Biti shows his muscle

Finance Minister Tendai Biti slashed the 2009 budget from US$1.9 billion to US$1 billion and directed that all revenue be remitted to treasury in a move that was aimed at stripping central bank governor Gideon Gono of his powers.

He also scrapped the 5% tax on sales in foreign currency and the foreign currency surrender requirement-both of which had been payable to the Reserve Bank of Zimbabwe.

Biti, for the first time in years, made a provision of US$16.7 million for interest payment on foreign debts.

He announced a reduction in customs duties to a flat rate of 40% but said royalties and taxes on mining houses will be reviewed upwards to offset loss of revenue from surrender requirements.

Full cable:

Viewing cable 09HARARE248, ZIM NOTES 03-20-2009

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VZCZCXRO7089

RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN

DE RUEHSB #0248/01 0821236

ZNR UUUUU ZZH

R 231236Z MAR 09

FM AMEMBASSY HARARE

TO RUEHC/SECSTATE WASHDC 4270

RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE

RUEHUJA/AMEMBASSY ABUJA 2247

RUEHAR/AMEMBASSY ACCRA 2720

RUEHDS/AMEMBASSY ADDIS ABABA 2842

RUEHRL/AMEMBASSY BERLIN 1296

RUEHBY/AMEMBASSY CANBERRA 2107

RUEHDK/AMEMBASSY DAKAR 2463

RUEHKM/AMEMBASSY KAMPALA 2890

RUEHNR/AMEMBASSY NAIROBI 5329

RHEHAAA/NSC WASHDC

RHMFISS/EUCOM POLAD VAIHINGEN GE

RUEHGV/USMISSION GENEVA 2009

RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK

RHEFDIA/DIA WASHDC

UNCLAS SECTION 01 OF 03 HARARE 000248

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 03-20-2009

———–

¶1. SUMMARY

———–

Topics of the week:

– New Government Making Progress, But Still Lacks Unity…

– Conspiracy Theorists Continue to Blame U.S. for Accident…

– Minister Matinenga Takes The Witness Stand…

– MDC Members Remain Behind Bars For Post-Funeral Violence…

– Giving Up On O Level Exams?

– Poor Students Must Pay To Apply For Free Tuition…

– Finance Minister Slashes Budget…

– Air Zimbabwe Struggling…

– Telephone Tariffs Reduced, But Still Too High…

– IMF Sees Some Economic Stabilization; Audits RBZ…

– Kimberley Process Team Visits Diamond Sites…

– Business and IMF Concerned About Wage Expectations…

—————————–

On the Political/Social Front

——————————

¶2. New Government Making Progress, But Still Lacks Unity… Despite

some progress towards a reduction in political violence and a slight

opening of democratic space, significant roadblocks within

government remain, including the continued tenure of Reserve Bank

Governor Gideon Gono and Attorney General Johannes Tomana. In

addition, a lack of technical and human capacity within the

ministries limits government’s ability to effectively implement

policies. MDC Ministers of Water Sam Nkomo (See Harare 239) and

Economic Development Elton Mangoma (See Harare 240), confirmed the

dire financial situation within their ministries and progress in

navigating the new political dynamics. For an in-depth look, see

Harare 226.

¶3. Conspiracy Theorists Continue to Blame U.S. for Accident…

Allegations that the U.S. is somehow responsible for the tragic car

accident that injured Prime Minister Morgan Tsvangirai and killed

his wife Susan continue in the local media. The state-sponsored

media also continues to sing the ZANU-PF song calling for an end to

sanctions. See Harare 233. Also this week, Gideon Theron, the vice

president of the outspoken Commercial Farmers Union, which

represents mostly white commercial farmers, was arrested on charges

of obstructing justice after he was taking pictures of the scene of

the accident. Theron lives nearby and arrived on the scene before

police, raising suspicions about his alleged role. On March 20, The

Herald ran a full page article calling for an inquiry into the U.S.,

UK, and CFU role in the crash.

¶4. Minister Matinenga Takes The Witness Stand… Minister of

Constitutional and Parliamentary Affairs Minister and MDC legislator

Eric Matinenga appeared in a Mutare court on 19 March 2009. He is

accused of inciting violence during the run-up to last year’s June

presidential elections.

¶5. MDC Members Remain Behind Bars For Post-Funeral Violence…

During Susan Tsvangirai’s funeral, ZANU-PF youths in Buhera

allegedly burned down the home of an MDC supporter who was attending

the funeral on March 11. In retaliation, a group of 15 MDC

supporters allegedly burned down houses of several ZANU-PF

supporters. After the arrest of the MDC supporters, 14 of the 15

Qsupporters. After the arrest of the MDC supporters, 14 of the 15

were denied bail on March 18; only a breastfeeding mother was set

free. Separately, 13 MDC members in Murambinda were granted bail by

a Mutare magistrate; they are accused of extortion after asking

ZANU-PF members who stole poultry during the run-up to the June 27

runoff to return their property. The ZANU-PF members accused of

theft were never arrested.

