Although Zimbabwe’s economy had progressed tremendously in the first seven months of 2009 with revenue increasing from US$4 million in January to US$90 million in July, Finance Minister Tendai Biti told a United States treasury official Andy Baukol that Zimbabwe was still a failed state.
“We have no fiscal space,” he said.
Biti said the country was not receiving any foreign direct investment. Electricity production met only 20 percent of demand. And lines of credit for business had dried up.
He said support that Zimbabwe had received from the International Monetary Fund was the best thing that had happened during his tenure as finance minister.
“They have been a joy to work with.”
Viewing cable 09HARARE670, BITI PRAISES IMF, LAMENTS LACK OF “FISCAL SPACE”
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SUBJECT: BITI PRAISES IMF, LAMENTS LACK OF “FISCAL SPACE”
Classified By: CDA Katherine Dhanani for reason 1.4 (b) (d)
¶1. (C) SUMMARY: Finance Minister Tendai Biti told Acting
Treasury A/S Baukol on August 3 that Zimbabwe showed signs of
macroeconomic stabilization but still faced serious problems.
Biti said the Government of Zimbabwe’s (GOZ) lack of revenue
meant Zimbabwe was “still a failed state,” but technical
assistance from the International Monetary Fund (IMF) was “a
joy.” While Biti wants budget support from donor
governments, he may delay a “Friends of Zimbabwe” pledging
session originally planned for October. Even though Biti
said he agreed with the IMF’s advice that it was best to save
a windfall of Special Drawing Rights (SDRs) for a rainy day
or to help pay arrears, he was ready to spend some of it on
“strategic investments.” He insisted once again that he had
buried the Zimbabwe dollar for good, but contrary signs from
other GOZ figures make this a source of continuing
uncertainty that undermines Zimbabwe’s economy. Biti said he
has had no interference from other members of the cabinet,
but he concedes that the slow progress of political
reconciliation is Zimbabwe’s biggest problem. END SUMMARY.
“Still a Failed State”
¶2. (C) Finance Minister Tendai Biti met for over an hour on
August 3 with Charge and Treasury’s Acting A/S for
International Affairs Andy Baukol. Biti said stabilization
of prices, growth of financial services, and a 2 percent
increase in tourism during the first half of the year showed
that Zimbabwe’s economy was recovering. But despite growth
in GOZ revenue (USD 4 million in January, USD 90 million in
July), Biti said Zimbabwe needed budget support. “We have no
fiscal space,” Biti said. He added that Zimbabwe was
receiving practically no foreign direct investment,
electricity production met only 20 percent of demand, and
lines of credit for business had dried up. “We are still a
failed state,” Biti lamented.
¶3. (C) Biti noted recent positive developments. He
emphasized the value of technical assistance from the IMF.
Four teams had visited Harare, the most recent working on tax
reform. Biti said the IMF’s support was “the best thing that
has happened” during his tenure as finance minister. “They
have been a joy to work with.” Biti also said that he
encountered no resistance within the cabinet to his reform
measures. He said there had been “no discussion at all” on
some of his decisions.
Donor Meeting Delayed?
¶4. (C) Biti said the Ministry of Finance would soon
distribute invitations to donor governments for a “Friends of
Zimbabwe” meeting in October. He said it would be a
“Marshall-Plan type of conference.” Charge and Baukol noted
that it might be premature to take such a step and in any
case Zimbabwe might need more than two months to complete the
kind of careful preparation that would be required to host a
Qkind of careful preparation that would be required to host a
successful pledging session. A low-key meeting to explain
policies and anticipated needs might be a better first step.
Biti agreed with this advice and said he would delay the
conference until 2010.
¶5. (C) Biti appeared keen to find external assistance to
finance some form of economic stimulus. While he agreed with
the IMF’s view that it was best to keep in reserve Zimbabwe’s
new allocation of SDRs, Zimbabwe might draw a portion of it
to finance “strategic investment,” such as road construction.
“We are close to turning this thing around,” he said.
HARARE 00000670 002 OF 002
“There is economic activity, but we need a catapult — a
road, a new parliament building — even if it is a white
Zim Dollar Still Dead
¶6. (C) A/S Baukol asked Biti about possible plans to
reintroduce the Zimbabwe dollar. Recent statements from
Central Bank Governor Gideon Gono had led some observers to
suspect that this was under consideration. Biti replied,
“That’s just whining. I have said repeatedly it is not
coming back. Demonetization put a tombstone on the grave of
the Zimbabwe dollar.” But he appeared to back away from
efforts to replace Gono, one of President Mugabe’s key
allies. “We have depersonalized the issue,” Biti said, by
narrowing the governor’s mandate in draft revisions to the
central bank law. (NOTE: Biti said the draft law would be
gazetted on August 7, but it was not published until August
¶14. END NOTE.)
¶7. (C) Biti can justly claim progress on stabilization, but
that is partly because Zimbabwe is coming back from nearly
absolute macroeconomic destabilization. He touched on a ore
important truth when he suggested that Zimbabwe’s most
important challenges were political, not economic. The lack
of unity in the “Government of National Unity” is the
principal source of uncertainty that has stalled the flow of
credit Zimbabwe needs for sustained recovery. As long as the
GOZ remains less than the sum of its parts, Biti’s own
success as minister will not translate into permanent
progress for the economy. END COMMENT.
¶8. (SBU) This cable was cleared by A/S Baukol’s office.