US embassy cable - 05PRETORIA2854

C O N F I D E N T I A L SECTION 01 OF 03 PRETORIA 002854 
 
SIPDIS 
 
DEPT FOR AF/S B. NEULING AND T. CRAIG, EB/IFD, EB/OMA 
LONDON, PARIS, BRUSSELS, ADDIS FOR AFRICA WATCHERS 
 
E.O. 12958: DECL: 07/18/2015 
TAGS: PREL, PHUM, ECON, EFIN, KDEM, ZI, SF 
SUBJECT: SOUTH AFRICA INTENSIFIES ENGAGEMENT IN ZIMBABWE; 
CONSIDERS BAILOUT LOAN 
 
REF: PRETORIA 2841 
 
Classified By: Charge d'Affaires John J. Hartley 
Reasons 1.4(b) and (d) 
 
1. (C) Summary.  Over the last ten days, South Africa has 
become increasingly concerned about the deteriorating 
economic situation in Zimbabwe and has intensified its 
diplomatic activity to find a solution to the crisis.  Deputy 
President Mlambo-Ngcuka traveled to Zimbabwe July 13 and met 
with Zimbabwean Vice President Mujuru and President Mugabe. 
Mugabe sent Reserve Bank head Gono to South Africa to 
follow-up and discuss a possible South Africa bailout loan to 
Zimbabwe.  South Africa is considering loaning Zimbabwe funds 
to pay creditors, including the IMF, hoping to use this loan 
as leverage for political and economic reform.  End summary. 
 
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Diplomatic Flurry and Church Pressure 
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2. (C) Following a period of relative inactivity after the 
March 31 Zimbabwean parliamentary elections, the South 
African Government (SAG) has significantly stepped up its 
diplomatic engagement in Zimbabwe: 
 
-- President Mbeki met with Zimbabwe opposition leader Morgan 
Tsvangirai of the Movement for Democratic Change (MDC) July 3 
 
SIPDIS 
in Pretoria.  Tsvangirai claimed publicly after the meeting 
that Mbeki was changing his strategy in Zimbabwe.  According 
to Tsvangirai, Mbeki admitted to him that "quiet diplomacy" 
had not worked. 
 
-- South African Deputy President Phumzile Mlambo-Ngcuka 
traveled to Zimbabwe with Deputy Finance Minister Jabu 
Moleketi July 13 and met with Zimbabwean Vice President Joyce 
Mujuru and President Robert Mugabe.  Mlambo-Ngcuka said she 
visited Harare to gain a "global understanding of the 
challenges" facing Zimbabwe.  According to Sydney Masamvu of 
the International Crisis Group, who spoke to Mujuru's husband 
Solomon, Mlambo-Ngcuka delivered a tough message to Vice 
President Mujuru, pushing for the resumption of dialogue with 
the MDC and the end to Operation Restore Order. 
 
-- President Mbeki met with a South African Council of 
Churches delegation July 15 to discuss the humanitarian 
situation in Zimbabwe.  SACC had organized a senior-level 
delegation to Zimbabwe July 10-12, led by the President of 
the SACC, Russel Botman, and Archbishop Njongonkulu Ndungane. 
 The delegation strongly condemned Operation Restore Order, 
saying that it has caused "widespread suffering to the most 
vulnerable people."  The SACC called on the operation to stop 
"in God's name."  According to Botman, Mbeki committed to 
supporting church humanitarian relief operations in Zimbabwe. 
 
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Possible Bailout Loan 
--------------------- 
 
3. (C) South Africa is considering loaning funds to Zimbabwe 
to stave off an economic collapse.  EconOff spoke with 
National Treasury Director for International Economics Danel 
van Rensburg (strictly protect) July 19, who confirmed that 
Zimbabwe asked South Africa for a $1 billion loan to make 
payments to the IMF, African Development Bank, World Bank, 
and Paris Club creditors, as well as to pay for food and fuel 
imports.  In the very near term, Zimbabwe is looking at 
making payments on its general resources account (GRA) and 
poverty reduction and growth facility (approximately $291 
million) at the IMF.  An IMF Board meeting will be held on 
August 3 during which management will request that Zimbabwe 
be expelled from the IMF.  According to van Rensburg, South 
Africa is concerned that once the IMF walks, all financial 
flows to Zimbabwe will stop, resulting in serious 
repercussions for South Africa if "things go really wrong;" 
for example, South Africa might have to set up refugee camps 
on the border.  President Mbeki and Finance Minister Manuel 
are lobbying to postpone the August 3 IMF decision for one 
month, to give them time to negotiate conditions with the 
Zimbabweans and for the Zimbabweans to "show good faith." 
Manuel reportedly called U.S. Treasury Secretary Snow, U.K. 
Chancellor Brown, and Canadian Finance Minister Goodale to 
make this pitch. 
 
