Gono promises floating exchange rate

Central bank governor Gideon Gono promised a visiting International Monetary Fund team that Zimbabwe would have market-determined exchange and interest rates by September 2005, which was almost a year away.

Gono made the undertaking to IMF Africa director Abdoulaye Bio-Tchane who also met President Robert Mugabe but was not impressed.

Bio-Tchane also met British and United States embassy officials who said they would not reengage with Zimbabwe unless it addressed fully democracy, governance and human rights issues.

Full cable:

Viewing cable 04HARARE1900, GOZ Promises Floating Exchange Rate to IMF

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

UNCLAS HARARE 001900

SIPDIS

STATE FOR AF/S

USDOC FOR ROBERT TELCHIN

TREASURY FOR OREN WYCHE-SHAW

PASS USTR FLORIZELLE LISER

STATE PASS USAID FOR MARJORIE COPSON

SENSITIVE

¶E. O. 12958: N/A

TAGS: EFIN ECON ETRD EINV PGOV ZI

SUBJECT: GOZ Promises Floating Exchange Rate to IMF

Sensitive but unclassified. Not for Internet posting.

¶1. (SBU) Summary: International Monetary Fund (IMF)

Africa Director Abdoulaye Bio-Tchane said Reserve Bank of

Zimbabwe (RBZ) Governor Gideon Gono indicated he has set

September 2005 as the target month for introducing market-

determined exchange and interest rates. End summary.

¶2. (SBU) Accompanied by Assistant Africa Director

Sharmini Coorey, Bio-Tchane met the Ambassador on Nov 17

to seek out our views on economic and political

developments. Bio-Tchane also met with President Mugabe

on Nov 16, but the IMF official characterized this

session as unremarkable. Bio-Tchane noted that he had

met earlier with the British Ambassador, who said his

country was cautiously prepared to reengage with Zimbabwe

if discussions were not limited to assistance alone but

also encompassed the full range of democracy, governance

and human rights issues.

¶3. (SBU) Amb Dell said U.S. policy more or less

paralleled that view. He added, however, that as long as

the GOZ continues to engage in repressive tactics and

undermine multiparty democracy, there would be real

constraints on our ability to reengage with Zimbabwe.

The Ambassador also expressed concern about the tactics

and timing of the IMF process leading to a decision on

Zimbabwe’s compulsory withdrawal from the Fund. It would

hand Mugabe a cheap propaganda victory on the eve of

elections if an Executive Directors’ vote in favor of

withdrawal fell short of the required 85 percent level at

the Fund’s Board. One could easily imagine headlines

here crowing about “IMF Approval for Mugabe’s Policies.”

Thus, we need to be either very confident we could see

the process through successfully or manage it to avoid a

wrong outcome before elections here. In a separate

conversation later that evening, RBZ Deputy Governor Nick

Ncube acknowledged that the GOZ’s US$ 5 million quarterly

payments toward its IMF arrears were mere “tokens.”

¶4. (SBU) Bio-Tchane deferred the IMF’s own assessment of

Zimbabwe’s economy until the conclusion of an upcoming

staff visit, which Coorey will head in early December.

However, Bio-Tchane volunteered that he urged GOZ

officials to place more emphasis on fiscal controls, i.e.

cutting public spending. Bio-Tchane said Gono assured

him the GOZ would move to market-determined interest and

exchange rates by September 2005. Bio-Tchane and Coorey

disavowed government media reports that they “hailed the

ongoing economic reforms” and were “happy with the

progress made so far.”   They also denied assertions in

the GOZ’s Herald that the IMF has established a forecast

of 5.2 percent GDP growth for 2005. In his post-visit

press release, Bio-Tchane offered no appraisal of Gono’s

economic policies to date.

¶5. (SBU) Comment: Although Bio-Tchane was guardedly non-

committal in advance of December’s technical assessment,

he seemed to look upon the GOZ’s much-ballyhooed recovery

with skepticism. The IMF official also appeared mildly

dismissive of the GOZ’s current official inflation rate

of 209 percent. On the other hand, we have no doubt the

GOZ seeks to gain maximum political mileage from this

“economic turnaround,” trumpeted almost daily in the

state media. Referring to the IMF’s upcoming decision on

Zimbabwe’s compulsory withdrawal, the Nov 18 Herald

editorial proclaimed: “We. . . expect the IMF Executive

Board to give the thumbs-up to the country.” Without

doubt, the GOZ will spin non-expulsion as endorsement of

its economic management, providing a handy campaign plank

for March’s parliamentary electio

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