After Finance Minister Herbert Murerwa’s vacuous 2004 budget speech, everyone was now waiting for the government’s new point man, central bank governor Gideon Gono to map the way forward for the country.
The most pressing issue was an overvalued official exchange rate which was seven-times stronger than the market rate coupled with a government clampdown on parallel trading.
This was depressing the country’s export sector; driving parastatals ever deeper into debt by compelling them to charge unrealistically low prices pegged to the official exchange for everything from international phone calls to electricity; and making it increasingly risky for firms to import necessary inputs, especially fuel.
Reports said Murerwa had decided to devalue the local currency from Z$824 to Z$3 800 to the greenback against a market rate of Z$5 900 but was forced to withdraw this two days before the budget by hardliners within the government.
Full cable:
Viewing cable 03HARARE2302, Gono will speak on Dec 17
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This record is a partial extract of the original cable. The full text of the original cable is not available.
260900Z Nov 03
UNCLAS HARARE 002302
SIPDIS
SENSITIVE
STATE FOR AF/S
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER
USDOC FOR 2037 DIEMOND
TREASURY FOR OREN WYCHE-SHAW
PASS USTR FLORIZELLE LISER
STATE PASS USAID FOR MARJORIE COPSON
¶E. O. 12958: N/A
SUBJECT: Gono will speak on Dec 17
Ref: Harare 2284
¶1. (U) Summary: Zimbabwe’s business community eagerly
awaits incoming Reserve Bank (RBZ) Governor Gideon Gono’s
first policy statement, now scheduled for December 17.
Most critical is where Gono comes down on currency
markets. End Summary.
¶2. (U) After Finance Minister Herbert Murerwa’s vacuous
budget speech (ref), the GOZ’s traditional medium for
economic strategy, policymaking authority is shifting to
the new RBZ chief. While Zimbabwe faces numerous policy
crossroads, none is more pressing in the economic sphere
than the exchange rate. An overvalued official rate (7-
times stronger than the market rate) coupled with a GOZ
clampdown on parallel trading are: a) depressing
Zimbabwe’s export sector, b) driving parastatals ever
deeper into debt (by compelling them to charge
unrealistically low prices pegged to the official
exchange for everything from international phone calls to
electricity) and c) making it increasingly risky for
firms to import necessary inputs (especially fuel).
¶3. (SBU) The GOZ can solve its overvalued currency
problem either by devaluing or officially sanctioning the
parallel market. Either course of action offers few
downsides. However, the exchange rate has become a line-
in-the-sand issue for many GOZ hardliners. The Embassy
has learned that Murerwa’s draft contained an official
devaluation from Z$824 to 3,800:US$1 (market rate is
Z$5900:US$1) until November 18, two days before the
speech. At that point, hardliners convinced Mugabe to
strike it. These advisers continue to believe the GOZ
can police the parallel market out of existence. They
propose the RBZ impose new controls on export processing
zones, tourism operators, foreign currency accounts and
remissions.
Comment
——-
¶4. (SBU) Without doubt, Gono is in the hot seat. If
nothing is done, the 7-fold disparity between official
and parallel exchange rates will soon widen, causing
businesses to further cut operations or stray into
illegal activity.
Sullivan
(41 VIEWS)
