When the government introduced foreign currency vouchers to enable civil servants to buy goods from local shops rather than exchange them for cash at the formation of the inclusive government, Finance Minister quickly reversed the decision allowing people to cash them at banks because he wanted to stop central bank governor Gideon Gono from printing vouchers not backed by cash.
According to Wikileaks, Biti banned the vouchers only a month after they were introduced and ordered civil servants’ allowances to be deposited into their bank accounts, a move that forced banks to open foreign currency accounts for everyone.
John Mangudya, the managing director of the Commercial Bank of Zimbabwe, the bank that Gono managed before moving to the central bank, said Gono had intended the vouchers to be redeemed for goods because the central bank did not have enough foreign currency.
Biti changed all that because he wanted to curb Gono’s relevance.
Gono had literally been the country’s de facto Prime Minister before the formation of the inclusive government and he dictated what should be done.
He had also developed an appetite for printing money.
Full cable:
Viewing cable 09HARARE183, ZIMBABWE COMMITTED TO U.S. DOLLARS FOR CIVIL
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Reference ID |
Created |
Released |
Classification |
Origin |
VZCZCXRO9522
PP RUEHBZ RUEHDU RUEHMR RUEHRN
DE RUEHSB #0183/01 0631625
ZNY CCCCC ZZH
P 041625Z MAR 09
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC PRIORITY 4137
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHUJA/AMEMBASSY ABUJA 2217
RUEHAR/AMEMBASSY ACCRA 2674
RUEHDS/AMEMBASSY ADDIS ABABA 2795
RUEHBY/AMEMBASSY CANBERRA 2063
RUEHDK/AMEMBASSY DAKAR 2419
RUEHKM/AMEMBASSY KAMPALA 2843
RUEHNR/AMEMBASSY NAIROBI 5271
RUEAIIA/CIA WASHDC
RUEHGV/USMISSION GENEVA 1964
RHEHAAA/NSC WASHDC
RHMFISS/JOINT STAFF WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEFDIA/DIA WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RUZEHAA/CDR USEUCOM INTEL VAIHINGEN GE
C O N F I D E N T I A L SECTION 01 OF 04 HARARE 000183
SIPDIS
AF/S FOR B. WALCH
AF/EPS FOR ANN BREITER
NSC FOR SENIOR AFRICA DIRECTOR MICHELLE GAVIN
STATE PASS TO USAID FOR L.DOBBINS AND J. HARMON
TREASURY FOR D. PETERS
COMMERCE FOR ROBERT TELCHIN
ADDIS ABABA FOR USAU
ADDIS ABABA FOR ACSS
E.O. 12958: DECL: 03/04/2019
SUBJECT: ZIMBABWE COMMITTED TO U.S. DOLLARS FOR CIVIL
SERVICE
Classified By: Ambassador James D. McGee for reason 1.4 (d)
——-
SUMMARY
——-
¶1. (C) The pervasive dollarization of the Zimbabwe economy
and collapse of the Zimbabwe dollar drove the GOZ’s decision
to pay civil servant allowances in hard-currency vouchers
redeemable for goods. Potential abuse of the system by
Reserve Bank Governor Gono compelled Minister of Finance Biti
to subsequently drop vouchers and direct that allowances be
paid directly into government employees’ bank accounts
effective from March 2009, thus curbing Gono’s relevance
further in the new scheme of things. The sustainability of
the hard-currency allowances largely depends on the
availability of foreign exchange, which in turn depends on
export growth as donors take a wait-and-see approach. END
SUMMARY.
———————
The Birth of Vouchers
———————
¶2. (U) Following the 2009 Budget and th*?2,tQKOjcurrency-denominated salaries by civil servants and the
military, in view of pervasive dollarization of the economy
and the collapse of the Zimbabwe dollar as a transacting
currency.
——————–
CBZ at the Forefront
——————–
¶3. (SBU) John Mangudya, Managing Director of CBZ Bank and
President of the Bankers’ Association of Zimbabwe (BAZ), told
economic specialist on February 25 that CBZ had developed a
voucher system for its own clients in liaison with the
Reserve Bank and Innscor Group. The early CBZ vouchers were
redeemable in the form of goods from Innscor shops only.
