Gono’s policy flip-flopping

Reserve Bank of Zimbabwe governor Gideon Gono reinstated the real time gross settlement scheme barely a month after suspending it against technical advice from his advisers.

He, however, said all transactions through the system must have a minimum threshold of Z$5 billion which was only about US$8.

Gono advised commercial banks to employ the “know your customer principle” to prevent abuse of the system which had become a favourite of those “burning” money.

Full cable:

Viewing cable 08HARARE1025, ZIM NOTES 11-14-2008

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R 171408Z NOV 08

FM AMEMBASSY HARARE

TO RUEHC/SECSTATE WASHDC 3693

RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE

RUEHUJA/AMEMBASSY ABUJA 2126

RUEHAR/AMEMBASSY ACCRA 2428

RUEHDS/AMEMBASSY ADDIS ABABA 2546

RUEHRL/AMEMBASSY BERLIN 1046

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RHEFDIA/DIA WASHDC

RUEAIIA/CIA WASHDC

UNCLAS SECTION 01 OF 03 HARARE 001025

AF/S FOR B. WALCH

ADDIS ABABA FOR USAU

ADDIS ABABA FOR ACSS

NSC FOR SENIOR AFRICA DIRECTOR B.PITTMAN

TREASURY FOR D. PETERS

STATE PASS TO USAID FOR L.DOBBINS AND E.LOKEN

COMMERCE FOR BECKY ERKUL

SIPDIS

E.O.12958: N/A

TAGS: PGOV PREL ASEC PHUM ECON ZI

SUBJECT: ZIM NOTES 11-14-2008

———–

¶1. SUMMARY

———–

Topics of the week:

– SADC Attempts to Impose Political Solution…

– Protesters Beaten by Police, One Miscarried in Custody…

– RBZ Returns Global Fund Money…

– Diamonds are a Crooked Politician’s Best Friend…

– Visiting American Surgical Team Moves to Private Hospital…

– African Human Rights Commission Berates Zimbabwe…

– Zim troops in DRC?…

– Air Zimbabwe Demands Fares In Foreign Exchange…

– Reserve Bank of Zimbabwe (RBZ) Re-instates RTGS…

– Cash Withdrawal Limit For Companies Raised and Forex Surrender

Requirements Relaxed…

– Power Utility Stops Accepting Checks For Settlement Of Bills…

– Zimplats to Cease Open Pit Mining…

———————————

¶2. Price Movements-Exchange Rate

and Selected products

———————————

Parallel rate for cash shot up to Z$600,000:US$1

Check rate skyrocketed to Z$20 quadrillion:US$1 aginst inter-bank

average of Z$10,789:US$1

Breadon the parallel market doubled to Z$500,000

Sugr shot up to $2,500,000/2kg

Petrol and diesel qadrupled to Z$1,000,000/liter

—————————-

On the Political/Social Front

—————————-

¶3. SADC Attempts to Imose Political Solution… At a SADC summit

in Soth Africa on November 9, where only five heads of tate

(including Mugabe) were represented, SADC dscussed the political

impasse in Zimbabwe and ina communiqu suggested that the MDC and

ZANU-PF form a government and share the Home Affairs Ministry. MDC

leader Tsvangirai rejected this proposal. The MDC issued a

statement opposing not only the Home Affairs solution, but also

criticizing SADC for failing to tackle other issues: an equitable

distribution of all ministries, agreement on Constitutional

Amendment 19 (encapsulating the September 15 agreement) as a

precondition to establishment of a government, agreement on division

of provincial governors, composition of the national security

council, and discrepancies between what was agree to by the parties

on September 11 and what was signed on September 15.   In an

interview on November 13, Arthur Mutambara told the press that

Zimbabwean leaders should respect SADC’s resolution, but Mutambara

has so far indicated he will not enter the government unless

Tsvangirai does.

¶4. Protesters Beaten by Police, One Miscarried in Custody… The

National Constitutional Assembly (NCA) held protests in five cities

on November 11, calling for a political solution. Riot police broke

up protests in four cities and arrested over two dozen protesters.

NCA reports that one woman who was three months pregnant was kicked

repeatedly while in police custody in Mutare and had a miscarriage.

Some protesters have been released after paying a fine. Police

preventively detained NCA leader Lovemore Madhuku for about four

hours to prevent him from participating.

