Gono appears to have reached the limits of his influence

Central bank governor Gideon Gono, who came on with a lot of promise, appeared to be someone who was disingenuous or who had already reached the limits of his influence seven months later.

This was the impression of the United States embassy when Gono presented his quarterly monetary policy review in July 2004, which it described more like a sermon than a monetary review.

The main criticism was that Gono had not devalued the Zimdollar to the market level which was reported to be around Z$7 000 to the greenback though he had raised the exchange rate from Z$5 200 to Z$5 600.

He had one thing going though. He had managed to reduce annual inflation from 624 percent in January to 395 percent in June.

 

Full cable:

Viewing cable 04HARARE1293, More fluff than focus from central bank

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Reference ID	Created	Released	Classification	Origin
04HARARE1293	2004-07-28 11:53	2011-08-30 01:44	UNCLASSIFIED//FOR OFFICIAL USE ONLY	Embassy Harare

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

UNCLAS SECTION 01 OF 02 HARARE 001293

 

SIPDIS

 

SENSITIVE

 

STATE FOR AF/S

USDOC FOR AMANDA HILLIGAS

TREASURY FOR OREN WYCHE-SHAW

PASS USTR FLORIZELLE LISER

STATE PASS USAID FOR MARJORIE COPSON

 

¶E. O. 12958: N/A

TAGS: ECON EAID EAGR EINV PGOV ZI

SUBJECT: More fluff than focus from central bank

 

Ref: Harare 1281

 

¶1. (U) Summary: In a speech more like a sermon than

monetary review, Reserve Bank (RBZ) Governor Gideon Gono

delivered his quarterly remarks yesterday. Unfortunately

for most Zimbabweans suffering from the country’s rapid

economic decline, Gono failed to address underlying

economic problems, such as the export crisis. He gave no

indication he would allow market forces to determine the

country’s exchange rate, expressing contempt for market

traders. Instead, Gono seems to be turning to

interventionist policies. End summary.

 

¶2. (U) It was a characteristically long-winded discourse

for Gono. As usual, he spent much time on small matters

(such as an annual US$20 million of forex-denominated

bonds he will offer Zimbabweans abroad). Let’s carve out

the pivotal issues:

 

– Export Crisis. Zimbabwean exporters suffer from a

mandatory exchange requirement and an overvalued

currency. Exports seem to be falling fast since Gono

became RBZ Governor last December 1. In yesterday’s

speech, Gono reduced the mandatory exchange (an indirect

tax) from 25 to 15 percent of revenue. While this will

provide some brief relief, the artificially low official

rate’s downward pull only grows as the gap between

mandatory (Z$824:US$) and parallel (Z$7000:US$) rates

widens. Gono also increased the exchange rate floor from

Z$5200 to 5600, yet this 8 percent increase badly lags

cumulative inflation (about 30 percent) since the last

revision and is still far below the parallel exchange

rate.

 

– Too Little Forex for Importers at RBZ Auctions. Many

importers have been unable to purchase sufficient forex

at the RBZ’s monopolistic currency auctions, a result of

the country’s falling export revenue. Increasingly, they

are testing the GOZ’s wrath by venturing into the

parallel market. Gono suggested no date or prospect for

a market-determined exchange rate. He continues to

believe he can draw forex from Zimbabweans abroad by

offering sub-market conditions for exchange. Gono lashed

out at parallel trading, bemoaning “the devastating

effects it is exerting on the national economy.”

 

– Policing of Banking Sector. This may be the only area

where the private sector extends universal kudos to Gono.

He reviewed his decision to act in some form against 11

of 41 financial institutions and enforce licensing for

asset management firms.

 

– Reduction of Inflation Rate. Gono takes credit for

reducing the year-on-year inflation rate from 624 percent

in January to 395 percent last month. While a lower

inflation rate affords some benefits, many local

economists/businessmen argue that the cost of an

overvalued exchange rate with diminished export capacity

exceeds the benefit of lower inflation. Also, it is

difficult at this point to gauge whether Gono’s impact on

inflation will have any staying power. For the past

several years, the GOZ has issued inflation-inducing

supplementary budgets in the second half of the year.

With a number of ministries reportedly having already

exhausted their yearly budget allocation, and the GOZ

facing ongoing requirements to fund the import of food

and fuel to finance the upcoming parliamentary elections,

most analysts are skeptical the GOZ will stick to its

promises of fiscal discipline.

 

– Rationalizing Land Reform. Gono urged the GOZ to grant

transferable 99-year leases to land reform beneficiaries.

This would be a positive step. New farmers could use

their land as collateral and, in some cases, sell it to

more motivated farmers. GOZ hardliners fear dispossessed

white farmers would repurchase their farms.

 

– Preferential Loan Facility. Gono recognized that the

RBZ’s low 50 percent loans (market rates are 200-300

percent) to the “productive” sector have fostered

speculative behavior. He blasted these “vices” and

“unrepentant traits,” suggesting tighter enforcement but

failing to offer specifics.

 

– Amnesty for Past Externalization of Forex. Gono again

refused to advocate a general amnesty for a “crime”

nearly every affluent Zimbabwean (including Gono)

committed. In what often resembles a witch-hunt, GOZ and

Zanu-PF factions have used enforcement to intimidate or

destroy rival businesses or politicians.

 

Comment

——-

¶3. (SBU) Not only has Gono again failed to tackle

exporter concerns, he increasingly advocates a more

interventionist role for the GOZ. This includes a new

series of taxes (i.e., highway tolls) and stricter

monitoring of forex auction winners and loan recipients.

By skirting many issues he professes to care about in

private (amnesty for forex trading, elimination of

official Z$824:US$ rate, etc.), Gono leaves the

impression of someone who is disingenuous or who has

already reached the limits of his influence.

Notwithstanding the steady State media campaign to

convince the electorate that the economy is recovering,

we see only trouble ahead.

 

Weisenfeld

 

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