Hyping for political points

Old Mutual managing director Zomunoda Chizura said the Reserve Bank was inflating the amount of money it had seized during the 2006 currency changeover saying the confiscation figure was impossible due to the sheer volume of currency supposedly involved.

His argument was backed by financial consultant Emma Fundira who said the central bank was inflation the numbers to demonstrate that its inept policy was working.

 

Full cable:

 

Viewing cable 06HARARE1010, CURRENCY CHANGEOVER SPARKS CONFUSION

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Reference ID	Created	Classification	Origin
06HARARE1010	2006-08-11 13:13	CONFIDENTIAL	Embassy Harare

VZCZCXRO7996

RR RUEHMR RUEHRN

DE RUEHSB #1010/01 2231313

ZNY CCCCC ZZH

R 111313Z AUG 06

FM AMEMBASSY HARARE

TO RUEHC/SECSTATE WASHDC 0479

INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY

RUEHUJA/AMEMBASSY ABUJA 1297

RUEHAR/AMEMBASSY ACCRA 1145

RUEHDS/AMEMBASSY ADDIS ABABA 1301

RUEHRL/AMEMBASSY BERLIN 0062

RUEHBY/AMEMBASSY CANBERRA 0562

RUEHDK/AMEMBASSY DAKAR 0927

RUEHKM/AMEMBASSY KAMPALA 1355

RUEHNR/AMEMBASSY NAIROBI 3729

RUEHFR/AMEMBASSY PARIS 1124

RUEHRO/AMEMBASSY ROME 1766

RUEKJCS/JOINT STAFF WASHDC

RUFGNOA/HQ USEUCOM VAIHINGEN GE

RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK

RUEKDIA/DIA WASHDC

RHEHNSC/NSC WASHDC

RUEHBS/USEU BRUSSELS

RUCNDT/USMISSION USUN NEW YORK 1512

C O N F I D E N T I A L SECTION 01 OF 04 HARARE 001010

 

SIPDIS

 

SIPDIS

 

AF/S FOR H.SERVIN-BAEZ

SENIOR AFRICA DIRECTOR C. COURVILLE

STATE PASS TO USAID FOR M. COPSON AND E.LOKEN

TREASURY FOR J. RALYEA AND B. CUSHMAN

COMMERCE FOR B. ERKUL

 

E.O. 12958: DECL: 08/11/2015

TAGS: ASEC ECON PGOV PHUM PREL ZI

SUBJECT: CURRENCY CHANGEOVER SPARKS CONFUSION

 

REF: REFTEL: HARARE 970

 

Classified By: Ambassador Christopher Dell for reasons 1.5 b/d

 

——-

Summary

——-

 

¶1. (C) With five business days remaining until the currency

conversion deadline of August 21, business contacts tell us

the country is woefully unprepared for the expiration of the

old bearer checks. Most businesses have suspended or

significantly reduced sales, chiefly of imports, rather than

deal with the confusion of operating in two currency schemes.

The new checks are increasingly common in Harare, but

transactions in the old checks still dominate and the

dissemination of information regarding the redenomination to

the rural areas appears weak. Meanwhile, the police and

youth militias continue to seize large sums of cash at border

point and roadblock, although several contacts say the number

is probably exaggerated for political reasons. Against this

massive confusion, those with cash have stocked up on basic

necessities and flocked to secure assets, such as the stock

market, hard currency, and durable goods. The political

opposition has voiced concerns over the conversion, but has

otherwise not tapped into the conversion as issue to attack

the GOZ on. Anger is building as people realize that their

cash holdings are soon to be worthless, but the heavy police

and youth militia presence nationwide suggests that GOZ

remains ready to clamp down at the first signs of unrest.

End Summary.

 

—————————————

Redenomination Leaves Business Whizzing

—————————————

 

¶2. (SBU) Zimbabwean businesses have done little to prepare

for the bearer check switch announced by Reserve Bank

Governor Gono on July 31 (reftel), according to Olivine

managing director Ian MacKenzie. For example, insurance

broker Grant Gore told poloff on August 10 that his company

had yet to pay the US$2,000 necessary to purchase and install

new accounting software to manage the transition. For its

part, MacKenzie told econoff on August 3 that Olivine

suspended all sales for about five days immediately after the

July 31 statement to convert its bookkeeping system. Meikles

Africa director of retail Dave Mills told econoff on August

11 that the retail association had appealed to the Reserve

Bank to extend the conversion period.

