US embassy cable - 03HARARE1130

C O N F I D E N T I A L SECTION 01 OF 03 HARARE 001130 
 
SIPDIS 
 
STATE FOR AF, AF/S, DRL, EB/IFD 
NSC FOR SENIOR DIRECTOR FRAZER 
STATE PASS USAID 
STATE PASS EXIM/OPIC 
 
E.O. 12958: DECL: 06/01/2005 
TAGS: EAID, PGOV, ECON, EFIN, KDEM, PHUM, PREL, SENV, SOCI, ZI, EXIM 
SUBJECT: AFTER MUGABE: POST RECOMMENDATIONS FOR A U.S. 
RESPONSE 
 
Classified By: Econchief William Weissman.  Reason: 1.5 (b/d). 
 
1. (c) Summary: While it is still uncertain whether President 
Robert Mugabe will depart in the next days or months, Post 
considers it prudent to offer policymakers "day after" 
recommendations at this stage.  Assuming a transition 
government is committed to political and economic reform, the 
U.S. should immediately assist with elections, humanitarian 
needs and infrastructure loan guarantees.  A transition 
government will not completely overcome the country's 
political divisions or recession, but it could lay the 
foundation for a viable democracy and market economy.  To 
accomplish this, we suggest the U.S. establish the legal 
groundwork for waiving the Brooke-Alexander Amendment and 
620(q) at the appropriate time. End Summary. 
 
2. (c) Of course, it matters not just that Mugabe goes, but 
who comes.  We do not recommend policy modification if Mugabe 
remains in power behind the scenes or if a transition 
government is headed by a "hard-liner" - at least until we 
discern which way the wind is blowing.  It is possible that 
such a government would entrench itself and further restrict 
liberties.  Even under a reformist government, we emphasize 
that there is no quick fix for Zimbabwe.  It may take a 
decade of healthly growth before the economy returns to 1997 
levels.  Health and education systems might not reach 
mid-1990s levels for a generation, if ever. 
 
Transition Headed by Bonafide Reformist 
--------------------------------------- 
3. (c) If, on the other hand, a reform-minded transition 
government comes to power, the U.S. has a role in assuring 
that the transition to a freely-elected government occurs and 
that essential political and economic reforms are begun.  In 
general, we could help steady Zimbabwe's first-ever political 
transition under very trying circumstances.  We could begin 
to rebuild a strained bilateral relationship and selectively 
lift travel and financial sanctions.  If appropriate, we 
could revise travel warnings that affect tourist inflows. 
Codel and high-level USG visits would also underscore our 
enthusiasm for a reforming Zimbabwe. 
 
Democracy Assistance 
-------------------- 
4. (c) More specifically, we could help the transition 
government's most pressing task - carrying out free and fair 
elections, our top Mission Performance Plan goal.  USAID 
should provide assistance and expertise to establish an 
Independent Electoral Commission.  In order to promote an 
environment in which candidates and parties can wage open and 
non-violent election campaigns, the GOZ will need to 
repeal/amend an existing body of repressive legislation, 
including the Public Order and Security Act, the Access to 
Information and Protection of Privacy Act, the Elections Act 
and the Media and Broadcasting Act.  As the new election 
approaches, USAID would fund the training and deployment of 
election observers, polling agents for political parties, 
transparent ballot boxes and computerized voter rolls.  We 
would also continue Voice of America and independent media 
support.  Using existing mechanisms such as National 
Democratic Institute, International Republican Institute and 
State University of New York/Albany, we estimate additional 
total cost at $7 million.  Some of these costs could be 
shared with other donors, although we think that USAID, NDI, 
IRI, and SUNY are in the best position to lead these 
activities. 
 
Humanitarian/Economic Assistance 
-------------------------------- 
5. (c) To begin the process of economic recovery, we would 
strongly encourage a reformist transition government to 
modify/remove macroeconomic distortions by: 
 
- adopting the Zimdollar's floating (parallel) rate for 
exporters 
- raising interest rates (currently over 150 percent 
negative) above inflation 
- eliminating universal fuel and electricity subsidies 
- reducing public borrowing and spending 
- curtailing price controls 
- disbanding the government's grain monopoly 
 
During the initial 6-12 month reform phase, we believe the 
Zimbabwean economy, currently shrinking by an annualized rate 
of 16 percent, will continue to recede.  Zimbabweans will 
suffer as the country moves from an interventionist to market 
economy, triggering acute humanitarian needs.  For that 
reason, we should supplement existing assistance efforts by 
immediately drawing  upon $250 million in PL 480 funds for 
additional urban and rural feeding programs, contingent on 
agricultural policy reforms.  From Disaster Assistance Funds, 
we suggest $6 million for water treatment/purification 
chemicals (covering approximately 6 months for Harare and 
Bulawayo), $20 million for seeds and other agricultural 
inputs, and $10 million for the national health system.  Of 
the $10 million, channeled through USAID and the Centers for 
Disease Control and Prevention, we would devote $5 million to 
essential drugs, supplies and equipment, $3 million to 
anti-retroviral therapy (ARV) sustaining between 3,000 and 
5,000 persons and $2 million to an integrated network of 
clinics for voluntary counseling and testing (VCT) and 
prevention of mother to child transmission (MTCT). 
 