Mangudya told us that CBZ had accessed the funds through
normal lines of credit from its international partners. He
said CBZ had issued 40,000 vouchers to soldiers when Finance
Minister Biti announced the introduction of a general voucher
system to cover all civil servant allowances for the month of
February. John Mushayavanhu, Managing Director of FBC Bank
Ltd and Vice President of the Bankers’ Association of
Zimbabwe, told uson March 2 that the Innscor vouchers had
been issued only to the armed forces. (COMMENT: In surveying
SPAR supermarkets last week we were struck by the large
number of uniformed forces redeeming vouchers at the till.
END COMMENT.)
¶4. (SBU) John Koumides, Director and former CEO of Innscor,
told econoff on March 2 that CBZ, on a one-off basis, had
backed US$5 million worth of US$100 vouchers redeemable only
at Innscor shops. He said that, as of February 25, only
US$70,000 worth of vouchers had been redeemed at
supermarkets–far fewer than Innscor had anticipated.
Qsupermarkets–far fewer than Innscor had anticipated.
(COMMENT: We believe that when the government later announced
that all vouchers were redeemable at banks, many of the
HARARE 00000183 002 OF 004
Innscor vouchers flowed to the banks rather than to
supermarkets, especially in light of the pressing need for
cash to pay school fees and utility bills in foreign
currency. END COMMENT.)
———————
Why Innscor, Why CBZ?
———————
¶5. (U) Innscor banks with CBZ, in addition to Barclays and
Standard Chartered Bank. CBZ is the bank of choice of most
civil servants, who make up roughly half of Zimbabwe’s
formally employed population. Further tightening the
association, Gideon Gono was CEO of CBZ Holdings Ltd prior to
becoming Governor of the RBZ. Innscor operates 14 corporate
SPAR supermarkets in Zimbabwe and has a franchise
relationship with 73 further SPAR supermarkets, in addition
to controlling 31 lower-end Savemor grocery stores in
high-density areas. Innscor has roughly the same number of
grocery outlets as its main competitors, TM Supermarkets and
OK, but only about half their floor space.
¶6. (SBU) Koumides told us that Innscor had a track record of
pursuing business more aggressively and &creatively8 than
TM or OK, most recently by developing a voucher system with
the RBZ and CBZ. He said TM and OK, on the other hand, were
skittish about falling out with the authorities, particularly
since the arrest of each of their chief executives at the
inception of price controls in 2007. Innscor hoped to win
market share from the competitors by entering into the
voucher agreement with the RBZ and CBZ.
————————-
The RBZ Not To Be Outdone
————————-
¶7. (SBU) Deputy Governor of the RBZ Nicholas Ncube told
economic specialist on February 24 that the RBZ had developed
its own version of US$100 vouchers payable to its staff as a
monthly allowance and redeemable, again, at Innscor shops.
(NOTE: We understand that RBZ employees have received some
allowances but no salaries since December, 2008. END NOTE.)
Ncube said RBZ staff could also redeem the vouchers for up to
US$40 cash per month. (COMMENT: The numbers indicate that
CBZ’s US$5 million line of credit could have been intended to
cover the payment of US$100 vouchers both to uniformed forces
and RBZ staff. END COMMENT.) By the time Biti declared that
the government would pay all civil servants a hard currency
allowance in the form of vouchers, two voucher systems were
already in operation.
