Central bank governor Gideon Gono went all out in July 2005 to stop Zimbabwe’s expulsion from the International Monetary Fund saying this would be disastrous for the country.
He devalued the country’s currency by 62 percent and introduced several other measures aimed at liberalising the economy.
His deputy Nicholas Ncube said that Gono had finally won the hearts of the Zimbabwe African National Union-Patriotic Front leadership that they had no option but to adopt market oriented policies because of policy failures over the previous two months.
Zimbabwe needed US$2.4 billion a year for imports but exports amounted to only US$1.6 billion.
The reformers had also been helped by interventions from the other Southern African Development Community Countries led by South Africa, who feared that IMF expulsion would cause the region’s second-largest economy to implode.
Ncube also said Gono had accompanied President Robert Mugabe on a trip to China. He and Gono had asked the Chinese Mission to ask the Chinese government to use the visit to underscore China’s success with market-solutions.
Full cable:
Viewing cable 05HARARE1018, SURPRISING MONETARY POLICY STATEMENT SIGNALS
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This record is a partial extract of the original cable. The full text of the original cable is not available.
261303Z Jul 05
ACTION AF-00
INFO LOG-00 NP-00 AID-00 CIAE-00 INL-00 DODE-00 PERC-00
DS-00 EAP-00 EUR-00 FO-00 H-00 TEDE-00 INR-00
IO-00 LAB-01 L-00 NRC-00 NSAE-00 OES-00 OIC-00
OMB-00 NIMA-00 PA-00 MCC-00 GIWI-00 FMPC-00 SP-00
IRM-00 SSO-00 SS-00 EPAE-00 SCRS-00 DSCC-00 PRM-00
DRL-00 G-00 NFAT-00 SAS-00 SWCI-00 /001W
——————1BA60D 261353Z /38
FM AMEMBASSY HARARE
TO SECSTATE WASHDC PRIORITY 8657
INFO SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
AMEMBASSY ABUJA
AMEMBASSY ACCRA
AMEMBASSY ADDIS ABABA
AMEMBASSY DAKAR
AMEMBASSY KAMPALA
AMEMBASSY NAIROBI
AMEMBASSY PARIS
AMEMBASSY ROME
NSC WASHDC
USEU BRUSSELS
USMISSION USUN NEW YORK
C O N F I D E N T I A L HARARE 001018
SIPDIS
AF/S FOR B. NEULING
NSC FOR SENIOR AFRICA DIRECTOR C. COURVILLE
E.O. 12958: DECL: 12/31/2010
SUBJECT: SURPRISING MONETARY POLICY STATEMENT SIGNALS
GONO’S RESURGENCE
Classified By: Charge d’Affaires Eric T. Schultz under Section 1.4 b/d
¶1. (SBU) Summary: Reserve Bank Governor Gideon Gono’s
surprise monetary policy statement of July 21 announced a
substantial devaluation and an increase in interest rates
among other measures designed to arrest the country,s
economic decline. At his diplomatic briefing the next day,
Gono stressed that the GOZ was taking steps to head off IMF
expulsion, which he said would be a disaster for the people
of the country. His Deputy, Nick Ncube, told the CDA
privately on July 25 that the monetary statement signaled
Gono,s resurgent influence, as did the renewed emphasis on
IMF relations. End Summary.
———————-
Gono,s Public Address
———————-
¶2. (U) In a rambling public address, Gono appealed to the
nation to take a positive attitude toward the economy and to
“redouble efforts” to turn the economy around. The specific
measures he announced included:
— A 62 percent devaluation of the Zim Dollar from
Z$10,800:US$1 to Z$17500:US$1 (N.B. Gono removed the 25
percent bonus exchange rate for diplomats, NGOs and selected
others.)
— Increased interest rates for secured and unsecured loans
from 160 and 170 percent to 180 and 190 percent,
respectively.
— Liberalized export/import regulations by allowing holders
of Foreign Currency Accounts (FCAs) to retain 80 percent of
their export revenues and by relaxing the RBZ,s Import
Tracking Control System to allow for increased
“no-questions-asked” imports.
— Terminated the 5 percent loan interest rate guarantee for
exporters (the 20 percent credit facility in the agricultural
sector will remain), and the tobacco support prices
instituted in May.
— Increased the gold support price to Z$230,000/gram from
Z$175,000/gram, and the cotton support price to Z$5000/kg
from Z$3500/gram.
