Biti and Gono tussle over vouchers

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:

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RUEATRS/DEPT OF TREASURY WASHDC

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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

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E.O. 12958: DECL: 03/04/2019

TAGS: EFIN ECON PGOV ZI

SUBJECT: ZIMBABWE COMMITTED TO U.S. DOLLARS FOR CIVIL

SERVICE

Classified By: Ambassador James D. McGee for reason 1.4 (d)

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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

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