Central bank governor Gideon Gono planned to ask President Robert Mugabe to clip Industry Minister Obert Mpofu’s wings after the disastrous 2007 price blitz but not to fire him as this would have upset the ethnic balance in his cabinet ahead of the 2008 elections.
This was disclosed to United States embassy officials by Gono’s advisor Munyaradzi Kereke who said Gono had already told Mugabe about the “explosive situation” within the defence force resulting from dire shortages of food and goods that he had observed in a countrywide tour of military installations.
Kereke said other recommendations that Gono planned to make at his next meeting with Mugabe were the immediate suspension of the Price Taskforce’s aggressive campaign; “dehorning” the Taskforce by scaling it back to regulate prices only for the three previously controlled and 16 previously monitored products; re-engaging labour and the business community on the social contract; and indexing wages to the Poverty Datum Line.
Full cable:
Viewing cable 07HARARE822, CABINET PANEL CONCEDES PRICE BLITZ DISASTER, GONO
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Reference ID |
Created |
Released |
Classification |
Origin |
VZCZCXRO3009
PP RUEHDU RUEHMR RUEHRN
DE RUEHSB #0822/01 2531622
ZNY CCCCC ZZH
P 101622Z SEP 07
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC PRIORITY 1868
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHUJA/AMEMBASSY ABUJA 1694
RUEHAR/AMEMBASSY ACCRA 1566
RUEHDS/AMEMBASSY ADDIS ABABA 1698
RUEHBY/AMEMBASSY CANBERRA 0964
RUEHDK/AMEMBASSY DAKAR 1327
RUEHKM/AMEMBASSY KAMPALA 1755
RUEHNR/AMEMBASSY NAIROBI 4173
RUEHFR/AMEMBASSY PARIS 1526
RUEHRO/AMEMBASSY ROME 2188
RUEHBS/USEU BRUSSELS
RUEHGV/USMISSION GENEVA 0819
RHEHAAA/NSC WASHDC
RUCNDT/USMISSION USUN NEW YORK 1915
RHMFISS/JOINT STAFF WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEFDIA/DIA WASHDC//DHO-7//
RUCPDOC/DEPT OF COMMERCE WASHDC
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK//DOOC/ECMO/CC/DAO/DOB/DOI//
RUEPGBA/CDR USEUCOM INTEL VAIHINGEN GE//ECJ23-CH/ECJ5M//
C O N F I D E N T I A L SECTION 01 OF 04 HARARE 000822
SIPDIS
SIPDIS
AF/S FOR S. HILL
NSC FOR SENIOR AFRICA DIRECTOR B. PITTMAN
STATE PASS TO USAID FOR L.DOBBINS AND E.LOKEN
TREASURY FOR J. RALYEA AND T.RAND
COMMERCE FOR BECKY ERKUL
ADDIS ABABA FOR USAU
ADDIS ABABA FOR ACSS
E.O. 12958: DECL: 01/12/2016
SUBJECT: CABINET PANEL CONCEDES PRICE BLITZ DISASTER, GONO
APPEALS TO MUGABE TO REVERSE POLICY
REF: HARARE 0795
Classified By: Deputy Pol/Econ Chief Frances Chisholm under Section 1.4
b/d
——-
Summary
——-
¶1. (C) A Cabinet panel reviewing the operation of the
Taskforce on Price Monitoring and Stabilization learned on
September 5 that the crackdown had had a disastrous effect on
the supply of food and goods and was also fomenting unrest
across the country, according to Munyaradzi Kereke, Senior
Advisor to the Reserve Bank of Zimbabwe (RBZ) Governor Gono.
As economic woes worsened and foreign exchange inflows dried
up, “friendly” states were demanding strict credit terms on
loan facilities, and the GOZ could no longer maintain the
cycle of forward selling of commodities. Meanwhile, the
supplementary budget, announced by the Finance Ministry on
September 6, had gross omissions and unrealistic estimates on
both the revenue and expenditure sides. Kereke also
criticized the prohibition ) an effective wage freeze –
announced on August 31 against indexing wages and other fees
to the consumer price index; it breached the terms of wage
negotiations among government, labor and business, and
further fomented social unrest.
¶2. (C) Gono,s senior advisor said the RBZ Governor had
reported to President Mugabe on September 7 the “explosive
situation” within the defense force resulting from dire
shortages of food and goods that Gono and Kereke had observed
in a countrywide tour of military installations on September
¶4. Gono intended to advise President Mugabe during a
September 10 meeting to suspend the price control blitz,
“dehorn” the Taskforce, and re-engage with labor and the
business community. End Summary
——————————————— ————
Cabinet Review Panel Finds Taskforce Operation a Disaster
——————————————— ————
¶3. (C) Kereke told econoff on September 11 that Christian
Katsande, Permanent Secretary in the Ministry of Industry and
International Trade, and Police Commissioner Augustine
Chihuri reported on September 5 to a Cabinet Review Panel on
the operation of the Taskforce on Price Monitoring and
Stabilisation that:
— Shortages of goods and services continued to worsen;
— Rural people were most adversely affected;
— Most companies had significantly scaled down production;
— Beef shortages were still critical;
— The price crackdown had caused economic contraction;
— Some Taskforce members were pursuing “personal agendas”
outside the mandate of the Taskforce; and
— Foreign exchange was desperately needed.
Kereke said Chihuri told the Review Panel that the defense
forces were at a “tipping point” of discontent.
