US embassy cable - 05HARARE977

C O N F I D E N T I A L SECTION 01 OF 02 HARARE 000977 
 
SIPDIS 
 
SENSITIVE 
 
AF FOR DAS T. WOODS 
AF/S FOR B. NEULING 
OVP FOR NULAND 
NSC FOR DNSA ABRAMS, SENIOR AFRICA DIRECTOR C. COURVILLE 
STATE PASS TO USAID FOR MARJORIE COPSON 
USDOC FOR ROBERT TELCHIN 
TREASURY FOR OREN WYCHE-SHAW 
PASS USTR FOR FLORIZELLE LISER 
 
E.O. 12958: DECL: 12/31/2010 
TAGS: PGOV, PREL, EINV, ZI, Economic Policy, Economic Situation 
SUBJECT: BUSINESS LEADERS PLEAD FOR IMF LENIENCY 
 
 
Classified By: Charge d' Affaires a.i. under Section 1.4 b/d 
 
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Summary 
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1. (C) At a meeting with the CDA on July 13, Congress of 
Zimbabwean Industries (CZI) President Patison Sithole, CZI 
immediate past president Kumbirayi Katsande, and Chamber of 
Mines of Zimbabwe President Jack Murehwa urged that the USG 
not support IMF expulsion of Zimbabwe.  They expressed 
concern that expulsion would have disastrous economic 
consequences.  The CDA responded that the goal was to get the 
GOZ to adopt sound economic policies and that in that regard 
there were arguments in favor of expulsion.  Moreover, the 
GOZ discounted the importance of the IMF and might choose to 
withdraw voluntarily.  He suggested that the businessmen also 
make clear to the GOZ their concern over the effects of a 
rupture in GOZ relations with the IMF.  The three businessmen 
expressed confidence in Reserve Bank of Zimbabwe (RBZ) 
Governor Gideon Gono while acknowledging that he worked 
within strict political constraints, and suggested that 
fiscal discipline, a floating exchange rate, good relations 
with the IFIs, and a positive investment climate were the key 
reforms the GOZ needed to undertake to restore Zimbabwe,s 
economy.  End Summary. 
 
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Zimbabwe Expulsion Disastrous 
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2. (C) Speaking for the group (including the Zimbabwe Chamber 
of Commerce, the representative for which was unable to 
attend), Sithole told the CDA that expulsion from the IMF 
would be disastrous, inducing even greater capital flight and 
accelerating the exodus of Zimbabwe's best and brightest. 
Katsande added that the GOZ would likely tighten its grip on 
the economy in reaction to expulsion.  Murehwa voiced his 
concern that industry and commerce interests were not 
adequately considered in the calculus over IMF expulsion, 
even though their interests were severely affected.  To that 
end, Sithole added, the three men had also scheduled meetings 
with the British and South African Embassies and EU Mission 
in Harare. 
 
3. (C) The CDA responded that the USG understood their 
concerns and was sympathetic.  However, the central challenge 
was how to get the GOZ to make the right policy choices and 
in that regard there were legitimate arguments to be made in 
favor of expulsion.  The CDA noted that the bar to expulsion 
was quite high and said it was quite conceivable that the GOZ 
would respond to a recommendation to expel by voluntarily 
withdrawing from the IMF.  He recommended that the business 
community also approach government officials and also make 
clear to them that expulsion or withdrawal would have 
disastrous consequences, something he doubted many in the GOZ 
besides Gono believed to be true. 
 
4. (C) Katsande noted that business leaders played a key role 
a few years ago in preventing the GOZ from going down that 
very road.  Sithole and Murehwa agreed that they needed to 
lobby their own government about prospective IMF expulsion 
and its consequences.  Katsande stated that Gono would be the 
natural conduit for business to influence the GOZ, especially 
with the lack of leadership from the Ministers of Finance, 
Economic Development, and Industry and Trade.  The CDA 
suggested that Gono's influence appeared to have waned and 
that motivating other players could be potentially useful. 
Sithole said that a meeting with Joyce Mujuru might be 
appropriate. 
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Confidence in Gono Despite General Economic Decline 
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5. (C) Sithole stated that Gono was doing his best under 
strict political constraints, citing Gono,s ingenuity in 
getting an effective exchange rate of Z$13000/US$1 even 
though his political masters had not allowed a straight 
devaluation beyond Z$9000/US$1.  Gono remained the key 
advocate for economic reform; indeed, he stood practically 
alone in this regard.  Sithole emphasized that the 
international community could strengthen Gono,s hand by 
extending inducements and encouragements.  The CDA responded 
that the Embassy encouraged Gono in private meetings to 
pursue reforms and sensible policies.  However, we could not 
separate Gono from the rest of the GOZ; tangible shifts in 
the right direction by the GOZ would have to precede positive 
signals by the USG. 
 
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Private Sector Priorities 
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6. (C) CDA asked the businessmen what key reforms they would 
recommend Gono and the GOZ pursue.  In response, Katsande 
suggested that Gono's first priority should be to focus on 
fiscal discipline and accountability in GOZ spending.  For 
his part, Sithole said Gono should begin by floating the 
exchange rate and re-establish relationships with the IFIs. 
Murehwa agreed with Sithole, asserting that GOZ strategy of 
stimulating exports (and generating essential forex) through 
subsidies and domestic price supports would fail as long as 
the exchange rate regime was fundamentally flawed.  They all 
agreed that restoring an overall positive investment climate 
was crucial for recovery. 
 
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Comment 
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7. (C) Mugabe's well-known low regard for the IMF makes it 
highly unlikely that the GOZ would initiate any policy 
reforms necessary for the IMF to re-engage meaningfully as 
long as he remains in charge, whether Zimbabwe is expelled or 
not.  Nonetheless, we are encouraged that private sector 
leaders, long submissive and co-opted by the ruling party, 
may be prepared to generate political pressure on the 
regime's completely moribund circle of economic 
policy-makers.  Their initiative - this is the first such 
approach to the diplomatic community since IMF expulsion came 
under discussion - is symptomatic of the beleaguered private 
sector's growing desperation here.  As to Gono, the three 
businessmen are probably overly optimistic in their 
assessment of his influence.  We see little evidence that he 
has rebounded since he reportedly tried to resign and issued 
his disappointing monetary policy statement in May. 
SCHULTZ