Devaluation enemies had a field day when the central bank pushed the exchange rate of the Zimbabwe dollar up and even commented, ”we have the fastest gaining currency in the world”.
That was way back in 2004 when central bank governor Gideon Gono cracked down on the financial sector and had businessman Phillip Chiyangwa arrested for his role in ENG.
Gono had introduced a currency auction system which saw the Zimbabwe dollar trading at Z$4 000 to the greenback before sliding down to Z$4 800 but the central bank pushed it up to the mid Z$3 000s.
Viewing cable 04HARARE256, Forex Controls Hamper Trade
This record is a partial extract of the original cable. The full text of the original cable is not available.
111123Z Feb 04
UNCLAS HARARE 000256
STATE FOR AF/S AND AF/EX
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER
USDOC FOR AMANDA HILLIGAS
TREASURY FOR OREN WYCHE-SHAW
PASS USTR FLORIZELLE LISER
STATE PASS USAID FOR MARJORIE COPSON
¶E. O. 12958: N/A
SUBJECT: Forex Controls Hamper Trade
¶1. (U) Summary: Vexingly, the GOZ continues its policy of
punishing exports and subsidizing imports. Local firms
tell us the Reserve Bank of Zimbabwe’s (RBZ) new foreign
exchange auctions and other controls make it increasingly
difficult to do business. Auctions have yet to deliver
on their promise of promoting exports and weaning the GOZ
from an overvalued official exchange rate. End Summary.
Importers Encumbered, Exporters Enraged
¶2. (U) Importers are delighted they can access forex at a
current Z$3600:US$, or about 25 percent below the market
rate. But the new system also adds bureaucracy. After
winning an auction, importers often must wait 10 days to
access their forex, spend it on an approved import within
21 days and receive the goods within the next 14 days,
nearly impossible when purchasing heavy machinery from
the U.S. or Europe. While the RBZ can grant extensions,
only banks are allowed to navigate this Byzantine
process. Many banks, however, are unenthusiastic about
approaching the RBZ for all but their top clients.
Importers also worry that the RBZ will soon exhaust forex
reserves, acknowledged yesterday by incoming Finance
Minister Chris Kuruneri.
¶3. (SBU) Exporters, by contrast, are upset the RBZ has
pegged the rate so low – too low, many say, to turn a
profit. Exporters must also exchange about 25 percent of
earnings at Z$824:US$, creating the present blend rate of
about Z$2800:US$. Unless the RBZ allows the auction rate
to drift upwards, it will become as implausible as past
official rates like Z$55 or Z$824:US$. A Nestle rep told
us this week his company is looking at transferring
export operations to a neighboring country.
¶4. (U) We still hope the RBZ will narrow the widening gap
between auction and market rates. The first auction,
which established an exchange of Z$4200:US$, was close
to a market rate, given the low demand for forex in early
January. As demand increased, causing the market rate to
rise to about Z$4800, the RBZ pushed its own rate in the
opposite direction, down to the mid-$3000s. This seems
part of a GOZ strategy to blame speculators in the
financial sector for the depreciating zimdollar – holding
up ZANU-PF insider Philip Chiyangwa and others as
convenient scapegoats – rather than the country’s poor
current accounts performance. Devaluation enemies have
had a field day, issuing silly statements that “we have
the fastest gaining currency in the world!” (Herald,
2/6) Pro-ZANU-PF economic commentator Samuel Undenge has
even proclaimed that Zimbabwe will never again see
exchange rates like Z$6000:US$.
¶5. (U) Specious reverie aside, the auction’s hefty 25-
percent discount carries tangible consequences. First,
the auction’s overvalued zimdollar amounts to an indirect
tax on exporters and subsidy for qualified importers.
The GOZ is making it more difficult for its own producers
to compete abroad and easier for foreign firms to compete
in Zimbabwe, an odd approach for a country that seeks to
increase exports. Second, the widening gulf between
auction and market rates makes the parallel market more
attractive and efficient for forex-sellers, even without
the participation of most banks. The purpose of the
auction was to displace the parallel market. Third, the
overvalued rate is damaging many establishments in
Harare’s low-density districts. During the past five
years, these shops and restaurants have formed an economy
within an economy – generating commerce and employment in
an otherwise dismal urban environment. Finally, the low
auction rate is fostering a new class of speculators.
They buy forex at auctions for phantom imports, then sell
it for quick profit in the burgeoning parallel market.