Donors set conditions to bail out Tsvangirai and Biti

Prime Minister Morgan Tsvangirai and Minister of Finance Tendai Biti met with Multi Donor Trust Fund representatives on 16 February to discuss the dire economic situation and the necessary steps to resuscitate the economy.

Biti said the government needed at least US$720 million for the next six months to build its own revenue.

It was going to introduce a short-term economic recovery programme which he described as “mouth-to-mouth resuscitation intended to begin the recovery Process”.

Donors responded by stating that non-humanitarian assistance would be dependent on compliance with the principles of reengagement.

They said immediate confidence-building measures should include the release of political detainees, replacement of Gideon Gono as Reserve Bank of Zimbabwe governor, freeing up the media, and engagement with the International Financial Institutions.

Full cable:

Viewing cable 09HARARE135, ZIM DONOR MEETING WITH PRIME MINISTER

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SUBJECT: ZIM DONOR MEETING WITH PRIME MINISTER

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SUMMARY

——–

¶1. (SBU) Prime Minister Morgan Tsvangirai and Minister of Finance

Tendai Biti met with Multi Donor Trust Fund (MDTF) representatives

on February 16 to discuss the dire economic situation and to discuss

necessary steps to resuscitate the economy. Tsvangirai focused on

the need to pay civil servants in forex while Biti discussed

short-term and emergency plans. Donors responded by stating that

non-humanitarian assistance would be dependent on compliance with

the principles of reengagement. Immediate confidence-building

measures should include the release of political detainees,

replacement of Gideon Gono as Reserve Bank of Zimbabwe (RBZ)

governor, freeing up the media, and engagement with the

International Financial Institutions (IFIs). END SUMMARY.

¶2. (U) Tsvangirai called the meeting on his first full week in

office. Present were representatives, including heads of mission,

from donors, the World Bank, UNDP, and the African Development Bank.

————–

Early Measures

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¶3. (SBU) Tsvangirai commented briefly on the dire economic

situaton and presented his priorities: democracy, stabilization,

and humanitarian needs (which include education, health, food, and

both urban and rural poverty). He said that in order for the

government to operate and demonstrate leadership it needed to get

civil servants back to work and pay them in forex.

¶4. (SBU) Biti announced that the government would be presenting its

stabilization plan, Short Term Emergency Plan (STEP), to the cabinet

on February 24. Among the immediate measures were the formation of

a National Economic Council (NEC) (inclusive of NGOs, labor, and the

private sector; and led by the Ministry of Economic Planning and

Investment Promotion). The NEC will be mandated to develop a more

comprehensive medium-term recovery plan with strong stakeholder

involvement and public dialogue.

——————————–

Short Term Emergency Plan (STEP)

——————————–

¶5. (SBU) Biti noted that STEP is not transformative. It is, he

said, mouth-to-mouth resuscitation intended to begin the recovery

process. It will need to be followed by a more comprehensive

medium-term economic recovery plan that is vetted with stakeholders

and donors.

¶6. (SBU) Key elements of the STEP as presented by Biti are[e1]:

¶A. Address humanitarian crisis (including a special focus on

orphaned and vulnerable children (OVC) and the urban poor):

¶1. In Education:

a. bring teachers back to work and complete examination

markings.

¶2. In Health:

a. improve water and sanitation in cholera affected areas;

b. provide drugs to treat TB;

c. provide blankets, beds and other emergency supplies;

d. increase availability of ARVs for people living with

HIV/AIDS.

¶B. Reform RBZ to focus on monetary role and cease all non-monetary

activities. (COMMENT: RBZ reform is generally understood to include

finding a way to replace the current governor. END COMMENT.)

¶C. Agriculture

¶1. Ensure the preparation of the winter crop, namely wheat

(100,000 tons needed) and tobacco;

¶2. Ensure security of tenure (land commission to ensure that any

person who wishes to farm shall have the opportunity to get secure

tenure);

¶3. Develop mechanisms for farmers to access commercial bank

loans.

¶D. Industry

¶1. Facilitate recapitalization;

¶2. Focus on strategic industries (for example fertilizer

production).

Qproduction).

¶E. Mining

¶1. Introduce mechanisms for taxation and royalty that facilitate

operational efficiency and provide income to the State.

¶F. Energy

¶1. Resuscitation of Beira (Mozambique) Pipeline operations;

¶2. Assess electricity generation and related rail road needs.

¶G. Water

¶1. Strengthen local authorities and transfer reticulation and

local management to them.

¶H. Tourism for quick revenue generation.

