US embassy cable - 03HARARE852

UNCLAS HARARE 000852 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR AF/S 
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER 
USDOC FOR 2037 DIEMOND 
PASS USTR FLORIZELLE LISER 
TREASURY FOR ED BARBER AND C WILKINSON 
STATE PASS USAID FOR MARJORIE COPSON 
 
E. O. 12958: N/A 
TAGS: ECON, ETRD, EINV, PGOV, ZI 
SUBJECT: Haphazard Economic Reform 
 
 
1. (U) Summary: The GOZ's rigidly statist economic policy 
has metamorphosed into a hodgepodge approach since 
January.  Yet the Government still lacks commitment, 
consensus and leadership to see through broad economic 
liberalization. End Summary. 
 
The Low Point 
------------- 
2. (U) Last November 14 was 9/11 for Zimbabwe's business 
community.  Finance Minister Herbert Murerwa unveiled a 
breathtakingly interventionist budget that: 
 
- controlled almost every retail price, often below 
production cost. 
 
- reaffirmed the Grain Marketing Board (GMB)'s monopoly 
on maize. 
 
- taxed export revenue indirectly at over 90 percent. 
 
- made market-based currency trading illegal, shutting 
down hundreds of exchange agencies. 
 
The budget alleviated none of the country's gaping 
macroeconomic distortions.  Unable to secure a continued 
supply of nearly free fuel from Libya, Zimbabwe was 
marching rapidly toward economic meltdown by the year's 
end. 
 
3. (U) Since January, however, GOZ moderates have 
implemented a string of reform measures. The GOZ devalued 
its still arbitrary official exchange rate from Z$ 55 to 
824/US$, eliminated most indirect export taxes, reduced 
its fuel subsidy from around 88 to 25 percent and began 
to negotiate dollarized energy tariffs.  Last week the 
GOZ loosened the GMB's control, permitting the free 
barter of small maize quantities. 
 
Comment 
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4. (SBU) In spite of these overdue reforms, there is no 
hint of economic revival.  With the recent arrival of 
energy rationing, in fact, the economy has lurched closer 
to meltdown. 
 
5. (SBU) Why no progress despite a positive policy shift? 
First, reforms have been haphazard and narrow, probably 
reflecting conflicting views within a GOZ that still 
enforces unsustainable price controls and negative 
interest rates.  Second, the GOZ has made no effort to 
undo damage to the economy's infrastructure - i.e., rail 
transport, coal extraction, power generation, steel 
production, large-scale agriculture - so businesses now 
contend with costly inefficiencies.  Third, the private 
sector will not invest in an economy run by an unstable 
and bumbling Government.  For example, the GOZ is so 
inept at calculating revenue inflows that it raised the 
leaded fuel price from Z$ 74 to 450 without dedicating 
funds for the procurement of less-subsidized fuel, 
gaining nothing but an enraged population.  Even when 
trying, this GOZ does not appear up to the task of 
leading Zimbabwe down a reform path. 
 
Sullivan