4. (C) Van Rensburg confirmed that Manuel met with Zimbabwe 
Reserve Bank head Gideon Gono July 15, and that this was 
followed by a more technical meeting at the working level. 
(Note: ICG's Masamvu also talked to Gono, who said that 
Mugabe sent him to Pretoria as his envoy to discuss the terms 
of a possible loan.)  Loan discussions are still in the 
preliminary stage.  There is no agreement on the amount of 
the loan or on the conditions.  South Africa is looking at 
making a payment on the GRA of about $170 million to 
forestall the IMF expelling Zimbabwe, but South Africa wants 
more time to negotiate conditions.  According to van 
Rensburg, conditions at this point include very general 
issues such as ending Operation Restore Order, adherence to 
the rule of law, and protection of property rights.  Van 
Rensburg thought that there would be some economic conditions 
as well, e.g., dealing with price controls and ensuring the 
autonomy of the Zimbabwe Central Bank -- which may require a 
constitutional change.  The bailout would be extended as a 
loan, to be repayable with interest in tranches. 
 
5. (C) At this time, South Africa has no 
government-to-government loan with Zimbabwe.  The South 
Africa Reserve Bank has extended a line of credit to the 
Zimbabwe Central Bank, but this has never been used, although 
van Rensburg believes that Zimbabwe may have recently 
requested to use it.  Van Rensburg thought that Zimbabwe owed 
Eskom, the South Africa state electricity company, and South 
African petroleum companies about $200 million, but is not 
definite on the amount. 
 
6. (C) Senior SAG spokesman Joel Netshitenzhe said publicly 
July 18 that it was "quite possible" that recent discussions 
between the GOZ and SAG covered "assistance that Zimbabwe 
required."  Netshitenzhe said that principles guiding the 
possible loan would be Zimbabwe's economic recovery and 
political normalization.  He added that the decision to offer 
financial assistance to the GOZ must pass through Cabinet and 
Parliament.  The opposition Democratic Alliance criticized 
the possible loan to Zimbabwe, saying it was extending a 
lifeline to a dying regime. 
 
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Comment 
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7. (C) South Africa has apparently decided that it cannot 
stand on the sidelines as Zimbabwe's economy collapses.  For 
the last five years, Zimbabwe's decline has been a 
"predictable disaster" which the South Africans believed they 
could manage while seeking a political solution to the 
crisis.  In recent weeks the situation has become much less 
predictable.  This has led to the SAG's flurry of activity to 
find an economic and political solution to the crisis. 
"Containing" the situation in Zimbabwe so that it does not 
spill over into South Africa -- at least not too much -- has 
always been one of the prime motivations behind SAG policy. 
South Africa wants Mugabe gone, but through controlled 
constitutional change -- not economic implosion or a violent 
uprising. 
 
8. (C) It appears that a deal is in the works:  South Africa 
will provide a loan to Zimbabwe (and help stave off the IMF 
expulsion vote) in return for commitments on serious economic 
reform and dialogue with the MDC.  President Mbeki's call to 
the Charge July 18 urging that the U.S. react with caution to 
the forthcoming UN report on Operation Restore Order (reftel) 
suggests that he does not want the international response to 
the UN report to scuttle his plan.  In the SAG view, the 
potential loan deal has the twin benefits of staving off the 
economic collapse while reenergizing the dormant political 
talks on reforming the constitution. 
 
9. (C) The question is whether Mugabe will really stick to 
the agreement once South Africa has provided funds and helped 
bail him out with the IMF.  We note that the South Africans 
do not appear to have asked for a timetable for Mugabe's exit 
or a commitment not to run in 2008.  We also note that Mugabe 
is reportedly traveling to China July 23 (and may have sent 
feelers to Indonesia and/or Iran), possibly to request 
financial assistance as a counter to Pretoria.  Mugabe has 
consistently outplayed the South Africans, but this time 
Pretoria thinks it finally has the upper hand. 
HARTLEY