US embassy cable - 03HARARE1339

UNCLAS SECTION 01 OF 02 HARARE 001339 
 
SIPDIS 
 
NAIROBI FOR CNEARY 
 
E.O. 12958: N/A 
TAGS: ECON, ETRD, ELTN, ZI 
SUBJECT: ZIMBABWE CASH CRUNCH TIGHTENS 
 
 
1.  Summary:  The shortage of local currency continues to 
worsen despite assurances by the Reserve Bank that more 
money is being printed. This, in addition to other 
widespread shortages in the country, has added to the burden 
of most Zimbabweans, who now need wads of low-denomination 
bills to procure basic necessities.  It is apparent that 
most people prefer to keep their cash at home to avoid the 
disappointment of not getting any at the bank or being 
restricted to amounts as little as Z $5,000 (US $2.12) per 
withdrawal.  End summary. 
 
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ILLEGAL TO CARRY LARGE AMOUNTS OF CASH 
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2.  In another Alice-Through-the-Looking-Glass application 
of the law, some policemen are arresting people and 
confiscating the money of those who are in possession of 
large amounts of local currency.  The police are arbitrarily 
demanding that people account for their money on mere 
suspicion that they could be involved in illegal 
transactions.  The police seem oblivious to the fact that 
the local currency has lost so much value that US $100 now 
exchanges for Z $235,000 -- and is often only available in 
$50 and $20 notes.  MP David Chapfika, the Chairman of the 
GOZ's Budget and Finance committee, was quoted stating 
"there is no need for anybody to be carrying huge stacks of 
money," and that all money belongs to the government anyway. 
We note for the record that the bank Chapfika once headed 
collapsed from insolvency in 2001. 
 
3.  The much-looked-for infusion of more than Z $2 billion 
in Z $500 notes, originally slated for the end of June, has 
not yet materialized despite GOZ-daily headlines to the 
contrary.  Commentators across the board note that the GOZ 
should be printing $1,000 (or even $5,000) notes.  Some 
reports indicate that a $1,000 note may be introduced by 
November 1.  Those reports also hint, however, that upon its 
introduction, all existing $500 notes must be converted 
within a prescribed time period, after which they will no 
longer be legal tender.  One local economist warns that if 
the GOZ limits the amount that an individual can convert (as 
has happened in other nations' banking catastrophes), the 
public stands to lose millions in capital while the GOZ 
stands to gain an immense windfall.  The possibilities for 
corruption under such a scenario boggle the imagination. 
 
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MOST TRANSACTIONS NOW ON CASH BASIS 
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4.  While a few banks use the availability of cash through 
their ATM machines as an incentive to account holders, even 
those sources have largely dried up.  Commercial bank ATMs 
which previously offered maximum withdrawals of up to Z 
$90,000 (US $38.30) have been empty for the past week. 
Further, many of those banks which provided large amounts of 
cash through ATMs are commercial banks which cater to an 
upscale clientele.  Due to structural differences such as 
transaction fees and minimum balances, most Zimbabweans hold 
accounts (and receive their paychecks) through building 
societies and the Post Office savings bank, which are more 
on a par with US homestead or savings & loan institutions. 
Unfortunately, it is these institutions --  which service 
the majority of the population -- that are struggling most 
with the cash shortage, since they have less access to cash 
than the commercial banks.  During the past few weeks, it is 
routine to see queues of several hundred people lined up at 
each building society branch by 6:00 am.  When the doors 
finally open at 8:00 am, the patrons are often limited to Z 
$5,000 to Z $10,000 (US $2.13 to $4.25) apiece. 
 
5.  Many businesses, including doctors and pharmacies, are 
now demanding cash instead of checks because of the 
downstream problems associated with withdrawing money from 
the banks.  More and more shops and restaurants display 
announcements that checks are not accepted.  Almost all fuel 
for individual motorists is now sold on the black market, 
and on a strictly cash basis.  Public transport -- whether 
through commuter omnibuses or ride-sharing with a helpful 
motorist with extra seats -- is available only to those with 
cash.  Commercial banks now request their clients to make 
prior arrangements to withdraw large amounts of cash, which 
may take days or weeks to process.  Traditionally, cash has 
become short at the end of the month as many employers 
process their payrolls on a monthly basis, with uniformed 
services drawing their pay first and civil servants last. 
At the end of the month, the queues grow longer, the cash 
supply becomes tighter, and the tempers of even normally 
placid Zimbabweans grow short. 
 
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COMMENT 
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6.  The burden of the cash shortage falls primarily on 
ordinary Zimbabweans, and disproportionately on those least 
able to afford it.  Many of the more affluent, including 
diplomats and other expatriates, are shielded to some 
degree, but even the Embassy's American employees are 
limited in the amount of cash they can obtain on a weekly 
basis.  This week's accommodation exchange through the 
Embassy was US $50; last week's was US $40 (which is still 
more than many Zimbabweans make in a month). While this 
constitutes an inconvenience for Embassy employees, many 
locals are making the hard decision between spending their 
scarce cash on healthcare, food, or transport.  It remains 
to be seen whether this situation is an aberration, rather 
than a new order of business, in the quagmire of the 
Zimbabwean economy. 
 
Sullivan