— Increased the required capital reserves for financial
institutions, including from Z$10 billion to Z$100 billion
for commercial banks.
— Allowed for the payment of fuel in foreign currency at the
rate of US$1/liter.
¶3. (U) Gono also estimated that inflation would fall to 80
percent per annum by December 2005 (without any explanation
as to how) and stated that food imports would continue to be
sufficient. He announced that the GOZ expected new
(unspecified) international lines of credit in the medium
term. He called upon the GOZ to issue 99-year leases to
farmers, sign new Bilateral Investment Protection Agreements
(BIPAS), and resolve disputes regarding old BIPAS. The
Governor urged further exploration into the mining resources
of Zimbabwe and specifically mentioned the possibility of
building a platinum-processing refinery. Finally, he also
called on the country to develop alternative sources of
energy and included in his appeal a call for Zimbabweans to
use bicycles in the interim to reduce the country,s
dependence on foreign oil.
————————
Diplomatically Speaking
————————
¶4. (SBU) During a July 22 briefing for diplomats, Gono said
preventing Zimbabwe,s expulsion from the IMF was a top
priority. Gono acknowledged that Zimbabwe was going through
difficult times but pleaded with the audience not to add
Zimbabwe to the list of African failed states by supporting
expulsion. Zimbabwean businessmen, who had been invited to
attend the briefing (a departure from past practice) echoed
Gono,s appeal. They noted that expulsion would fall
particularly on the average Zimbabwean. A Canadian diplomat
noted that the businessmen,s concern for the average
Zimbabwean would be more believable if business did something
to help the victims of Operation Restore Order.
¶5. (SBU) Gono said foreign missions’ salary payments to their
locally employed staffs in hard currency were an example of
Zimbabweans legally possessing hard currency that the RBZ
would like to obtain. To that end, the GOZ had decided to
allow petrol to be purchased in foreign currency, “no
questions asked.” (N.B. The RBZ is well aware that it will
take time to convince Zimbabweans that the GOZ can be trusted
with respect to hard currency payments.) In response to a
question from the British Ambassador, Gono also left open the
possibility of further “dollarization” of the economy.
———————————–
RBZ Deputy Says Gono on the Rebound
———————————–
¶6. (C) Ncube told the CDA that Gono’s monetary policy
statement was the result of a ¶digm shift8 within the
GOZ. The reformers and market-oriented policy makers, led by
Gono, had seen their influence rise once more as a result of
the policy failures of the past two months. Gono had been
hard pressed to get any devaluation at all in May but this
time secured a 62 percent devaluation with ease. Ncube
acknowledged that it was still not enough. Zimbabwe needed
$2.4 billion a year to finance its imports and was only
exporting $1.6 billion. There were few options for financing
this deficit other than further devaluations or further
dollarization.
¶7. (C) Ncube said one of the key changes was that the
reformers, with the help of the Zimbabwean business
community, had finally gotten through to the senior levels of
the government that IMF expulsion would be a disaster for the
country. The reformers had also been helped by interventions
from the other SADC countries, led by South Africa, who
feared that IMF expulsion would cause the region,s
second-largest economy to implode. In that regard, Ncube
said he had been involved in the loan negotiations with South
Africa, which he said were not yet finalized. He had seen
press reports speculating about SAG conditionality but had
not been a party to any of those discussions. Ncube added
that Gono and he were prepared for the worst but emphasized
the expulsion would weaken the reformers within the GOZ.
¶8. (C) Ncube said Gono had accompanied Mugabe on the
latter,s trip to China. The GOZ hoped to obtain financing
from China but the visit also had a strongly commercial
flavor. Ncube said one of the biggest obstacles he and Gono
had to overcome was the senior leadership,s suspicion of
market forces. Ncube confided that he and Gono had asked the
Chinese Mission to ask the Chinese government to use the
visit to underscore China,s success with market-solutions.
——–
Comment
——–
¶9. (C) Gono’s monetary policy statement took the business and
diplomatic communities somewhat by surprise. His last
statement was only two months ago, May 19, and was notable
for the hard line it took toward the informal market and
currency traders in particular. The May 19 statement was
followed almost immediately by the start of Operation Restore
Order. It may very well be that this statement will signal
an end to at least part of the operation, the crackdown on
the informal economy. Gono would like the international
community to believe that the crackdown was done over his
objections. We have our doubts but a resurgent Gono is
nonetheless good for Zimbabwe,s market forces.
SCHULTZ
NNNN
(30 VIEWS)