HARARE 00000248 002 OF 003

¶6. Giving Up On O Level Exams? Minister of Education Coltart

decreed that given the time lost from school closures in 2008, high

schools should start enrolling and teaching Advanced Level students

regardless of the fact that Ordinary Level exam results from 2008

are not yet out. In effect this policy decision means students will

begin advanced level subjects before knowing if they passed the

previous levels and is an open admission that ZIMSEC will not have

the 2008 exam results out any time soon.

¶7. Poor Students Must Pay To Apply For Free Tuition… The

University of Zimbabwe announced on March 11 that students wishing

to join their “cadetship scheme” should first pay a steep $150

application fee. Under the scheme, low-income students are granted

fre tuition in exchange for a period of required government

employment after graduation

———————————–

On the Economic and Business Front

———————————-

¶8. Finance Minister Slashes Budget… MDC-T Minister of Finance

Tendai Biti announced a revised 2009 budget of US$ 1 billion, down

from the Acting Minister’s January 2009 budget of US$1.9 billion.

In another shot at RBZ’s Governor Gono, Biti called for all public

revenue to be directed and remitted to Treasury, and announced the

elimination of the 5% tax on sales in foreign currency and the

foreign currency surrender requirement-both of which had been

payable to the RBZ. Recurrent expenditure accounts for 80.7% of the

budget with capital and net lending to parastatals and local

authorities accounting for the remainder. For the first time in

years, there is an allowance (US$16.7 million) for interest payment

on foreign debts. Revenues are dominated by taxes on goods and

services. Biti also announced a reduction in customs duties to a

flat rate of 40%. Royalties and taxes on mining houses will be

reviewed upwards to offset loss of revenue from surrender

requirements.

¶9. Air Zimbabwe Struggling… Zimbabwe’s national air carrier has

become a drain on the government, requiring continuous transfusions

of capital from the Reserve Bank to maintain safe aircraft. While

privatizing the airline could ensure it success, there is no

indication that change is on the horizon. See Harare 228

¶10. Telephone Tariffs Reduced, But Still Too High… According to

the Postal and Telecommunications Regulatory Authority of Zimbabwe

(POTRAZ), all telephone tariffs will be reduced by 25 to 40 percent

pending the completion of a thorough review of tariffs. Zimbabwe’s

telephone tariffs were very low up to the end of 2008, then rose

significantly above those charged within the region in January 2009

when service providers were licensed to charge in foreign currency.

Despite this reduction, the new tariffs are still above the regional

average largely due to the continued use of an old analog billing

system that is not based on the units actually used.

¶11. IMF Sees Some Economic Stabilization; Audits RBZ… Halfway

Q11. IMF Sees Some Economic Stabilization; Audits RBZ… Halfway

through its Article IV mission, the IMF told us that the Zimbabwe

economy contracted 14 percent in 2008. On the positive side,

dollarization has stopped hyperinflation in its tracks and the IMF

projected revenue between US$900 million and US$ one billion in

¶2009. The mission chief told diplomats that the GOZ urgently needed

financial support to ensure social cohesion and support economic

recovery, but such assistance was beyond the scope of the IMF to

deliver due to arrears. Two days into its audit of the Reserve

Bank, IMF staff told us they had determined “significant fiduciary

risk.” See Harare 232

¶12. Kimberley Process Team Visits Diamond Sites… A Kimberley

HARARE 00000248 003 OF 003

Process team is in Zimbabwe this week visiting diamond sites.

Murowa Diamonds, a member of the Rio Tinto Group of Companies which

has lobbied hard to prevent the suspension of Zimbabwe from the

Kimberley Process and to prevent sanctioning of the Minerals

Marketing Corporation of Zimbabwe (MMCZ) by the EU, told us the

company flew the team to the Murowa mine for a tour, then on to the

disputed Chiadzwa diamond field in Manicaland. Murowa executives

agreed to brief us on the KP visit next week. The GOZ denies random

killings by government agents in Chiadzwa despite significant

evidence to the contrary.

¶13. Business and IMF Concerned About Wage Expectations… In a

roundtable arranged by the American Business Association of Zimbabwe

(ABAZ) for the IMF mission this week, business representatives

wailed about pressure from employees to pay US dollar wages far

higher than businesses can afford. The IMF representatives found it

“very worrying” that Zimbabweans used South Africa as their

benchmark in wage demands, noting that Zimbabwe had a per capita

income of less than US$1/day. IMF staff commented that wages here

should be a fraction of those in South Africa.

—————–

Quote of the Week

—————–

¶14. “Ask not what other nations can do, but what Zimbabweans can do

for themselves.” — Deputy Prime Minister Arthur Mutambara, speaking

at the launch of the Short-Term Economic Recovery Plan (STERP).

DHANANI

(40 VIEWS)