Everyone waited for Gono

After Finance Minister Herbert Murerwa’s vacuous 2004 budget speech, everyone was now waiting for the government’s new point man, central bank governor Gideon Gono to map the way forward for the country.

The most pressing issue was an overvalued official exchange rate which was seven-times stronger than the market rate coupled with a government clampdown on parallel trading.

This was depressing the country’s export sector; driving parastatals ever deeper into debt by compelling them to charge unrealistically low prices pegged to the official exchange for everything from international phone calls to electricity; and making it increasingly risky for firms to import necessary inputs, especially fuel.

Reports said Murerwa had decided to devalue the local currency from Z$824 to Z$3 800 to the greenback against a market rate of Z$5 900 but was forced to withdraw this two days before the budget by hardliners within the government.

Full cable:

Viewing cable 03HARARE2302, Gono will speak on Dec 17

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

260900Z Nov 03

UNCLAS HARARE 002302

SIPDIS

SENSITIVE

STATE FOR AF/S

NSC FOR SENIOR AFRICA DIRECTOR JFRAZER

USDOC FOR 2037 DIEMOND

TREASURY FOR OREN WYCHE-SHAW

PASS USTR FLORIZELLE LISER

STATE PASS USAID FOR MARJORIE COPSON

¶E. O. 12958: N/A

TAGS: ECON EFIN EINV PGOV ZI

SUBJECT: Gono will speak on Dec 17

Ref: Harare 2284

¶1. (U) Summary: Zimbabwe’s business community eagerly

awaits incoming Reserve Bank (RBZ) Governor Gideon Gono’s

first policy statement, now scheduled for December 17.

Most critical is where Gono comes down on currency

markets. End Summary.

¶2. (U) After Finance Minister Herbert Murerwa’s vacuous

budget speech (ref), the GOZ’s traditional medium for

economic strategy, policymaking authority is shifting to

the new RBZ chief. While Zimbabwe faces numerous policy

crossroads, none is more pressing in the economic sphere

than the exchange rate. An overvalued official rate (7-

times stronger than the market rate) coupled with a GOZ

clampdown on parallel trading are: a) depressing

Zimbabwe’s export sector, b) driving parastatals ever

deeper into debt (by compelling them to charge

unrealistically low prices pegged to the official

exchange for everything from international phone calls to

electricity) and c) making it increasingly risky for

firms to import necessary inputs (especially fuel).

¶3. (SBU) The GOZ can solve its overvalued currency

problem either by devaluing or officially sanctioning the

parallel market. Either course of action offers few

downsides. However, the exchange rate has become a line-

in-the-sand issue for many GOZ hardliners. The Embassy

has learned that Murerwa’s draft contained an official

devaluation from Z$824 to 3,800:US$1 (market rate is

Z$5900:US$1) until November 18, two days before the

speech. At that point, hardliners convinced Mugabe to

strike it. These advisers continue to believe the GOZ

can police the parallel market out of existence. They

propose the RBZ impose new controls on export processing

zones, tourism operators, foreign currency accounts and

remissions.

Comment

——-

¶4. (SBU) Without doubt, Gono is in the hot seat. If

nothing is done, the 7-fold disparity between official

and parallel exchange rates will soon widen, causing

businesses to further cut operations or stray into

illegal activity.

Sullivan

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