Biti laments that Zimbabwe is still a failed state

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.”

Full cable:

Viewing cable 09HARARE670, BITI PRAISES IMF, LAMENTS LACK OF “FISCAL SPACE”

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TAGS: PGOV PREL ECON EFIN ZI

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

elephant.”

———————

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.)

——-

COMMENT

——-

¶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.

DHANANI

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