The International Monetary Fund resident representative for Zimbabwe Robert Franco saw a very bleak future for Zimbabwe despite the appointment of technocrats Simba Makoni as Finance Minister and Nkosana Moyo as Industry Minister.
One of his biggest concerns was the country’s poor budget performance and its mounting debt and he was afraid that for the first time in its history Zimbabwe might default on its repayments.
He estimated that the budget deficit could easily hit 18 to 20 percent of gross domestic product.
Though he had been one of the most optimistic fellows about the future of Zimbabwe, he had begun to lose heart and was tired of consistently having promises made to him broken.
The United States embassy agreed with Franco’s assessment of the situation in Zimbabwe adding: “The debt hole the country has dug itself is extremely deep and will take at a minimum two to three years to climb out of under the best of circumstances.”
Full cable:
Viewing cable 00HARARE4207, ZIMBABWE’S IMF RESREP ON THE RELATIONSHIP
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311108Z Jul 00
CONFIDENTIAL PTQ2248
PAGE 01 HARARE 04207 01 OF 03 311108Z
ACTION AF-00
INFO LOG-00 NP-00 AID-00 AMAD-00 CEA-01 CIAE-00 CTME-00
DODE-00 SRPP-00 DS-00 EB-00 EXIM-01 E-00 VC-00
FRB-00 H-01 TEDE-00 INR-00 IO-00 ITC-01 LAB-01
L-00 VCE-00 AC-01 NSAE-00 NSCE-00 OIC-02 OMB-01
OPIC-01 PA-00 PM-00 PRS-00 ACE-00 P-00 SP-00
SSO-00 STR-00 USIE-00 FMP-00 PMB-00 DSCC-00 DRL-02
G-00 NFAT-00 SAS-00 /012W
——————7459FD 311108Z /38
FM AMEMBASSY HARARE
TO SECSTATE WASHDC PRIORITY 6721
INFO SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
USDOC WASHDC
DEPTTREAS WASHDC
C O N F I D E N T I A L SECTION 01 OF 03 HARARE 004207
SIPDIS
STATE FOR AF, AF/S, AF/EPS, EB/IFD/ODF, EB/TPP/ODC
TREASURY FOR ED BARBER, GRACE SONE
USDOC FOR 4510 ERIC HENDERSON
STATE PASS USTR/RWHITTAKER
STATE PASS NSC FOR SENIOR AFRICA DIRECTOR GAYLE SMITH
E.O. 12958: DECL: 07/31/07
SUBJECT: ZIMBABWE’S IMF RESREP ON THE RELATIONSHIP
AND THE ECONOMY
CONFIDENTIAL
PAGE 02 HARARE 04207 01 OF 03 311108Z
CLASSIFIED BY ECON/COMM OFFICER MARK PROKOP, REASON
1.5 (B), (D)
REFS: A) HARARE 2927, B) HARARE 2684, C) HARARE 2081,
D) HARARE 4084
¶1. (C) SUMMARY: IN A MEETING ON JULY 28 THE IMF
RESREP, ROBERT FRANCO, PROVIDED ECONOFF WITH
INFORMATION ON UPCOMING IMF ACTIONS ON ZIMBABWE.
FRANCO ALSO SHARED HIS BLEAK OUTLOOK ON THE CURRENT
STATE OF THE ECONOMY. FOREMOST ON HIS LIST OF
CONCERNS WAS: THE GOZ’S VERY POOR BUDGET PERFORMANCE;
THREATS TO THE VIABILITY OF THE COMMERCIAL FARMING
AND MINING SECTORS (WHICH TOGETHER BRING IN MORE THAN
HALF OF ZIMBABWE’S FOREIGN EXCHANGE EARNINGS); AND
THE ONGOING HEAD-IN-THE-SAND ATTITUDE OF ZIMBABWE’S
SENIOR LEADERSHIP. THE IMF OFFICIAL BELIEVES THAT
THINGS WILL GET WORSE ECONOMICALLY OVER THE NEXT YEAR
OR TWO, BEFORE THE BOTTOM IS REACHED AND A TURNAROUND
SLOWLY ACHIEVED. WHILE FRANCO FERVENTLY HOPES THAT
THE HIGHLY RESPECTED NEW MINISTERS OF INDUSTRY AND
FINANCE (RESPECTIVELY NKOSONA MOYO AND SIMBA MAKONI)
WILL BE GIVEN AUTONOMY AND CLOUT TO EFFECT POSITIVE
CHANGE AND INTRODUCE RATIONAL POLICIES, HE IS NOT
OPTIMISTIC THAT THE PRESIDENT OR POLITBURO WILL
BESTOW SUCH POWERS. END SUMMARY.
