Gono bailed out Air Zimbabwe out of national pride

Central bank governor Gideon Gono said he doled out US$2.8 million to Air Zimbabwe in 2006, out of national pride and safety concerns, so that the national airline could resume its daily flights to London without fear of its plane being seized.

He told this to United States ambassador Christopher Dell and said he was working with Finance Minister Herbert Murerwa on a plan to transfer the Reserve Bank’s quasi-fiscal activities to the budget.

He doubted, however, whether Murerwa had the guts to move the plan forward.

Gono had already announced that the central bank would cease financing highly indebted and under-performing parastatals.

 Full cable:

Viewing cable 06HARARE1361, CENTRAL BANKER GONO,S “MOST DIFFICULT YEAR” – IT’S

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C O N F I D E N T I A L SECTION 01 OF 03 HARARE 001361

SIPDIS

SIPDIS

AF/S FOR S. HILL

NSC FOR SENIOR AFRICA DIRECTOR B. PITTMAN

STATE PASS TO USAID FOR M. COPSON AND E.LOKEN

TREASURY FOR J. RALYEA AND T.RAND

COMMERCE FOR BECKY ERKUL

E.O. 12958: DECL: 01/12/2016

TAGS: ECON EFIN PGOV ASEC ZI

SUBJECT: CENTRAL BANKER GONO,S “MOST DIFFICULT YEAR” – IT’S

BEEN NO PRIZE FOR THE REST OF THE COUNTRY EITHER

REF: HARARE 1317

Classified By: Ambassador Christopher Dell under Section 1.4 b/d

——-

Summary

——-

¶1. (C) In a November 13 meeting with the Ambassador, Reserve

Bank of Zimbabwe (RBZ) Governor Gideon Gono described 2006 as

his most difficult year in office. He professed

embarrassment at Zimbabwe’s outcast status within SADC and

depicted himself as personally under siege for the country’s

myriad economic problems. He attacked corruption in ZANU-PF,

promised to tone down the blame on “sanctions” for Zimbabwe’s

economic woes, and voiced support for U.S. businesses in

Zimbabwe and their engagement on the economic front. The

Ambassador noted in response that now was the time to begin a

discussion about Zimbabwe’s economic future.

¶2. (C) Gono said he was working with the Finance Minister to

transfer RBZ funding of parastatals to the budget. Against

an outcry from the banking sector, he had cancelled plans to

require the banks to take on long-term, negative yielding,

government bonds. He also indicated the GOZ would back down

from its plans for quick black empowerment of the mining

sector, conceding that it had scared away investors. He

expressed concern about the country’s food security, and

conceded that the recently issued 99-year leases to farmers

were, in fact, nontransferable. End Summary

——————————–

2006, Gono’s Most Difficult Year

——————————–

¶3. (C) Gono described 2006 as his most difficult year as

Governor. He professed embarrassment at Zimbabwe’s outcast

status within SADC and at regional performance indicators

that repeatedly cited “SADC, minus Zimbabwe.” At the same

time, he took a shot at the IMF for ignoring the

“self-fulfilling effect” of its recent projection that

inflation in Zimbabwe would accelerate to above 4000 percent

in 2007 if current policies were maintained. Depicting

himself, as under attack from all directions as the cause of

Zimbabwe’s woes from water shortages to fertilizer scarcity,

he said, where people had once “blamed Blair; blamed Bush”

for shortages, they now “blamed the Governor.”

¶4. (C) Gono said management of exchange rate policy was the

most politically difficult of all his issues. (N.B. The US

dollar is trading on the parallel market at a record premium

of over 700 percent to the official rate.) Departing from

earlier, more ambitious goals, he said he would work toward

convergence of the exchange rates in 2007 and achieve it by

the end of his term in office in 2008.

¶5. (C) Gono claimed that attacking corruption was high on his

agenda, but the problem lay mainly with “party stalwarts”

(unnamed), who were “growing stronger.” Citing a recent

scramble for ownership of a diamond claim in Manicaland, he

said the “big fish” were trying to carve it up for

themselves. He added that since his July Monetary Policy

HARARE 00001361 002 OF 003

Statement, he had begun to “moan” less about sanctions and

would seek to “educate the nation” that capital flowed to

“areas of greatest freedom.”

¶6. (C) The Ambassador responded that change was in the wind

and the time was right to have a public discussion on the way

forward for Zimbabwe. He gave the Governor papers from the

October 5 American Business Association of Zimbabwe (ABAZ)

“Just Business” forum (reftel), and made the point that the

state of the economy was closely linked to the political

situation; the two problems could not be solved separately.

