Reserve Bank of Zimbabwe governor Gideon Gono cracked down on insolvent and corrupt financial institutions within days of assuming his post prompting some to accuse him of a vendetta since he had been in the sector before his appointment.
United States embassy officials said though the move was necessary it added even more turbulence to the rocky economy.
They said prior to Gono’s arrival, the financial sector suffered from limited oversight.
Only 15 of 70 asset management firms had bothered to register with the Ministry of Finance though this was a legal requirement.
The government was providing funds to the productive sector at low rates of 30 percent and home buyers at 50-85 percent when the inter-bank rate was 300 percent.
Viewing cable 04HARARE86, Banking Sector Shake-down
This record is a partial extract of the original cable. The full text of the original cable is not available.
150752Z Jan 04
UNCLAS HARARE 000086
STATE FOR AF/S AND AF/EX
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER
USDOC FOR AMANDA HILLIGAS
TREASURY FOR OREN WYCHE-SHAW
PASS USTR FLORIZELLE LISER
STATE PASS USAID FOR MARJORIE COPSON
¶E. O. 12958: N/A
SUBJECT: Banking Sector Shake-down
Ref: Harare 73
¶1. Summary: New Reserve Bank (RBZ) Governor Gideon Gono
is cracking down on insolvent and corrupt financial
institutions. While we consider this a necessary and
healthy process, it adds even more turbulence to rocky
economy. End Summary.
¶2. These are the main events of the unfolding crisis:
– In his Dec 18 policy statement, Gono argued that many
financial institutions were using RBZ cover for
“speculative, personal consumption or asset acquisition
purposes.” As of Jan 1, the RBZ would “ensure that
liquidity assistance is granted only to solvent and
– Police shut down ENG Asset Management when it stopped
allowing investors to withdraw assets, arresting some top
managers as well as ZANU-PF Mashonaland West Chairman
Phillip Chiyangwa (ref).
– As part of the same investigation, police arrested
three heads of First Mutual Limited, another asset
manager, for having allegedly invested shareholder assets
in ENG in exchange for kickbacks.
– Cashflow Financial Services and Topfin Investments, two
more asset managers, stopped paying investors.
– Commercial banks Trust, Time, Metropolitan, First and
Century were unable to comply with new RBZ liquidity
requirements. Many firms/establishments around the
country stopped accepting their checks.
– Under pressure from many quarters, Gono backtracked
over the weekend and agreed to provide a bail-out fund
for commercial banks. Many Zimbabweans were worried that
investors would flock to foreign banks Standard Chartered
and Barclays, turning back the indigenization process.
¶3. Prior to Gono’s arrival, the financial sector suffered
from limited oversight. Only 15 of 70 asset management
firms had bothered to register with the Ministry of
Finance, a legal requirement. (Gono has taken over that
function.) The RBZ never enforced reserve minimums at
¶4. That and poor GOZ policy brought about this
predicament. The GOZ provides funds for artificially low
lending rates to the productive sector (currently 30
percent) and home-buyers (currently 50-85 percent at
building societies). By comparison, the present inter-
bank rate is 300 percent after falling considerably. The
RBZ and lending institutions are not able to guarantee
that these loans – with 620 percent inflation, they
amount to free money – are not used for speculative
purposes. For many, the temptation has been too great to