Banker says parastatals are a bottomless barrel

The head of consumer banking at Standard Chartered Ralph Watungwa said parastatals were a bottomless barrel so the announcement by central bank governor Gideon Gono that he would require them to hold their foreign currency with the Reserve Bank of Zimbabwe would not rein them in even if the RBZ could dip into those accounts to address other priorities such as paying the International Monetary Fund.

He said because corruption and parastatals implicated influential elites. Gono would be unable to meaningfully address either

Watungwa was commenting on Gono’s fourth quarter monetary policy statement for 2005 which was largely described as a non-event by the private sector.

Full cable:

Viewing cable 06HARARE96, ADVERSE REACTION TO GONO’S POLICY STATEMENT

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C O N F I D E N T I A L SECTION 01 OF 02 HARARE 000096

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TREASURY FOR J. RALYEA AND B. CUSHMAN

E.O. 12958: DECL: 12/31/2010

TAGS: PGOV PREL PHUM ZI

SUBJECT: ADVERSE REACTION TO GONO’S POLICY STATEMENT

Classified By: Ambassador Christopher Dell under Section 1.4 b/d

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Summary

——-

¶1. (C) Reaction to Reserve Bank (RBZ) Governor Gideon Gono’s

Monetary Policy Statement for the Fourth Quarter (details

septel) has been largely negative. The independent media

gave the most prominent coverage to Gono’s public reference

to the regime,s concern about public unrest over food

insecurity rather than his policy prescriptions. For its

part, the initial reaction from prominent businessmen was

largely dismissive, with one contact calling the speech a

&non-event.8 End Summary.

———————–

“Army Fears Food Riots”

———————–

¶2. (U) In covering the statement, the local independent

media seized principally on Gono’s startling disclosure on

national television that Defense Forces Chief Chiwenga had

confided to him concerns about civil unrest over food

shortages. Gono’s originally released statement noted only

that Chiwenga had warned him about Bob Marley’s dictum: “A

hungry man is an angry man.”   During his nationally

televised speech, however, he departed from the script and

elaborated that Chiwenga had told him that he did not want to

have to “turn our guns on hungry Zimbabweans” protesting food

shortages. The Independent weekly headlined its article on

the speech, “Army Fears food Riots” and, joined by other

local and regional news outlets, portrayed the disclosure as

betraying the regime’s deep anxieties that food shortages

could ignite civil unrest.

————————–

Private Sector Unimpressed

————————–

¶3. (C) As for Gono’s economic prescriptions, Lionel

Chinyamutangira, Head of Risk Management at NMB Bank, told

econoff that the policy statement was a “non-event.” Indeed,

even the state media could not elicit comments from the

private sector more positive than that Gono had “adequately

described the constraints we face.” Chinyamutangira

underscored that Gono’s anti-corruption and other rhetoric

were &familiar8 but that Gono had never been able to

deliver progress on issues that mattered, including official

corruption. He added that the exchange rate mechanism Gono

had announced had effectively removed official currency

trading from market forces and would make official trading

levels even thinner (septel).

¶4. (C) Economic analyst John Robertson told econoff that

Gono’s excuses for inflation – largely revolving around

exogenous factors such as oil prices, parallel market

activities, and drought/ag sector relief – were &a measure

of Gono,s lack of power and a frenzied effort to find others

to blame.8 In that vein, Ralph Watungwa, Head of Consumer

Banking at Standard Chartered, found telling the statement’s

attention to corruption and mismanagement of parastatals –

two issues that would break the budget. Watungwa gave Gono

credit for recognizing their importance but noted that in

fact Gono had very little control over them beyond moral

suasion. Special agricultural credit facilities, for

example, had long been lent at 20% interest with little

oversight and huge leakage into non-agricultural consumption.

He added that parastatals were proving to be a “bottomless

HARARE 00000096 002 OF 002

barrel;” requiring them to hold their Foreign Currency

Accounts at the RBZ would not rein them in, even if the RBZ

could dip into those accounts to address other priorities,

such as paying the IMF. Watungwa concluded that, in any

event, because corruption and parastatals implicated

influential elites, Gono would be unable to meaningfully

address either.

¶5. (C) Nonetheless, Watungwa expressed relief that the

statement wasn’t harsher. He noted, for example, that the

banking community had feared it would lose its ability to

allocate forex. At the same time, the new forex mechanism

wiped out any prospect of convergence between official and

parallel rates, further fueling the impetus for black

markets.

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Comment

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¶6. (C) Gono’s impromptu sharing of Chiwenga’s comment marks

a rare public admission of official concern about civil

unrest. The intent behind the disclosure is unclear and Gono

may yet regret it, as media reaction no doubt will pique the

regime and offer fodder to his enemies. Whether the risk of

civil unrest is real or not, his comment is bound to provoke

further tension and insecurity within an increasingly uneasy

regime. Moreover, it is yet another overt indication to

domestic and regional audiences that the regime is not as

secure as it tries to project. Coupled with the public’s

dismissal of Gono’s economic prescriptions, attention to

Chiwenga’ spotlighted comment underscores the extent to which

economic issues ) including food insecurity – may prove to

be the regime’s Achilles heel.

DELL

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