——————————————— –
Finance Minister Biti Blocks Unbacked Vouchers
——————————————— –
¶8. (SBU) Mangudya told us that RBZ Governor Gono had intended
vouchers for civil servants to be redeemed only for goods at
select shops, as the RBZ did not have enough foreign exchange
to pay out. New Finance Minister, Tendai Biti, however,
Qto pay out. New Finance Minister, Tendai Biti, however,
changed the system to make February’s vouchers redeemable for
cash at banks. He also announced the termination of vouchers
after February, 2009. From March onward, he directed that
U.S. dollar denominated allowances, not salaries–civil
servants continue to be paid salaries in local currency–be
HARARE 00000183 003 OF 004
paid directly into civil servants’ foreign currency accounts
(FCAs). Mangudya told us banks must now open FCAs for
everyone wishing to redeem the February vouchers. Mangudya
believed that by terminating the voucher schemes Biti was
seeking to curb the RBZ’s ability to print vouchers not
backed by foreign exchange.
————————–
Where The Money Comes From
————————–
¶9. (SBU) Mangudya said the banks were using their daily
float from export receipts to pay out cash for vouchers. The
CBZ, for its part, acted as clearing house in reimbursing the
banks, and was itself reimbursed by the GOZ. Mangudya said
the Bankers Association of Zimbabwe had nominated CBZ as lead
bank in the voucher scheme because CBZ had pioneered voucher
use with Innscor. Mushayavanhu told us that banks were
importing cash from their Nostro accounts offshore to redeem
the vouchers. However, the banks had to balance out this new
short-term foreign currency need with their regular clients,
demands for foreign exchange from their FCAs. Mushayavanhu
predicted cash shortages in the near term. In fact, not all
banks have been able to pay out the full cash value of
vouchers. The Standard newspaper reported in its March 1-7,
2009 issue that at least three banks in Harare could not meet
the cash demand.
¶10. (SBU) In regard to the general voucher scheme for civil
servants announced by Biti and valid only for the month of
February, Mangudya said CBZ was getting foreign exchange to
redeem the coupons from the government’s tax revenues. He
told us the amounts involved were very small and manageable.
Tax revenue was sufficient for now to cover the ow-value
vouchers, and hard currency had begun to circulate smoothly,
according to Mangudya. Francis Macheka, Executive Director
of Agribank, told us that civil servants were paid out the
full face value of the vouchers while the banks earned a 2
percent commission from government. Our own informal survey,
however, revealed that not all civil servants had received
vouchers. No city council or water authority employees in
the Chinoyi/Karoi area of Mashonaland West, for example, had
received vouchers as of March 3, 2009. Going forward,
Macheka said the banks would get their income from normal
ledger fees and other transaction-related charges rather than
from commission charged to the government.
¶11. (SBU) Margireta Makuwaza, Director of Domestic and
International Finance at the Ministry of Finance, told us on
March 3 that allowances had been distributed in the form of
vouchers via ministries to about 260,000 government employees
in February, 2009. She said the government intended to start
Qin February, 2009. She said the government intended to start
paying U.S. dollar allowances to government pensioners, as
well, beginning in March. The amounts had not yet been
finalized. In the meantime, civil servant salaries will
continue to be paid in local currency. She said the GOZ
expected the Zimbabwe dollar to eventually stabilize, which
would allow the government to end foreign exchange allowances.
¶12. (SBU) At least one press report maintained that vouchers
had been distributed to ZANU-PF members who were not civil
servants. Asked about possible abuse, Mrs. Makuwaza told us
it was too early to determine whether any abuse had in fact
occurred in the distribution and redemption of vouchers.
HARARE 00000183 004 OF 004
——-
COMMENT
——-
:QQ presses. He could have printed vouchers
well above the available foreign exchange reserves, thereby
pushing U.S. dollar prices up substantially. By closing down
the voucher system, Finance Minister Biti once again curbed
Gono’s relevance in the new scheme of things.
¶14. (C) Biti’s commitment to continuing to pay civil servants
(and starting in March pensioners, too) a hard currency
allowance adds pressure on the new government to raise
foreign exchange. There are early indications of rising tax
revenues, but, in the short-term at least, until donor
support materializes, the government desperately needs to
direct every effort toward increasing exports to keep the
system sustainable. In the meantime, with nearly all
everyday expenses hard-currency denominated, government
employees are nearly as mired in poverty as ever as they seek
to make ends meet on US$100/month. END COMMENT.
MCGEE
(144 VIEWS)