 

¶3. (SBU) Those businesses that have remained open have

significantly reduced sales of imported goods, according to

several contacts and observations from Embassy staff around

Harare. Commercial Farmers’ Union President Doug

Taylor-Freeme told econoff on August 10 that businesses had

cut back on sales of high-value items, like generators,

especially because the replacement costs were too high in

this time of currency uncertainty. Mills said that its TM

supermarket chain, while adhering to the GOZ,s price freeze,

had taken imported food and beverages off the shelf rather

than face the run on these products. Fuel also has become

especially scarce as traders withhold stock in anticipation

of a massive depreciation of the currency on the parallel

market. Mills predicted that inflation will shoot up on

August 22 as merchants return goods to the shelves and the

Reserve Bank’s price freeze ends.

 

 

 

HARARE 00001010 002 OF 004

 

 

—————————-

Spread of New Checks Limited

—————————-

 

¶4. (SBU) The revalued bearer checks have become increasingly

common in Harare over the past few days, but payment in the

old checks is still the norm and most of the city’s ATMs

still disburse the old money. Nonetheless, the Embassy’s

economic assistant visited several banks in downtown Harare

on August 10, where bank managers said they had sufficient

stocks of the new checks. Meikles retail director Dave Mills

told econoff on August 11 that his stores were seeing only 13

percent of sales in the new currency. MacKenzie said that he

anticipated chaos at 4pm on August 21 when the banks close to

the public. Mills also predicted &agitation,8 particularly

at the interface of banks and supermarkets with the public.

 

 

¶5. (SBU) Economic analyst John Robertson on August 10 told

econoff that Zimbabwe’s rural areas would be hardest hit by

the conversion. The rural areas hold a large proportion of

the country’s cash as farmers attempt to smooth out revenue

earned from crop sales over an entire year’s worth of

purchases. Particularly at this time of year, the

cotton-growing communal areas are awash in cash, according to

Mills. Moreover, most rural households are located too far

from banks to make the conversion feasible. Suggesting that

massive sums of cash could be wiped out overnight in the

rural areas, Roberston said that this could be the worst own

goal ever scored by ZANU-PF. Elaborating on this point,

economic professor Tony Hawkins told econoff on August 8 that

Gono, his former student, “had gone crazy”.

 

——————

A License To Steal

——————

 

¶6. (SBU) Police, the revenue authority, and the youth

militia have stepped up the number of roadblocks and border

checks following Gono’s statement and continue to seize cash

holdings arbitrarily deemed to be “excessive.” Contacts tell

us that police often do not issue receipts, leading many to

believe that they are pocketing the funds. Zimbabwe Lawyers

for Human Rights (ZLHR) has publicly condemned the seizures

as an illegal operation designed only to loot money from

unsuspecting travelers. The lawyers noted the use of ruling

party youth militias at the roadblocks represented serious

human rights abuses, such as forcing women to strip naked and

be subjected to indecent searches.

 

—————————

Hyping for Political Points

—————————

 

¶7. (SBU) Business contacts tell us, however, that the number

of arrests and money seizures is probably far less than the

figure trumpeted in the official press. The state-controlled

Herald on August 9 reported that some 3,199 individuals had

been arrested for contravening monetary regulations, netting

a total of Z$10.6 trillion (or US$42 million at the new

devalued official rate). Old Mutual managing director

Zomunoda Chizura told econoff on August 10 that the official

confiscation figure was impossible due to the sheer volume of

currency supposedly involved. Noting that few business

contacts had first hand knowledge of such arrests or

seizures, financial consultant Emma Fundira on August 8 told

poloff that the Reserve Bank was likely inflating the numbers

to demonstrate that its otherwise inept policy was working.

 

HARARE 00001010 003 OF 004

 

 

 

¶8. (SBU) There is also widespread speculation in Harare that

Reserve Bank Governor Gono is manipulating media coverage of

the conversion to enlarge his public role. Days after he

issued the monetary statement, state-controlled media gave

front-page coverage to his tour of downtown businesses to

explain the conversion. Meanwhile, rumors are circulating

that a fire at one of Gono’s maize farms on August 4 might

have been intentionally set to garner public sympathy for the

Reserve Bank Governor. Possibly adding credence to these

rumors, Taylor-Freeme tells us that fire in a maize field at

this time of year is not a problem as the husk protects the

cob; he even noted that some farmers intentionally burn the

field to ease harvesting.

 

———————

Fleeing to Safe Haven

———————

 

¶9. (SBU) Uncertainty over the issuance of new bearer checks

has prompted a rush to perceived saf investments, such as

consumable goods, durable oods that can be resold, and

stocks. Meikles, Mils noted that its supermarket sales

were &phenomnal, unprecedented,8 as consumers spent excess

csh. Visits to Harare stores, especially the week of the

statement, showed that consumers were buying an exceptionally

large amount of goods, presumably preferring to spend their

old money rather than convert it. Meanwhile, individuals

with cash holdings in excess of the proscribed deposit limits

appear to be purchasing luxury goods that will retain their

value once the conversion is complete. For instance, we have

heard from numerous contacts that one person recently

purchased ten luxury cars in cash.

