Biti buries Zimbabwe dollar

Finance Minister Tendai Biti demonetised the Zimbabwe dollar in his mid-year budget for 2009 and said he would buy all balances held by the financial sector for an estimated US$6 million.

The minister said he was “putting a tombstone on the grave of the Zimbabwe dollar”.

He also increased the budget from US$1 billion to US$1.361 billion and suspended duty on capital goods and pure raw materials in an effort to boost production.

Biti said the government was phasing out allowances for civil servants and was now paying them salaries.

Full cable:

Viewing cable 09HARARE596, ZIM NOTES 07-17-2009

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UNCLAS SECTION 01 OF 03 HARARE 000596

AF/S FOR B. WALCH

ADDIS ABABA FOR USAU

ADDIS ABABA FOR ACSS

NSC FOR SENIOR AFRICA DIRECTOR

STATE PASS TO USAID FOR L.DOBBINS AND J. HARMON

COMMERCE FOR ROBERT TELCHIN

SIPDIS

E.O.12958: N/A

TAGS: PGOV PREL ASEC PHUM ECON ZI

SUBJECT: ZIM NOTES 07-17-2009

———–

¶1. SUMMARY

———–

Topics of the week:

– Constitutional Process Stumbles On…

– MDC-T MP Suspended from Parliament…

– ZANU-PF Ministers Implicated in Poaching Scandal…

– Finance Minister Discusses Chiadzwa in Fiscal Assessment…

– Top Security Chiefs Sued Over Abductions…

– Budget Raised in Mid-Term Review…

– Biti Unveils Measures to Increase Production…

– Concessions Made to Strengthen Banking Sector…

– Government to Sell Portion of Air Zimbabwe…

– Indian Firm Invests in Ginnery and Oil Refinery…

—————————–

On the Political/Social Front

——————————

¶2. Constitutional Process Stumbles On… The two-day All

Stakeholder’s Conference concluded successfully on July 14 after

getting off to a rocky start the day before when riot police were

called in to assert control following a disturbance caused by

ZANU-PF youth groups and orchestrated by President Mugabe’s nephew

and ZANU-PF MP Patrick Zhuwao, Youth Minister Saviour Kasukuwere,

and war veteran leader Joseph Chinotimba. MDC activist Patrick

Danga was arrested by the police while restraining Zhuwao and is

still detained at Harare Central police station. Despite the

chaotic events, the constitutional process remains on track. The

Conference may have been salvaged by a warning issued by Prime

Minister Tsvangirai to President Mugabe that the MDC would consider

pulling out of the inclusive government if ZANU-PF sabotaged the

path towards a new Constitution. See Harare 588.

¶3. MDC-T MP Suspended from Parliament… Zimbabwe’s Parliament has

suspended an MDC-T legislator from the House of Assembly after he

received a 10-month prison sentence for allegedly obstructing

justice. Mathias Matewu Mlambo from Chipinge West was issued a

letter by the long-tenured and ZANU-PF-aligned Clerk of Parliament,

Austin Zvoma, informing him not to attend Parliament nor execute any

of his official duties. Under Zimbabwean law sitting MPs do not

lose their functional authorities upon conviction if their case is

on appeal; however, by not providing the Clerk with proof of his

appeal, Mlambo opened the door to his suspension. The Speaker of

Parliament is confident his office can overrule the suspension.

Mlambo is one of three MDC-T MPs who are appealing convictions the

party believes are trumped-up and politically motivated. See Harare

¶585.

¶4. ZANU-PF Ministers Implicated in Poaching Scandal… Defense

Minister Emmerson Mnangagwa and Minister of Media and Information

Webster Shamu were implicated in a poaching operation by a Chinese

national who was caught with six rhino horns at a police roadblock.

Press reports indicated that the two government ministers run their

poaching operations from HKK Safaris, a conservancy Shamu co-owns

with South African businessman, Charles Davy. MDC efforts to

inquire into the case revealed that the police superintendent who

was in charge of the investigation had been transferred from his

Qwas in charge of the investigation had been transferred from his

posting at Bulawayo Central police station to a rural outpost in

Mashonaland Central province.

