US embassy cable - 02HARARE1581

UNCLAS SECTION 01 OF 02 HARARE 001581 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR AF/S, AF/EX, HR/OE-MTRACY 
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER 
USDOC FOR 2037 DIEMOND 
LONDON FOR CGURNEY 
PARIS FOR NEARY 
NAIROBI FOR PFLAUMER 
PASS USTR - ROSA WHITAKER 
RIO FOR WEISSMAN 
TREASURY FOR ED BARBER AND C WILKINSON 
 
E.O. 12958: DECL: N/A 
TAGS: ECON, EFIN, ETRD, ZI 
SUBJECT: NEGATIVE FACTORS COMBINE TO DRASTICALLY DRAG 
DOWN THE ZIMBABWEAN ECONOMY 
 
REFTEL:  HARARE 1406 
 
1.  (SBU) A powerful and negative combination of 
factors is now causing significant damage to Zimbabwe's 
economy, and the country's political leadership refuses 
to take steps to address or reverse the crisis.  The 
more-evident ingredients of the disastrous mix are: 
 
= an unsustainable government deficit (in 2002 at least 
15 percent of GDP); 
= money supply growth in excess of 90 percent 
(annualized); 
= a spread between the official and parallel market 
forex rates of 7 to 10 times; 
= the dominance of the GOZ's instinctive Marxist 
reaction to exercise more market control rather than 
less; 
= resultant shortages or stockouts of price-controlled 
items such as salt, oil, sugar and bar soap; 
= the continuing decimation of the economy's foundation- 
-commercial agriculture; 
= a resultant food shortage exacerbated by a regional 
drought; 
= highly credible threats by the chief executive that 
lawless expropriation and theft will extend to the rest 
of the formal economy; 
= blame for the current ills shamelessly attributed to 
businesspersons and the model of Western capitalism; 
= and, all of the foregoing resulting in a 
geometrically reinforcing mix of high and climbing 
inflation and rapidly shrinking real GDP. 
 
2.  (SBU) With this occurring in real time outside the 
window, a cabinet meeting held on June 27 to address 
the economic crisis resulted only in outright rejection 
of steps advised by the Reserve Bank and the Finance 
Ministry.  (Though tightly held we have heard that 
these steps included: an official rate devaluation; 
recognition of the role of the parallel market and an 
admission of GOZ use of it; raising of interest rates 
to more realistic levels; a public and credible 
reversal of the order to commercial farmers to halt all 
activity; and the revision upward of controlled prices 
to at least breakeven levels.)  Rather than recognize 
the laws and tenets of the social science of economics, 
the cabinet blamed the two civil agencies for allowing 
market forces to wreak havoc on the GOZ agenda of the 
Third Chimurenga; where the economy is the land and the 
land the economy.  Neither had done enough to "control" 
the hard currency markets and flows, and insidious 
private companies with mostly white ownership were 
purposely sabotaging the economy under the very nose of 
the Ministry and the Bank by hoarding and profiteering 
-- with an intent to cause the populace to suffer to 
such an extent that they lose faith in the leadership 
and beneficence of the ruling ZANU-PF party.  Both were 
told to do more to stamp out the damaging forces of the 
open market, and not try to bring murungu (Shona for 
white or caucasian, and uttered by the President) 
solutions to an African environment. 
 
3.  (SBU) On the public relations side, all the GOZ has 
done is point the finger at business owners small and 
large, accusing them of putting greed and a lust for 
profits ahead of the interests of the nation and its 
people.  A food subsidiary of Anglo-American is accused 
by the President of hoarding salt and threatened with 
swift takeover, and legitimate businesses and black 
market profiteers are accused of forming an unholy 
alliance to stymie the GOZ's sensible and good price 
control regime.  "We are looking only after your 
interests," the people are told by the ruling party, 
"and we need your help to not allow the conspirators to 
thwart us."  In the meantime Zimbabwe's economy is 
tanking and the damage is becoming monumental. 
 
4.  (SBU) Comment: Zimbabwe's leadership seems 
determined to stay on the current disastrous path 
regardless of the harm done, as the President deems it 
to be necessary for his retention of power.  At this 
point it appears that there is no one that can or will 
convince him otherwise, either domestically or 
internationally.  End Comment. 
SULLIVAN