HARARE 00001025 002 OF 003

¶5. RBZ Returns Global Fund Money… Less than a week after The New

York Times broke the story on the Reserve Bank’s “diversion” of over

US$7 million that was donated to Zimbabwe by the Global Fund for

AIDS, TB, and Malaria, the RBZ returned the funds to the account.

Zimbabwe’s application for Round 8 funding was approved this week.

¶6. Diamonds are a Crooked Politician’s Best Friend… Zimbabwe’s

diamond fields have become a source for those with connections to

enrich themselves. See Harare 1016

¶7. Visiting American Surgical Team Moves to Private Hospital… The

volunteer medical team providing free cleft lip and palate

operations moved from the largely defunct government-run Harare

Central Hospital to the privately-funded St. Anne’s Hospital in

Harare. Inadequate facilities at Harare Central limited the number

of operations they could perform. The team is scheduled to leave

Harare on November 15 and plans to come back in six months for

another round of surgeries. See:

http://www.mg.co.za/article/2008-11-13

-us-doctors-shocked-at-

state-of-zim-health-system

¶8. African Human Rights Commission Berates Zimbabwe… The African

Commission for Human and People’s Rights, meeting in Nigeria,

criticized Zimbabwe for its atrocious human rights record in recent

years, particularly in 2008. It called on the AU and SADC to, “to

impress upon Zimbabwean authorities to take effective measures to

stop all forms of politically motivated violence and allow for free

political activity, including the opening up of space for the media

and civil society…. [and] to remind Zimbabwe of its obligations to

regional and international agreements and its current violation of

the human rights in relation to continued detentions, threats and

gender biased violence.”

¶9. Zim troops in DRC?… The BBC reported that Zimbabwean troops

are in the Democratic Republic of Congo to perform duties that

include guarding mines. See: http://news.bbc.co.uk/2/hi/

africa/7726690.stm

———————————-

On the Economic and Business Front

———————————-

¶10. Air Zimbabwe Demands Fares In Foreign Exchange… In line with

increased dollarization in the country, Air Zimbabwe is no longer

accepting payment for regional and international air fares in

Zimbabwe dollars. Only local routes will be payable in local

currency. The measure is designed to enable Air Zimbabwe to meet

its external debt obligations and to pay for spare parts and other

costs which account for 90 percent of the company’s costs.

¶11. Reserve Bank of Zimbabwe (RBZ) Re-instates RTGS… Typical of

RBZ governor Gideon Gono’s policy flip-flopping in recent years, the

RBZ has re-instated the real time gross settlement (RTGS) system

which was suspended against technical advice from his advisers

barely a month ago. According to the RBZ, all transactions going

through the system must have a minimum threshold of Z$5 billion

(about US$8). Gono advises that commercial banks employ the ‘know

your customer’ principle in order to prevent abuse of the system.

¶12. Cash Withdrawal Limit For Companies Raised and Forex Surrender

Requirements Relaxed… The RBZ stated that companies can now

withdraw cash equivalent to 120 percent of their previous week’s

cash deposits, while foreign exchange licensed shops are now

required to sell only 7.5 percent of their proceeds to the RBZ as

opposed to the current 15 percent. The measures which appear to be a

HARARE 00001025 003 OF 003

direct response to demands y industry are designed to address the

queues at banks and the high prices of goods in foreign exchange

licensed shops.

¶13. Power Utility Stops Accepting Checks For Settlement Of Bills…

The Zimbabwe Electricity Supply Authority (ZESA) has stopped

accepting checks as a form of payment for electricity consumed. The

move, which comes hard on the heels of a steep increase in tariffs

two weeks ago, will make it very hard for consumers to pay as they

are only allowed to withdraw Z$500,000 from the bank daily.

¶14. Zimplats to Cease Open Pit Mining… Zimbabwe’s platinum

producer, Zimplats Holdings, will cease the more expensive open pit

mining at its Ngezi Mine at the end of this month following a

sustained fall in platinum prices from US$2,200 per ton in March

2008 to US$846.89 per ton by November 7, 2008 in Europe. According

to a company report published last week, management is exploring

options to increase the cheaper underground ore production in order

to take advantage of processing capacity that will become available

with the commissioning of the Ngezi Concentrator in April 2009.

MCGEE

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