US embassy cable - 03HARARE542

UNCLAS HARARE 000542 
 
SIPDIS 
 
STATE FOR AF/S 
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: IMF Assesses Zimbabwe 
 
Ref: Harare 531 
 
1. Summary: Unless the GOZ augments its recent 
devaluation with additional reforms, a visiting 
International Monetary Fund delegation predicted the 
country will lose voting rights in June. End summary. 
 
2. Alongside World Bank observers, the IMF team concluded 
the annual "Article 4" review of the Zimbabwean economy 
on March 12.  Southern Africa Chief Doris Ross 
characterized Zimbabwe's recent devaluation as a "very 
big step forward."  She also said the IMF appreciated the 
GOZ's decision to begin "symbolic" payments of US$ 1.5 
million per quarter toward arrears.  At the same time, 
the team encountered "different degrees of enthusiasm 
within the Government" for reform.  The GOZ assured it, 
however, that cabinet will soon consider relaxing price 
and wage controls, proposals from the 
government/industry/labor Tripartite Negotiating Forum. 
 
3. Ross also recounted a familiar litany of economic 
distortions and challenges:  Real GDP off at least 30 
percent since 1998, inflation over 200 percent and 
arrears around US$ 1.5 billion.  Meanwhile, monetary 
policy remains wildly expansionary and negative interest 
rates are promoting excessive borrowing.  Unsurprisingly, 
the IMF suggested the GOZ tighten money supply, raise 
interest rates and ease price controls. 
 
IMF's next step 
--------------- 
4. The IMF already suspended technical assistance to 
Zimbabwe in June 2002.  It will vote on suspending voting 
rights this June, using the final Article 4 report and 
any further progress made in the next 3 months.  A 
negative vote would be the final step before full 
suspension from the lending body.  When pressed, the 
delegation speculated that the GOZ has not yet enacted 
sufficient reforms to survive the June vote. 
 
Comment 
------- 
5. Ross made every effort to strike a hopeful tone.  But, 
as we argued reftel, further reforms come at a higher 
political price. 
 
Sullivan