Business leaders pleaded with US not to let IMF expel Zimbabwe

Zimbabwe’s business leaders pleaded with the United States not to let the International Monetary Fund expel Zimbabwe from the organisation saying this would be disastrous and would induce greater capital flight and accelerate the exodus of Zimbabwe’s best and brightest.

The leaders Patison Sithole of the Confederation of Zimbabwe Industries, Kumbirai Katsande the past CZI president and Jack Murehwa president of the Chamber of Mines made the plea to the United States embassy in Harare and said they would take it to the British and South African embassies as well as the European Union mission in Harare.

The business leaders said they had full confidence in central bank governor Gideon Gono. He was doing his best under strict political constraints.

They said Gono had managed to get an effective exchange rate of Z$13000/US$1 even though his political masters had not allowed a straight devaluation beyond Z$9000/US$1.

Gono remained the key advocate for economic reform and stood practically alone so the international community could strengthen his hand by extending inducements and encouragements.

Full cable:

Viewing cable 05HARARE977, BUSINESS LEADERS PLEAD FOR IMF LENIENCY

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This record is a partial extract of the original cable. The full text of the original cable is not available.

150740Z Jul 05

C O N F I D E N T I A L SECTION 01 OF 02 HARARE 000977

SIPDIS

SENSITIVE

AF FOR DAS T. WOODS

AF/S FOR B. NEULING

OVP FOR NULAND

NSC FOR DNSA ABRAMS, SENIOR AFRICA DIRECTOR C. COURVILLE

STATE PASS TO USAID FOR MARJORIE COPSON

USDOC FOR ROBERT TELCHIN

TREASURY FOR OREN WYCHE-SHAW

PASS USTR FOR FLORIZELLE LISER

E.O. 12958: DECL: 12/31/2010

TAGS: PGOV PREL EINV ZI

SUBJECT: BUSINESS LEADERS PLEAD FOR IMF LENIENCY

Classified By: Charge d’ Affaires a.i. under Section 1.4 b/d

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Summary

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¶1. (C) At a meeting with the CDA on July 13, Congress of

Zimbabwean Industries (CZI) President Patison Sithole, CZI

immediate past president Kumbirayi Katsande, and Chamber of

Mines of Zimbabwe President Jack Murehwa urged that the USG

not support IMF expulsion of Zimbabwe. They expressed

concern that expulsion would have disastrous economic

consequences. The CDA responded that the goal was to get the

GOZ to adopt sound economic policies and that in that regard

there were arguments in favor of expulsion. Moreover, the

GOZ discounted the importance of the IMF and might choose to

withdraw voluntarily. He suggested that the businessmen also

make clear to the GOZ their concern over the effects of a

rupture in GOZ relations with the IMF. The three businessmen

expressed confidence in Reserve Bank of Zimbabwe (RBZ)

Governor Gideon Gono while acknowledging that he worked

within strict political constraints, and suggested that

fiscal discipline, a floating exchange rate, good relations

with the IFIs, and a positive investment climate were the key

reforms the GOZ needed to undertake to restore Zimbabwe,s

economy. End Summary.

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Zimbabwe Expulsion Disastrous

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¶2. (C) Speaking for the group (including the Zimbabwe Chamber

of Commerce, the representative for which was unable to

attend), Sithole told the CDA that expulsion from the IMF

would be disastrous, inducing even greater capital flight and

accelerating the exodus of Zimbabwe’s best and brightest.

Katsande added that the GOZ would likely tighten its grip on

the economy in reaction to expulsion. Murehwa voiced his

concern that industry and commerce interests were not

adequately considered in the calculus over IMF expulsion,

even though their interests were severely affected. To that

end, Sithole added, the three men had also scheduled meetings

with the British and South African Embassies and EU Mission

in Harare.

¶3. (C) The CDA responded that the USG understood their

concerns and was sympathetic. However, the central challenge

was how to get the GOZ to make the right policy choices and

in that regard there were legitimate arguments to be made in

favor of expulsion. The CDA noted that the bar to expulsion

was quite high and said it was quite conceivable that the GOZ

would respond to a recommendation to expel by voluntarily

withdrawing from the IMF. He recommended that the business

community also approach government officials and also make

clear to them that expulsion or withdrawal would have

disastrous consequences, something he doubted many in the GOZ

besides Gono believed to be true.

¶4. (C) Katsande noted that business leaders played a key role

a few years ago in preventing the GOZ from going down that

very road. Sithole and Murehwa agreed that they needed to

lobby their own government about prospective IMF expulsion

and its consequences. Katsande stated that Gono would be the

natural conduit for business to influence the GOZ, especially

with the lack of leadership from the Ministers of Finance,

Economic Development, and Industry and Trade. The CDA

suggested that Gono’s influence appeared to have waned and

that motivating other players could be potentially useful.

Sithole said that a meeting with Joyce Mujuru might be

appropriate.

——————————————— ——-

Confidence in Gono Despite General Economic Decline

——————————————— ——-

¶5. (C) Sithole stated that Gono was doing his best under

strict political constraints, citing Gono,s ingenuity in

getting an effective exchange rate of Z$13000/US$1 even

though his political masters had not allowed a straight

devaluation beyond Z$9000/US$1. Gono remained the key

advocate for economic reform; indeed, he stood practically

alone in this regard. Sithole emphasized that the

international community could strengthen Gono,s hand by

extending inducements and encouragements. The CDA responded

that the Embassy encouraged Gono in private meetings to

pursue reforms and sensible policies. However, we could not

separate Gono from the rest of the GOZ; tangible shifts in

the right direction by the GOZ would have to precede positive

signals by the USG.

————————-

Private Sector Priorities

————————-

¶6. (C) CDA asked the businessmen what key reforms they would

recommend Gono and the GOZ pursue. In response, Katsande

suggested that Gono’s first priority should be to focus on

fiscal discipline and accountability in GOZ spending. For

his part, Sithole said Gono should begin by floating the

exchange rate and re-establish relationships with the IFIs.

Murehwa agreed with Sithole, asserting that GOZ strategy of

stimulating exports (and generating essential forex) through

subsidies and domestic price supports would fail as long as

the exchange rate regime was fundamentally flawed. They all

agreed that restoring an overall positive investment climate

was crucial for recovery.

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Comment

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¶7. (C) Mugabe’s well-known low regard for the IMF makes it

highly unlikely that the GOZ would initiate any policy

reforms necessary for the IMF to re-engage meaningfully as

long as he remains in charge, whether Zimbabwe is expelled or

not. Nonetheless, we are encouraged that private sector

leaders, long submissive and co-opted by the ruling party,

may be prepared to generate political pressure on the

regime’s completely moribund circle of economic

policy-makers. Their initiative – this is the first such

approach to the diplomatic community since IMF expulsion came

under discussion – is symptomatic of the beleaguered private

sector’s growing desperation here. As to Gono, the three

businessmen are probably overly optimistic in their

assessment of his influence. We see little evidence that he

has rebounded since he reportedly tried to resign and issued

his disappointing monetary policy statement in May.

SCHULTZ

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