US embassy cable - 04HARARE1532

UNCLAS SECTION 01 OF 02 HARARE 001532 
 
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 Policy 
SUBJECT: Elections: GOZ Accelerates Populist Economic 
Measures 
 
 
1. As expected, the GOZ has recently begun to devote 
increasing, and disproportionate, resources to ensuring 
the availability and affordability of politically 
sensitive goods and services such as maize-meal, fuel and 
educational expenses.  In time-honored fashion, the GOZ 
expects to pad its share of the vote by providing more 
accessible food, transport and schooling (in addition to 
more direct methods such as harassment, intimidation, and 
biased media coverage).  Zimbabwe cannot, of course, 
afford these economic policies, whose implementation will 
prove economically counterproductive over the long haul 
and damage prospects for economic revival. 
 
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Buying Votes n 
------------ 
 
Maize 
----- 
 
2. Maize-meal is far and away Zimbabweans' main food 
staple.  In the past week, its price has dropped from Z$ 
2,000 (US$.36) to Z$1,200 (US$.21)/kg.  This is the 
direct result of the parastatal Grain Marketing Board 
(GMB) providing an increased subsidy to wholesalers to 
bring down the price.  The subsidy is now on the order of 
35 percent of the price of maize-meal. 
 
Petrol 
------ 
 
3. After service stations ran dry over the weekend of 
September 4-5, Reserve Bank (RBZ) Governor Gideon Gono 
took to the airwaves to assure the population that he had 
provided sufficient foreign exchange to importers to 
ensure adequate supplies of petrol in the future.  Gono 
revealed publicly for the first time that the RBZ was 
devoting about 40 percent of its forex to oil firms. 
Fuel has been among the most politically sensitive goods 
in Zimbabwe.  The opposition Movement for Democratic 
Change (MDC) recruited many new members in the hours-long 
lines of the 2001 shortages and in the economy's near 
stand-still in late 2002 after Libya stop providing 
discounted fuel. 
 
School Fees 
----------- 
 
4. The GOZ announced on the front page of the September 6 
State-run "Herald" that it was permitting only one 
private school nationwide to raise fees for the third 
term, which for most schools began September 7.  Schools 
were required to keep fees at last year's rates.  By 
keeping down tuition, the GOZ argues it is opening up 
these formerly white enclaves to more black families. 
Nonetheless, inflation has added about 50 percent to the 
cost of school fees since the beginning of the last term 
in May. 
 
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Longer-Term Consequences 
------------------------ 
 
5. The GOZ has given no indication it will revert to the 
disastrous sub-market price controls it imposed in mid- 
2003.  At that time, retailers refused to restock most 
items, since wholesale costs often exceeded controlled 
prices.  Still, even these more limited controls, aimed 
at boosting the ruling party's electoral fortunes, are 
costly, market-distorting and in the long-term, 
counterproductive and unsustainable. 
 
6.  With maize-meal, for instance, the subsidized price 
now barely beats input costs (seed/fertilizer/tillage), 
acting as a disincentive to production.  The decision to 
devote a large percentage of Zimbabwe's available foreign 
exchange to supporting fuel imports will also have 
adverse economic effects.  Importers of other goods will 
have to settle for more expensive parallel-market forex, 
making their businesses less viable.  Finally, private 
schools are dramatically cutting salaries and services as 
a result of price controls, inducing still more teachers 
and affluent families to leave Zimbabwe.  Ultimately, the 
country may pay a hefty price for Zanu-PF's 
electioneering. 
 
Dell