US embassy cable - 02HARARE2747

UNCLAS HARARE 002747 
 
SIPDIS 
 
STATE FOR AF/S 
NSC FOR SENIOR AFRICA DIRECTOR J FRAZER 
USDOC FOR 2037 DIEMOND 
PASS USTR ROSA WHITAKER 
TREASURY FOR ED BARBER AND C WILKINSON 
USAID FOR MARJORIE COPSON 
PARIS FOR R BOUHAKER 
CHARLESTON FOR D SIMMONS 
AF/EX BUD 
 
E. O. 12958: N/A 
TAGS: ECON, EPET, EFIN, ETRD, ZI 
SUBJECT: Govt shuts bureaux de change 
 
 
1. Summary: Hundreds of bureaux de change have closed 
their doors as part of a GoZ strategy to kill the 
parallel currency market.  Many bureaux are moving to 
more discreet locations, while several banks continue to 
exchange money at parallel rates.  End Summary. 
 
"Talking down" the dollar 
------------------------- 
2. As part of its 2003 budget plan, the GoZ ordered 
bureaux to cease operations on Saturday.  The GoZ is 
trying to solve its acute foreign exchange crisis by 
eliminating the parallel market, where the current rate 
of Z$ 1580: US$ 1 is nearly 30-fold the official rate of 
55:1. However, this is an attack on psychological rather 
than fundamental grounds, with the GoZ "talking down" the 
rate.  The official media claim the street price has 
fallen to 600:1, though our quick check of local prices 
indicated rates around 1600-1700:1, a drop of 10-15 
percent from the highs of 3 weeks ago.  The USG has most 
recently purchased Zimdollars at a rate of 1580:1 in 
parallel markets abroad. 
 
3. A local source tells us street-side bureaux are 
relocating to less obvious venues, mostly tucked away in 
office buildings.  Fearing reprisals, foreign banks such 
as Barclays are no longer exchanging at parallel rates. 
On the other hand, indigenous banks continue to process 
these ostensibly illegal transactions. Ironically, the 
GoZ has made no effort to close down Western Union, whose 
local clients receive US$ 4 million in monthly remissions 
in U.S. notes from relatives living abroad.  Presumably, 
the GoZ realizes that these recipients of U.S. dollars in 
cash are not purchasing Zimdollars at 55:1. 
 
Comment 
------- 
4. Obviously, the GoZ cannot destroy a parallel market 
that is supported by macroeconomic fundamentals and 
expectations.  For the present, however, the GoZ has 
succeeded in raising enough doubts that it can kill the 
parallel market to shore up the Zimdollar's value by at 
least 15 percent.  (The U.S. dollar's dip may also 
reflect a correction of temporary overshoot, since the 
greenback has doubled in value in about 2 months, 
arguably appreciating faster than fundamentals would 
dictate.)  Until Zimbabwe addresses its loose money 
supply, negative GDP growth and high inflation rate, we 
expect fundamentals to eventually send the Zimdollar to 
new depths. 
 
Sullivan