US embassy cable - 05PRETORIA2983

C O N F I D E N T I A L SECTION 01 OF 02 PRETORIA 002983 
 
SIPDIS 
 
DEPT FOR E, P, EB/IFD/TFORSYTHE 
ALSO AF/EPS, AF/S/BNEULING,KGAITHER 
AF/S PLEASE PASS TO AMBASSADOR FRAZER 
TREASURY FOR OIA/OAN/JRALYEA,BCUSHMAN 
 
E.O. 12958: DECL: 07/26/2015 
TAGS: EFIN, ECON, EAID, CH, ZI, SF 
SUBJECT: SOUTH AFRICA FORMULATES BAILOUT PLAN FOR ZIMBABWE 
 
REF: A. PRETORIA 2948 
     B. PRETORIA 2854 
     C. HARARE 1018 
     D. HARARE 1009 
 
Classified By: J. Jeff Hartley, Reasons: 12958 E.O. 1.4 (b) and (d) 
 
1. (C) Summary.  The South African Presidency, the National 
Treasury, the Reserve Bank (SARB), and the Department of 
Agriculture are key players in putting together the bailout 
plan for Zimbabwe.  The clear objective is to keep Zimbabwe 
from being expelled from the IMF.  The National Treasury is 
looking at making an initial outlay of about $100 million as 
a stopgap measure to help Zimbabwe with its arrears at the 
IMF.  The total loan from South Africa to Zimbabwe could 
amount to $500-600 million, to be paid out in tranches by the 
end of 2006.  The National Treasury has led in the 
formulation of economic conditions that are generally 
supportive of IMF Article IV recommendations, but not as 
specific.  They include initiating a market exchange rate, 
assuring independence for the central bank, and better 
management of the fiscal deficit.  The Presidency authored 
the following political conditions: freedom of speech, 
independent media, independent judiciary, electoral reform, 
and assurance of property rights.  The plan has not yet 
received South African ministerial approval.  In general 
discussions last week, the Zimbabweans seemed unwilling to 
take advice from South Africa on economic reforms.  The next 
South African-Zimbabwean ministerial should be within two 
weeks.  End Summary. 
 
2. (C) Deputy Director Rosalind Mowatt from the Office of 
International Economics at the National Treasury (please 
protect) told Econoff on July 26 that her office had been 
working continuously on the Zimbabwean loan bail out plan for 
more than week.  Besides the National Treasury, the 
Presidency, the Reserve Bank (SARB), and the Department of 
Agriculture were key players.  Mowatt said that Zimbabwe 
would have to agree to a long list of conditions.  The 
National Treasury led in the formulation of economic 
conditions, which were generally supportive of IMF Article IV 
recommendations, but not as specific.  They included 
initiating a market exchange rate, assuring independence for 
the central bank, and better management of the fiscal 
deficit.  The Presidency authored the following political 
conditions: freedom of speech, independent media, independent 
judiciary, electoral reform, and assurance of property 
rights.  The National Treasury's Director General has 
reviewed the plan, but Finance Minister Trevor Manuel has not 
yet signed off.  The Zimbabweans have not seen it.  Mowatt 
believed that a South African-Zimbabwean ministerial meeting 
would have to be arranged within the next two weeks.  The 
deadline for an approved, negotiated plan is the end of 
August, before the next IMF Board meeting. 
 
3. (C) South Africa's primary objective is to keep Zimbabwe 
from being expelled from the IMF.  The National Treasury is 
looking at making an initial outlay of about $100 million as 
a stopgap measure to help Zimbabwe with its IMF arrears (now 
over $290 million).  Around the time of the first tranche, 
the Presidency wants Zimbabwe to sign an international 
agreement and publicly commit to certain reforms, as a show 
of good faith.  South Africa would then extend a total loan 
amount of $500-600 million, to be paid out to Zimbabwe in 
tranches by the end of 2006.  Besides helping Zimbabwe with 
its arrears to the IMF and other multilateral institutions, 
some of the money would go for agricultural inputs and for 
food. 
 
4. (C) Mowatt thought there was quite a lot of activity 
taking place at the highest levels concerning the bailout, 
but was not clear what the thinking was.  As far as she knew, 
nothing had been discussed with the Zimbabweans so far.  The 
National Treasury had been talking to the IMF, particularly 
the Head of the African Department, Mr. Bio-Tchane. 
 
5. (C)  Mowatt said that in general discussions last week, 
the Zimbabweans were unwilling to take advice from South 
Africa on economic reforms.  They really believed in their 
alternative strategy, using monetary policy "in all sorts of 
strange ways."  For example, the Zimbabweans wanted funds for 
subsidies and credits to certain sectors.  They argued that 
they could bring inflation down to 30-40% without monetary 
reform, "which (was) not realistic," according to Mowatt. 
The fact that Mugabe took off to China did not appear to be 
helpful, and Mowatt wondered what the Zimbabweans would be 
able get from the Chinese; was Zimbabwe mortgaging away its 
resources? 
 
6. (C) Mowatt did not know when the next South African 
ministerial with the Zimbabweans would be, but believed that 
it had to be within two weeks.  The bailout package needed to 
be completed before September, in time for the next IMF board 
meeting. 
HARTLEY