¶5. Finance Minister Discusses Chiadzwa in Fiscal Assessment…

Minister of Finance, Tendai Biti (MDC-T) briefly touched on the

topic of Chiadzwa diamonds while addressing the mining sector in his

fiscal address to Parliament on July 17. Biti said that the

government would comply with all of the recent Kimberley Process

Certification Scheme (KPCS) recommendations to avoid suspension. He

also share that Mines Minister Obert Mpofu had sent the KP a letter

HARARE 00000596 002 OF 003

confirming their commitment to compliance. Foremost among the KPCS

recommendations was the elimination of military control over the

area.

¶6. Top Security Chiefs Sued Over Abductions… Zimbabwean

political activists and a journalist abducted last year by State

agents are suing two Cabinet ministers and a handful of security

chiefs in Zimbabwe’s High Court for a combined US$19.2 million in

damages. The lawsuit charges that they were unlawfully abducted,

detained and deprived of their liberty. The 15 plaintiffs are

demanding US$1.2 million each. The suit seeks compensation from the

co-Ministers of Home Affairs, Kembo Mohadi and Giles Mutsekwa,

Justice Minister Patrick Chinamasa, then Security Minister Didymus

Mutasa, Police Commissioner-General Augustine Chihuri, Prisons

Commissioner Paradzai Zimondi, and Central Intelligence Organization

Director-General Happyton Bonyongwe.

———————————–

On the Economic and Business Front

———————————-

¶7. Budget Raised in Mid-Term Review… Finance Minister Tendai

Biti, revised upwards the 2009 Budget from US$1 billion to US$1.361

billion primarily due to an expected increase in unconfirmed donor

support. He announced that the majority of these funds will go

towards raising civil servant salaries. Consequently, later this

month civil servants will begin receiving salaries in lieu of the

US$100 monthly allowances they began getting in March. While

expected to be higher than the allowances, average salary figures

were not announced. The Zimbabwe Independent newspaper, estimated

that the average salary might only amount to US$140 per month. The

GOZ also expects to be able to trim payroll numbers by carrying out

an audit intended to eliminate “ghost workers”.

¶8. Biti Unveils Measures to Increase Production… In a move

designed to increase capacity utilization, Biti suspended import

duties on capital goods and pure raw materials and cut those on

intermediate goods from 15 to 10 percent. He also removed import

duties on fuel, replacing it with an excise duty of US20 cents and

US16 cents per liter for petrol and diesel. He alluded to

additional tax changes that will be announced in the 2010 Budget

Statement due at the end of November 2009.

¶9. Concessions Made to Strengthen Banking Sector… In an effort

to improve market liquidity, Biti scrapped the five percent tax on

bank profits and promised to review a possible cut of the current 10

percent bank reserve requirement. He also proposed to de-monetize

the Zimbabwe dollar by purchasing all balances held with the

financial sector at an estimated cost of US$6 million. This will

effectively put an end to the use of the Zimbabwe dollar as money,

or in Biti’s words, “putting a tombstone on the grave of the

Zimbabwe dollar.”

¶10. Government to Sell Portion of Air Zimbabwe… The Financial

Gazette (July 16, 2009) reports that the GOZ is planning to sell 60

percent of the national airline for an estimated US$750 million to

Qpercent of the national airline for an estimated US$750 million to

an un-named private operator. If the deal goes through, the money

will be used to replenish Air Zimbabwe’s depleted fleet. (Comment:

The loss-making airline does not have the assets to justify even a

fraction of this purported valuation.)

¶11. Indian Firm Invests in Ginnery and Oil Refinery… An Indian

firm has invested US$4 million into a ginnery and oil refinery

factory in Glendale, 40 km north of Harare. According to the

managing director, the firm will operate at 50 percent capacity and

will manufacture 500,000 liters of cooking oil by year end. The

ginnery plant is already operational at a rate of 60 tons of lint a

day.

—————–

HARARE 00000596 003 OF 003

Quote of the Week

—————–

¶12. “We are doing what we did in June, winning.” “We are doing

away with the Prime Minister.” “Zimbabwe is liberated with blood.”

– Slogans chanted by ZANU-PF youth and war veterans during the chaos

of the first day of the All-Stakeholder’s Conference on July 13.

DHANANI

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