—————————–
HARARE 00000822 002 OF 004
Less and Less to Sell Forward
—————————–
¶4. (C) At the same time, foreign exchange inflows to the RBZ
have dwindled to US$3 million/week against an “absolute
minimum” requirement of US$700 million from now until year
end, or an average of over US$40 million/week. With the
“write off” of this year’s winter wheat crop, for example,
Zimbabwe needed to import 350,000-400,000 tons of wheat at a
time of sky-high world prices. The RBZ’s “hand-to-mouth”
practice since 2005 of selling commodities forward had
“caught up” with the Bank, Kereke said, as prices rose and
domestic production of commodities dwindled. He admitted,
for example, that the RBZ was still about US$20 million in
arrears to Zimbabwe’s gold producers and production had
consequently fallen sharply. Nevertheless, the RBZ was about
to seal the second round of a US$50 million fuel deal with
Equatorial Guinea. Kereke lamented the extremely tight
financing terms, involving payment in gold, that Equatorial
Guinea and other “friendly” states were demanding.
——————————————— ——-
Supplemental Budget – Rife with Errors and Omissions
——————————————— ——-
¶5. (C) Kereke showed econoff a letter Gono had sent Finance
Minister Samuel Mumbengegwi one day after the announcement of
a supplemental budget on September 6 (septel). In the
letter, Gono pointed out to the Finance Minister significant
omissions and miscalculations in the budget request. Gono
noted, for example, that Zimbabwe needed an additional Z$5
trillion for food imports this year, not Z$800 million as
requested; he also suggested there was a 30-35 percent
“underperformance risk” in planned tax revenue collection
until year end. Kereke said the RBZ had calculated that, if
not reined in, the heavy hand of the Pricing Taskforce would
cost Zimbabwe Z$15-20 trillion in tax revenue in Q3 and Q4
2007, which Mumbengegwi had failed to take into account. Nor
had Mumbengegwi adequately factored in the immense cost of
servicing new domestic debt. Kereke said that the Finance
Minister had only consulted with Gono on one issue – the
announced devaluation from Z$250:USD to Z$30,000:USD ) as he
prepared the supplementary budget. (Note: The parallel market
rate is Z$260,000:USD. End note.)
——————————————— ————
Prohibition on Indexing Wages/Fees Breeds More Discontent
——————————————— ————
¶6. (C) Kereke added that the prohibition, announced on
August 31, against indexing wages and other fees to the
consumer price index or to any foreign exchange rate (an
effective wage freeze at a time of widespread suffering)
breached the terms of the Tripartite Negotiating Forum (TNF)
and the “social contract” agreed earlier this year among
government, labor and business. It also increased the threat
of social unrest. He did not believe that the nominal tax
relief in the supplemental budget in the form of a higher
tax-free threshold and wider income tax brackets adequately
relieved the tax burden on the poor. He warned, “if you try
to suffocate discontent, it will explode.”
HARARE 00000822 003 OF 004
——————————————— ———-
Tour of Military Barracks Reveals “Explosive Situation”
——————————————— ———-
¶7. (C) Kereke also said that he and Gono, accompanied by
Army Commander General Constantine Chiwenga, had toured
military installations around the country on September 4.
They observed, and Gono subsequently reported to Mugabe, an
“explosive situation” among defense forces resulting from
dire shortages of food and goods. He said senior military
officials had asked Gono – “because the Governor has the
President,s ear” – to inform Mugabe of the crisis and to
tell him that his security was in jeopardy. Kereke said
Mugabe was “jolted” by the news and the photographs of
deprivation in the report that Gono presented to him and
which Kereke showed econoff. He reportedly asked Gono, “Why
do my ministers lie to me?”
—————————————-
Gono Advises Mugabe to Suspend Taskforce
—————————————-
¶8. (C) Gono planned to meet Mugabe, at the President’s
request, on September 10 and make the following
recommendations:
— Immediately suspend the the Price Taskforce’s aggressive
campaign;
— Clip Taskforce Chairman Obert Mpofu’s wings (but without
firing him because it would upset the ethnic balance ahead of
an election – Mpofu belongs to the minority Ndebele tribe);
— “Dehorn” the Taskforce by scaling it back to regulate
prices only for the three previously controlled and 16
previously monitored products;
— Re-engage labor and the business community on the social
contract; and
— Index wages to the Poverty Datum Line.
Kereke was upbeat that his boss had the necessary influence
to sway Mugabe, and maintained that National Security
Minister Didymus Mutsa, a Mugabe intimate and member of the
policy-maing Joint Operations Command, shared Gono’s take o
the disaster at hand. Kereke admitted, however that Gono
had not been able to override Mumbenggwi,s vociferous
objection with Mugabe to the introduction of a “U.N. foreign
exchange rate” (reftel). He judged that the damage to the
economy since June was so deep that it would take a year to
recover.
——-
Comment
——-
¶9. (C) The erratic policy shifts of the last weeks all
indicate a ship out of control; the GOZ has lurched from
gradual back pedaling on price controls in mid-August, to a
veritable wage freeze a week ago, then a 20 percent
across-the-board price hike, followed by a risible
supplementary budget days later in the face of empty state
coffers and collapsing production. The next days will tell
whether Gono has the clout to sway Mugabe to start to put the
brakes on Zimbabwe’s most recent plunge into economic
HARARE 00000822 004 OF 004
madness. As confident as Kereke may be about a policy shift,
clearly not all the policy influencers are on his side; he
pleaded as we bade farewell, “please, please don’t e-mail me;
I’m being hacked.”
DHANANI
(27 VIEWS)
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