 

¶10. (SBU) Stock trader Ndodana Mguquka on August 10 told

poloff that the Zimbabwe Stock Exchange (ZSE) had skyrocketed

since the statement, in part due to individuals looking to

reduce their cash holdings. Mguquka noted that the bull

market actually started a week before the statement and

suggested that it might have been caused by Gono’s associates

who had been tipped off. Meanwhile, Old Mutual’s Chizura

told econoff on August 10 that his company’s stock had surged

140 percent this month. Old Mutual stock, which is traded

both on the local and British markets, was especially

attractive to investors who can buy the stock in Zimbabwean

dollars and sell it, albeit with considerable administrative

hurdles, for hard currency on the London exchange. Chizura

calculated that the relative prices of the stock on both

markets implied an exchange rate of Z$1.33 million to the US$

(old denomination).

 

¶11. (SBU) The parallel exchange rate has also spiked due to

the uncertainty, however a police crackdown on forex

merchants and an apparent lack of cash has worked to arrest

the appreciation. The rate is roughly Z$650,000 to the US

dollar ) more or less in line with the price of one liter of

fuel. We have also heard from some sources that the new

bearer checks are trading at a slightly higher premium

against the US$.

 

————————–

Limited Political Response

————————–

 

¶12. (SBU) Both factions of the opposition MDC have publicly

condemned the bearer check conversion as a half-measure that

does not address the country’s fundamental political and

economic crisis. Spinning Gono’s “zeros to heros” rhetoric,

 

HARARE 00001010 004 OF 004

 

 

anti-Senate MDC economic spokesperson Tapiwa Mashakada issued

a statement on August 1 that Mugabe was the only zero that

had to go. There has yet to be any indication, however, that

the political opposition plans to seize on the conversion’s

potential to wipe out massive sums of wealth as a political

lever against the government.

 

——-

Comment

——-

 

¶13. (C) Large traders are probably moving deftly to protect

themselves, buying goods and stocks, and where need be

bribing RBZ officials. Business will almost certainly

survive the bearer check conversion, albeit at significant

expense and much headache. We would be quite surprised if

“special arrangements were not put in place to ensure that

the political elite were insulated from the fallout. Unhappy

with the lack of prior notice, many ZANU-PF insiders have

blamed Gono and the threats against him were growing in

volume until Mugabe himself spoke in the governor’s defense.

Coming against the background of already high tensions over

the Mugabe succession, and growing speculation about Gono’s

political ambitions, the currency conversion has the

potential to spark a rebellion within government ranks.

Mugabe and Gono are likely to anticipate this and conclude

that it is wiser to let party elites preserve their financial

assets then risk a real crisis. Should the intra-party

pressure become too much, Gono maintains the ability to

announce an extension of the conversion deadline, a move that

would no doubt be spun as a magnanimous move to help rural

farmers.

 

¶14. (C) Of greater concern, however, is the large number of

people who operate outside the formal banking sector. This

includes not only those in the rural areas ) the ruling

party’s heartland ) but also a significant share of the

urban population who have resorted to informal trading to

survive. This program, launched without prior consultation

and with insufficient time, will almost certainly erase a

significant amount of wealth from the country’s most

vulnerable. The political consequences are, however,

uncertain and will depend on how the opposition responds.

Much like last year’s Operation Restore Order, the opposition

has an opportunity to galvanize popular sentiment against

GOZ’s corrupt policies, but so far has failed to capitalize

on the opportunity. We agree with Robertson that this could

be the greatest own goal scored by ZANU-PF, but the

opposition must act first. The GOZ appears to be putting a

two-fold strategy in place in anticipation of a popular

reaction. First, it has launched a major, and so far

successful, propaganda campaign to convince ordinary

Zimbabweans that “zeros to heroes” has begun to lower prices

and squelch inflation. It may be some time before the less

sophisticated public sees through the government’s claims and

realizes that inflation continues to soar. Second, the GOZ

appears to have its security forces on high alert in order to

stamp out any signs of protest. Given the lack of a clear

lead from the political opposition and the known passivity of

the populace, there is a very good chance Gono will win his

gamble, at least in the near-term. Over the longer-term,

however, this could well prove to have been yet another

milestone in Zimbabwe’s economic collapse and the eventual

political fallout from it.

DELL

 

(58 VIEWS)