Gono agreed and said he wanted to interact with U.S

businesses in Zimbabwe and assure them of his support. He

also expressed interest in communicating with Dr. Ciao

Megale, the Brazilian economist who described Brazil’s

experience in taming hyperinflation at the ABAZ forum, and in

traveling to Brazil early in the New Year to learn more.

——————————————— ——

Fiscal Policy: No More RBZ Support for Parastatals

——————————————— ——

¶7. (C) Regarding the budget, Gono disclosed that he was

working with Finance Minister Murerwa on a plan to transfer

the RBZ’s quasi-fiscal activities to the budget. (N.B. Gono

announced in October that the RBZ would cease financing

highly indebted and underperforming parastatals.) He

questioned, however, whether Murerwa would “have the guts” to

move the plan forward. At the same time, he conceded to the

Ambassador that, out of “national pride and safety concerns,”

the RBZ had provided Air Zimbabwe with USD2.8 million over

the weekend to allow the airline to pay off a crucial debt

and resume its daily London flight without fear of the plane

being seized.

¶8. (C) The Ambassador asked whether the GOZ was truly willing

to stand back and allow the parastatals to sink or swim,

questioning, for instance, whether eliminating the huge

electric power subsidy to the Zimbabwe Electric Supply

Authority (ZESA), for example, was politically “doable.”

Gono replied that it would take courage.

————————————–

Backpedaling on Banking/Mining Sectors

————————————–

¶9. (SBU) Regarding recent monetary policy shifts (septel),

Gono explained that the RBZ could have increased statutory

reserves to mop up impending excess liquidity in the market.

It had opted instead, in early October to introduce mandatory

negative-interest yielding 5-year Financial Sector

Stabilization Bonds, and, again, on October 23, to require

the banks to lock up an additional share of their balance

sheets by November 17 in 7-year, also negative yielding,

“Economic Stabilization Bonds.” However, in the face of a

clamorous outcry from the banking sector, he had backed down

and cancelled the latter bonds on November 10. Gono claimed

that his motivation in proposing these measures had been in

part to pressure the banks to resume lending to average

Zimbabweans, and to stop charging them a commission for

deposits but instead to pay them interest.

HARARE 00001361 003 OF 003

¶10. (C) Addressing the amendment to the Mines and Minerals

Act that has been under discussion for some time, he said the

GOZ had decided to be pragmatic and achieve black empowerment

over several years rather than in one stroke. The GOZ had

come to recognize that forcing indigenization would kill off

foreign direct investment in the sector. He added that the

GOZ would look in all directions for investment, not just to

the East. (N.B. See septel for Gono,s reported &wild

promises8 to the Russians and other foreigners with respect

to the mining sector.)

——————————————— ———–

The Maize Deficit, 99-Year Leases, The Way Forward in Ag

——————————————— ———–

¶11. (C) Addressing the state of the agriculture sector, Gono

said Agriculture Minister Made had told him at a cabinet

meeting that this summer,s maize deficit would be

200,000-300,000 metric tons (MT),whereas Made,s own

Permanent Secretary Pazvakavamba had told him at the same

meeting that the deficit would be more likely on the order of

one million MT. If Zimbabwe truly needed US$200 million this

hungry season to purchase maize, it was “a tragedy”.

¶12. (C) On Mugabe’s issuance of the first 99-year leases to

farmers on November 9, Gono conceded to the Ambassador that

the leases were, in fact, not transferable. Ambassador Dell

referred Gono to a paper prepared by John Mellor for the ABAZ

forum that urged getting the balance right between commercial

farms and small holdings in order to alleviate poverty while

also generating foreign exchange.

——-

Comment

——-

¶13. (C) Mr. Fix-it is running out of fixes. He implied,

correctly, that the economy had never been in a worse state,

but as usual declined to take any responsibility. In fact no

one is more to blame for Zimbabwe’s economic downturn than

Gono, except possibly his political master, President Mugabe.

He has locked the local currency into an absurdly overvalued

exchange rate while fueling inflation through the reckless

printing of money. His erratic policy shifts have put

virtually every sector of the economy into a spin.

Undoubtedly, 2006 has been Gono,s most challenging year in

office, it has been even more challenging for the average

Zimbabwean whom Gono claims to champion but in fact has

defrauded through his professional incompetence and personal

corruption. In that regard, we welcome the rumors that

Mugabe is considering Gono as his successor. We could think

of no faster way to bring to a close ZANU-PF’s misrule.

DELL

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