US embassy cable - 03HARARE347

UNCLAS HARARE 000347 
 
SIPDIS 
 
STATE FOR AF/S AND AF/EX 
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER 
USDOC FOR 2037 DIEMOND 
PASS USTR ROSA WHITAKER 
TREASURY FOR ED BARBER AND C WILKINSON 
STATE PASS USAID FOR MARJORIE COPSON 
 
E. O. 12958: N/A 
TAGS: ECON, EINV, ETRD, ZI 
SUBJECT: GOZ Announces Export Support Mechanism 
 
Ref: Harare 343 
 
1. Summary:  As previewed in reftel, the GOZ has 
announced a long-awaited support mechanism for exporters, 
which amounts to a targeted devaluation on export 
revenue.  This is welcome news for exporters, but it is 
unclear if forex-starved importers will be able to access 
U.S. dollars at the new 800:1 rate.  End Summary. 
 
2. Under the previous mechanism, exporters were required 
to exchange 50 percent of revenue at the official rate of 
55:1 and had to petition the Reserve Bank for access to 
the other 50 percent in hard currency.  (The market rate 
is currently around 1400:1.)  In many cases, the GOZ 
withheld over 95 percent of revenue.  Now exporters will 
exchange the first 50 percent at 800:1, receiving about 
15-times as many Zimdollars.  They will still have to 
petition for the second 50 percent within a 60-day 
period.  If the Reserve Bank grants them access to the 
second 50 percent, they will earn an effective blend rate 
of around 1100:1. 
 
3. After the GOZ announced its 2003 budget in November, 
most exporters halted production or exchanged forex 
earnings exclusively on the black market.  The new policy 
may induce some of them to restart operations and return 
to legality.  The Confederation of Zimbabwe Industries 
and a host of other organizations have lobbied the GOZ 
for export relief.  The new 800:1 rate replaces all 
previous rates, in particular those for tobacco and gold 
exports. 
 
Comment 
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4. In yesterday's announcement, the GOZ took a small step 
toward acknowledging macroeconomic reality and moving 
beyond its unsupported and preposterous official exchange 
rate of 55:1.  However, unresolved issues remain.  Most 
importantly, the GOZ has not disclosed whether it will 
sell U.S. dollars to importers at 800:1.  Given the 
present array of price controls, many are unable to 
import goods at market cost.  Furthermore, exporters will 
want to see whether the GOZ withholds their second 50 
percent of export revenue (deposited in the Reserve Bank 
foreign currency accounts), which could effectively 
deflate the blend rate from 1100 to 400:1.  Post will 
continue to track the impact of the devaluation and other 
measures noted in reftel. 
 
Sullivan