US embassy cable - 05HARARE176

C O N F I D E N T I A L HARARE 000176 
 
SIPDIS 
 
STATE FOR AF/S 
USDOC FOR ROBERT TELCHIN 
TREASURY FOR OREN WYCHE-SHAW 
PASS USTR FLORIZELLE LISER 
STATE PASS USAID FOR MARJORIE COPSON 
 
E.O. 12958: DECL: 12/13/2014 
TAGS: EFIN, ETRD, PGOV, ECON, EINV, ZI, Economic Policy 
SUBJECT: RBZ: GOLD EXPORTERS GET DEVALUATION; FAST-TRACK 
LAND REFORM "OVER" 
 
 
Classified By: Classified by Ambassador Christopher Dell 
under Section 1.4 e/g 
 
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Summary 
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1. (C) The highlight of Reserve Bank (RBZ) Governor Gideon 
Gono,s January 26 address to the nation on the country,s 
economy was the announcement that he had devalued the 
zimdollar from Z$ 6,151 to 8,692:US$ for gold producers. 
However, he left in place the controlled exchange rate of Z$ 
5900:US$ for all other exporters as well as the Z$6,200 
"Diaspora" rate for non-exporters.  The Central Banker also 
said the GOZ would address violations of bilateral investment 
agreements that occurred during fast-track land reform. 
 
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New Gold Rate 
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2. (C) In his quarterly televised address to the nation on 
the state of the economy, Gono announced the new rate for 
gold exporters.  However, as is standard practice in 
Zimbabwe, he couched the "gold support price" in a Z$/gram 
ratio, rather than more customary US$/oz terms.  As a result, 
businessmen, bankers and economists with whom we spoke were 
initially unaware of how deep the devaluation for that sector 
had been.  When Econoff commented on the devaluation to 
Gono,s advisor Millicent Mombeshora, she smiled and said, 
"we don,t talk about ounces of gold here."  The different 
measures are designed to make it difficult for local 
commentators compare local and international gold prices, 
obscuring the inherent exchange rate. 
 
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No New Diaspora Rate 
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3. (C) Other than disclosing this new support price for gold, 
Gono,s fifth address was uneventful.  It was the first time 
Gono spoke to the nation without raising the Disapora rate ) 
the price that the RBZ buys dollars from non-exporters - 
which is currently Z$ 6200:US$.  Most parallel market trading 
took place in the Z$9,000-10,000:US$ range last week, 
according to our industry sources.  The Reserve Bank Governor 
set ambitious goals of US$ 3.1 billion exports in 2005 and 
US$ 4 billion in 2006, up from this year,s US$ 1.7 billion 
and reminiscent of mid-1990s levels.  In follow-up remarks to 
the diplomatic community on Jan. 27, Gono confided that he 
wanted a devaluation to stimulate all exports, but was 
constrained by political pressures for now. 
 
4. (C) In his address, Gono acknowledged that the GOZ 
violated bilateral investment agreements in its seizure of 
some foreign-owned properties during fast-track land reform. 
He insisted the GOZ would "examine individual cases of . . . 
violations beginning this year, with a view to redressing 
anomalies found."  (N.B., while the GOZ has expropriated 
seven Amcit properties without due process or compensation, 
the U.S. and Zimbabwe do not have a bilateral investment 
agreement.)  In remarks to diplomats a day later, Gono said 
that "fast track land reform is over" and that the GOZ would 
now have "zero tolerance for disruptive activities on land." 
 
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Comment 
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5. (C) Gono's declared policy goals are inherently 
contradictory - he cannot simultaneously maintain an 
artificially strong zimdollar (as his principal tool for 
curbing inflation) and stimulate export growth.  He has been 
signaling for some time that after elections - now set for 
March 31 - the exchange rate will be eased.  It is difficult 
to judge whether Gono's announcement of fast track land 
reform's end to the diplomatic community is authoritative. 
Land reform is outside his nominal portfolio, but Gono is 
increasingly seen as the de facto prime minister.  What is 
clear is that Gono recognizes that the GOZ needs to refurbish 
its credentials on respecting property rights and 
international accords, if it is to have any hope of 
attracting FDI in the future. 
DELL