Gono shows his clout


Central bank governor Gideon Gono showed his new financial clout by announcing new measures for exporters which would only allow them to exchange only 25 percent of their earnings at the official rate, down from half, and announced that insolvent banks would be left to collapse.

He announced a new forex currency auction system and said only authorised importers would participate. Embassies and non-governmental organisations would now use the auction rate for their transactions.

Gono said the Reserve Bank would allow “weak, poorly managed financial institutions” to fail. The central bank would not bail them out.

The United States embassy said that given the constraints that he was working within, Gono had probably done about all he could.

The new measures, however, would not be able to reduce year-on inflation to his projected 170-200 percent by December 2004 or ensure that parastatals lived within their means.

They would probably not be able to restrict the spendthrift Finance Ministry either. But the embassy admitted “it was a far bolder monetary policy statement that anything his predecessor had ever given”.


Full cable:


Viewing cable 03HARARE2442, Gono: Exporters Can Keep More

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Reference ID






2003-12-19 09:00

2011-08-30 01:44


Embassy Harare

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












E. O. 12958: N/A


SUBJECT: Gono: Exporters Can Keep More



1. Summary: Although the mechanics are still fuzzy, it

appears Reserve Bank (RBZ) Governor Gideon Gono has

adopted a more realistic monetary and exchange policy.

In his first policy speech yesterday, Gono offered

exporters more favorable formulas for revenue retention.

He also stated that the Reserve Bank would allow

insolvent commercial banks to fail, expect parastatals to

recover full cost for services, terminate Export

Processing Zone (EPZ) privileges for many firms and

continue to circulate bearer checks and existing

banknotes for at least another year. End Summary.


Export Taxation


2. Until now, exporters have retained 50 percent of gross

revenue and surrendered 50 percent at an official rate of

Z$824:US$1. Since the market currency rate is

Z$6500:US$1 – 8-times the official rate – exporters have

been paying almost 50 percent of revenue in tax. Gono

acknowledged that the fixed exchange rate of the past 6

years is “inappropriate for the short, medium and long-

term good of the country.” (Note: The rate is unsupported

by reserves.)


3. Gono offered two alternative schemes. Under the first

scheme, exporters would still keep 50 percent, but

exchange only 25 percent at the disadvantageous official

rate. The GOZ would sell the other 25 percent through an

official auction. Since the rate obtained through an

open auction should reflect the parallel rate, exporters

will receive a higher blend rate, probably based on a

75/25 split between parallel and official rates. Gono

affirmed that tobacco growers would now receive 75

percent of earnings at the auction rate, a vast

improvement over the 50/50 arrangement during 2003. The

auction rate would also apply to tourists, foreign

embassies, NGOs and remittances. Only authorized

importers could participate in the auction system.


4. Under the second scheme, the GOZ would offer exporters

incentives for rapid remission of foreign exchange

earnings. Exporters retain a full 80 percent of forex if

they make an advance payment to the Reserve Bank. The

longer it takes exporters to remit funds, the less they

retain. After 120 days, they lose everything.


5. Each scheme is an improvement over the present policy.

However, none of the bankers we spoke with this morning

understands how the two schemes interplay. According to

the most favorable interpretation, exporters could retain

80 percent of forex for advance payment; then of the

remaining 20 percent, commit 10 percent to the auction

and 10 percent to official exchange. We understand the

Reserve Bank is holding sessions with bankers to explain

the new regulations.


Other Policy Changes


6. There were other positive aspects to Gono’s speech.

He emphasized that it would be a long and painful road

back to economic normalcy. He never blamed (nor even

mentioned) Western sanctions for the economic downturn,

and stressed the importance of reengaging the donor

community. He said the Reserve Bank would allow “weak,

poorly managed financial institutions” to fail, noting

that many commercial banks harbor a “misguided

assumption” that RBZ will bail them out. He set a target

for broad money (M3) growth rate at only 200 percent by

December 2004, down from the present 500 percent rate.

Gono extended all “bearer checks” and other banknotes in

circulation until December 21, 2004. He insisted

parastatals should not operate in the red. And he

eliminated a 30 percent withholding tax on savings

interest (an oppressive tax, since all savings rates are

heavily negative in real terms).


7. More worrisome is Gono’s revocation of privileges for

locally-owned Export Processing Zone (EPZ) firms. The

GOZ will now subject them to the same foreign exchange

requirements as other exporters. Foreign-owned EPZ

companies will continue to enjoy export incentives, but

will pay electricity and fuel in forex. Gono also

insisted that exchange houses, closed a year ago, would

remain shut “until our efforts to stamp out the parallel

market show results.”




8. Given the constraints that he is working within, Gono

has probably done about all he could. (It would have made

more sense to move immediately to a floating exchange

rate.)   We do not believe he will be able to a) reduce

year-on inflation to his projected 170-200 percent by

December 2004, b) ensure that parastatals live within

their means or c) restrict the spendthrift Finance

Ministry to supplementary budgets only for “emergencies

and disasters.” Nonetheless, it was a far bolder

monetary policy statement that anything his predecessor

had ever given. Probably, it is a small step in the

right direction.


9. Of course, the devil is in the details, and we will

wait to see how they play out. For instance, will

parastatals recover costs based on the GOZ’s official or

auction rate?   How will the two export schemes work

together? Will the GOZ manipulate the auction process to

ensure the rate remains low? If exporters must now pay

electricity in forex, what will the rate be for partial

exporters? We will continue to monitor the RBZ’s

interpretation of these new rules.





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Charles Rukuni
The Insider is a political and business bulletin about Zimbabwe, edited by Charles Rukuni. Founded in 1990, it was a printed 12-page subscription only newsletter until 2003 when Zimbabwe's hyper-inflation made it impossible to continue printing.


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