Financial Assistance 
-------------------- 
6. (c) A caveat:  It is imperative the U.S. only provide 
financial support if the GOZ first moves aggressively to tear 
down the distortions cited above.  It is not in the U.S. 
interest to broadly subsidize fuel or electricity 
consumption.  For approximately a year, Libya's Tamoil 
infused over $300 million into Zimbabwe through fuel 
donations, perpetuating macroeconomic distortions and 
stunting growth.  The U.S. should not take over Libya's role, 
as Zimbabwean businesses and consumers need to come to terms 
with real-world tariffs.  After the elimination of these 
subsidies, however, the U.S. could assist the GOZ to finance 
public transport and minimum-use electricity for low-income 
households.  For this purpose, we propose an initial $60 
million for a half-year through the PL480 or 416(b) programs, 
generating local currency through monetized food programs. 
 
7. (c) In a reform environment, we also recommend OPIC and 
ExIm Bank consider loan guarantees for projects that promote 
U.S. exports and shore up Zimbabwe's dilapidated 
infrastructure (in spite of existing arrears - see next 
paragraph).  This could involve badly-needed rejuvenation of 
General Electric locomotives at the National Railway of 
Zimbabwe, Caterpillar machines at coal-miner Wankie Colliery 
and Boeing jets at Air Zimbabwe.  Furthermore, the country's 
participation in African Growth and Opportunity (AGOA) 
sessions as an observer (with full admission following free 
and fair elections) would allow Zimbabwean firms to plan a 
reentry into the U.S. market.  (Most U.S.-bound textile 
production here has migrated to AGOA countries.)   We should 
also explore possibilities for including Zimbabwe in free 
trade negotiations with the Southern Africa Customs Union. 
 
 
Funding Obstacles 
----------------- 
8. (c) The main obstacle to much of this support is the 
Brooke-Alexander Amendment and 620(q), legislation 
prohibiting assistance to the GOZ because of its default on 
official U.S. loans.  Overcoming Brooke-Alexander and 620(q) 
requires that the GOZ become current on outstanding debt to 
the U.S., or obtain a waiver.  GOZ arrearages on two ExIm 
Bank loans total about $17 million and on a USAID loan about 
$127,000.  Understandably, an incoming transition government 
would not make a priority of paying down the ExIm arrears. 
Thus, we recommend that the GOZ pay off the small USAID 
arrears and receive a waiver of the Brooke-Alexander and 
620(q) restrictions for the ExIm loan.  Additionally, we 
might wish to report to Congress on how changes in Zimbabwe 
impact upon Zimbabwe Democracy Act (ZDERA) implementation. 
Post suggests the U.S. undertake a comprehensive legal 
analysis of this option now and, for rapid response, have a 
strategy already in place as soon as Mugabe departs. 
 
Comment 
------- 
9. (c) We have outlined "day after" recommendations above. 
Following free and fair elections, the U.S. could do a great 
deal more.  We assume only a democratically-elected 
government will be able to tackle Zimbabwe's most daunting 
issues, such as rationalizing land reform, privatizing 
inefficient parastatals and restarting International Monetary 
Fund and WorldBank support.  At that point, the U.S. could 
reengage Zimbabwe across the spectrum - granting debt relief, 
redeploying the Peace Corps, offering AGOA membership, 
including the country in President Bush's HIV/AIDS 
initiative, restoring International Military Education and 
Training (IMET) and lifting all sanctions.  There will be 
ample time to plan for this during the transition phase. 
 
10. (c) While the above appears the most likely scenario, we 
would wish to be flexible in case the transition government 
is able and willing to undertake more thorough and 
comprehensive reforms.  (After all, it would likely be far 
easier to roll back land redistribution abuses with ZANU-PF 
collaboration than with ZANU-PF opposing such changes from 
the outside.)  In the event of a seriously reformist 
transition government, we would also wish to encourage 
agreement with the International Monetary Fund/WorldBank and 
to consider use of the U.S. Treasury Exchange Stabilization 
Fund as a bridge to an IMF loan. 
 
SULLIVAN