has been in the demise of each rival, but 
find it telling that so many rivals have fallen from power 
since Gono's rise,  that he has taken no action to halt this 
process and that he has benefited personally and 
professionally from their demise.  With a rotation of cabinet 
officials overseeing the Finance Ministry (while Kuruneri 
awaits trial from behind bars) and powerless David Chapfika 
serving as the new deputy Minister, Gono now controls nearly 
every economic policy function. 
 
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Central Bank Gains New Powers 
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4. (U) Gono has shifted many responsibilities from the 
Finance Ministry to the RBZ, such as the registration of 
investment firms and screening of bank executives.  The 
central bank also now not only reviews/approves 
qualifications of CEO/CFOs, as the Finance Ministry used to, 
it requires banks to forward the curriculum vitae of 
applicants for every managerial position down to department 
head, a source of resentment in the banking sector.  Gono has 
also dictated to private banks that they may no longer close 
for Wednesday afternoons (a Zimbabwean tradition). 
 
5. (U) By establishing the GOZ's forex auctions in January, 
Gono also established a mechanism for the RBZ to set the 
country's official exchange rate.  Previously, this required 
a cabinet decision, as when the rate moved from Z$55 to 
824:US$ in late 2002.  However, Gono's commitment to an 
overvalued rate has dashed initial hopes he would use his new 
authority to keep the rate at realistic levels.  He may be 
the undisputed master of Zimbabwe,s economic policies, but 
he has been unable or unwilling to change those policies for 
the better. 
 
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Gono Determines Who Gets Loans, Forex 
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6. (C) Gono's greatest power lies in determining which firms 
succeed and which fail.  He has final say over who can tap 
attractive low-interest productive sector loans (presently 
carrying a 50 percent rate, versus approximately 200 percent 
on the open market ) a rent-seekers haven).  The RBZ 
Governor also decides how to allocate the auctions' meager 
forex.  Favored importers buy it at a 28 percent discount to 
the parallel market, widening their profit margin over 
competing importers.  The key to auction success is often an 
audience with Gono, something many importers never obtain. 
 
7. (C) Finally, Gono maintains his own business empire, 
including Jewel Bank and growing media interests.  He is 
publisher of the Financial Gazette, Zimbabwe's main business 
weekly, which toes the RBZ policy line.  He is taking over 
the daily and Sunday Mirror, a potential rival to the 
Ministry of Information's daily Herald. 
 
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Bottom Line 
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8. (C) Since he says so many things that contradict customary 
GOZ rhetoric, Gono makes for a refreshing interlocutor.  In 
fact, he seems to have spellbound many visitors.  The local 
IMF office put out a 2005 forecast of 5 percent growth 
(published on the IMF website, but since withdrawn) after 
meeting with Gono earlier this year.  However, we do not 
believe Gono is either taking or advocating the decisions 
that will lead to an economic turnaround.  He continues to 
expand money supply at an alarming clip (year-to-year M3 is 
up roughly 400 percent through April, the latest available 
statistic), while reining in inflation through an enforced 
official (auction) exchange rate.  As a result, exports ) 
the engine of the economy - appear to be dropping (there are 
no useful official statistics).  Foreign direct investment is 
negligible. 
 
9. (C) Gono has also failed to use his three policy 
statements to make the case for devaluation (as Finance 
Minister Simba Makoni did in 2001-02).  Nor has he advocated 
an end to the GOZ's selective "witch-hunts" for investments 
abroad.  This is a crime every Zimbabwean of the middle-class 
and above has committed, often ) as in the case of Finance 
Minister Kuruneri ) facilitated by Gono's Jewel Bank.  In 
the final analysis, Gono appears to see no conflict of 
interest in the RBZ Governor owning one of the most prominent 
indigenous commercial banks and much of the financial press. 
Gono may be a moderate, but presently only by GOZ standards, 
and his personal corruption poses its own threat to 
Zimbabwe,s economic future. 
Dell