¶I. Economic policy (demand side)

¶1. Stop printing of money;

¶2. Decision on what currency will be used to maintain Government

accounts;

¶3. Institute interest regime to promote savings;

¶4. Introduction of non-cash payment systems (Electronic Funds

Transfer at Point of Sale).

¶J. Review Tax Regime and Revenue System with regard to:

¶1. Stock exchange;

¶2. VAT;

¶3. Toll Duties;

¶4. Licensing.

———————-

Emergency Requirements

———————-

¶7. (SBU) Biti explained that the GOZ expects to have, within six

months of initiating STEP, a revenue base from which to draw on. At

present, however, the current tax receipts are only estimated at

US$10 million a month. Therefore, for the next six months the

Government will need bridge funding for recurrent expenditures,

estimated at US$120 million a month, for a total of US$720 million.

This breaks down as follows (amounts stated in USD):

-Basic salary allowances for Civil Servants: $50 million

-Dollarized pensions: $20 million

-Short-term assistance to local authorities: $10 million

-Drugs and other health service costs: $15 million

-Essential supplies for State agencies: $15 million

-Sanitation and water services in urban areas: $10 million

¶8. (SBU) The Government will be discussing this financing gap with

the Republic of South Africa as the first point of entry. GOZ will

later organize donor and investor conferences.

¶9. (SBU) Complementary measures will include the passing of

legislation in relation to:

– Freedom of the press and opening up of air waves

(to be administered by a national press coordinating and oversight

body);

– Preparation for the new constitution based on a public discourse;

– Adherence to basic laws (freedom of expression, movement,

settlement etc);

– Governance and gender inclusiveness.

¶10. (SBU) The Minister of Finance also noted that a revised budget

will be prepared that will separate humanitarian and recurrent

budget requirements and revise recent budget figures announced by

the Ministry of Finance in January. He also clarified that the

salary requirements included in the emergency plan include all civil

service, military and police.

—————————————–

Donors Response – Remember the Principals

—————————————–

¶11. (SBU) The donors’ response was provided by the Norwegian

ambassador as chair of the Heads of Mission and the DFID director as

chair of the Aid Agency Heads. While welcoming change in Zimbabwe,

they reminded Tsvangirai and Biti of the principles of reengagement.

They noted that many of the government’s requirements are now being

fulfilled through humanitarian assistance. Acknowledging the new

government’s budgetary needs, and constraints on donors to provide

direct support for the budget, they asked about possible regional

support for the budget. They also suggested that it was important

for the Ministry of Finance to assess its own resources to meet

current and future needs. To prepare for more direct support,

donors needed to see confidence building events – freeing political

Qdetainees, reorganization of the RBZ, freeing up the media, and

reengagement with the IFIs. Possibly donors and the GOZ needed to

look at two phases: one of enhanced emergency assistance and

another longer-term period of larger and longer-term support. The

donors’ representatives cautioned that it was important to take

careful stock of needs, and to get it right.

¶12. (SBU) Tsvangirai responded that he understood the need to build

confidence and that there are rules to budget support. What he

hoped to do in this meeting, he said, was define the menu and then

look for the appropriate ingredients. If some of those are not

available, the government would have to adjust or look elsewhere.

He commented that reengagement with the IFIs at this time would be

premature.

————-

Sink or Swim

————-

¶13. (SBU) The new government is clearly struggling to get its feet

on the ground and locate its offices. Meanwhile they are trying to

take up the issues that have been handed to them when they joined

the government and accepted critical ministries, such as finance,

under less than ideal conditions, e.g. the continuing tenure of

Gono. There is no backup to the ministers themselves t this point

with little trust for the staffs that they have inherited and they

have little experience running a ministry.

——-

COMMENT

——-

¶14. (SBU) While satisfactory compliance with the principles of

reengagement will take time, donors are frustrated by the failure of

the government – primarily the fault of ZANU-PF – to take some

fundamental confidence-building measures to demonstrate the

commitment of the government to reform. These measures include the

release of political detainees, some of whom have been in custody

since the end of October, and the release of recently detained

Deputy Minister of Agriculture Designate Roy Bennett.

¶15. (SBU) The donor community is mindful of not stepping over the

line between providing essential humanitarian assistance and bailing

out the Mugabe regime. Nevertheless, if transitional assistance is

not provided to the new leadership, in the form of technical

assistance and advisory services, the new government is sure to

flounder. In particular, advisory services to the Ministry of

Finance are urgently needed to encourage and prepare it for

reengagement with the IMF as a critical first step. Assistance is

also required to help in unraveling the wage bill and determining

available resources and requirements in order to rationalize

short-term budgets and requests. END COMMENT.

MCGEE

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