—————————————-
THE IMF’S NEAR TERM SCHEDULE IN ZIMBABWE
—————————————-
CONFIDENTIAL
PAGE 03 HARARE 04207 01 OF 03 311108Z
¶2. (C) FRANCO TOLD US THAT THE IMF’S DEPUTY
DIRECTOR, STANLEY FISHER, IS CURRENTLY TRAVELING IN
AFRICA (HE EXPLAINED THAT THIS WAS NOT “OFFICIAL
TRAVEL”) AND WOULD BE IN VICTORIA FALLS DURING THE
WEEK OF JULY 31. CAPITALIZING ON THIS OPPORTUNITY,
THE IMF RESREP HAD SET UP A LUNCH MEETING TO
INTRODUCE THE NEW FINANCE MINISTER, SIMBA MAKONI, TO
FISHER. FRANCO OPINED THAT THE MESSAGE THE FUND’S
DEPUTY DIRECTOR WOULD DELIVER TO MAKONI WOULD BE THE
SAME AS THAT RELAYED BY FUND MANAGING DIRECTOR
KOEHLER A FEW WEEKS AGO IN MOZAMBIQUE TO THE PREVIOUS
FINANCE MINISTER, HERBERT MURERWA. THE MESSAGE
DELIVERED IN MAPUTO WAS THAT THE FUND IS WILLING TO
WORK WITH ZIMBABWE, BUT THAT MINIMUM CONDITIONS MUST
BE ADHERED TO AND COMMITMENT AND PROGRESS ON TARGETS
AND POLICIES MUST BE DEMONSTRATED BEFORE A PROGRAM IS
AGREED UPON AND MONIES BEGIN TO FLOW. DIALOGUE AND
PROMISES NEEDED TO BE BACKED UP BY ACTION AND
DEMONSTRABLE RESULTS. FRANCO BELIEVES THAT SUCH A
HURDLE WILL PROVE TOO DIFFICULT FOR ZIMBABWE TO
OVERCOME UNDER THE CURRENT ZANU-PF LED REGIME.
¶3. FRANCO ALSO INFORMED ECONOFF THAT A SIX MEMBER
ARTICLE IV REVIEW TEAM, HEADED BY MR. NEUHAUS, WOULD
ARRIVE AUGUST 24. HE REPEATED THAT, CONTRARY TO
LOCAL PRESS REPORTS, THE TEAM WAS NOT COMING TO
DISCUSS A NEW CREDIT OR THE RESUMPTION OF LENDING.
AS HE HAD TOLD US EARLIER IN THE YEAR (REF B), HE
FIRMLY BELIEVED THAT A SHADOW PROGRAM OF AT LEAST SIX
MONTHS WOULD BE REQUIRED BEFORE A NEW CREDIT COULD BE
CONFIDENTIAL
PAGE 04 HARARE 04207 01 OF 03 311108Z
NEGOTIATED OR PUT FORTH FOR BOARD APPROVAL. THE
VISITING TEAM WOULD RESTRICT ITSELF TO EXAMINING
ECONOMIC RESULTS FOR THE FIRST TWO QUARTERS OF THE
YEAR, ADDING THAT THEY WERE IN FOR A SHOCK WHEN THEY
SEE HOW BAD ECONOMIC CONDITIONS AND THE GOVERNMENT
BUDGET ARE.
————————
THE STATE OF THE ECONOMY
————————
¶4. (C) TURNING TO ECONOMICS, THE RESREP AND ECONOFF
COMPARED NOTES ON ZIMBABWE, AND FOUND LITTLE TO
DIFFER ON IN OUR DATA AND ASSESSMENTS. BASED ON
CUMULATIVE FIGURES THROUGH END-MAY, THE BUDGET
DEFICIT IS CURRENTLY RUNNING AT ABOUT 16 PERCENT AND
IS FORECAST TO TOP 20 PERCENT BY YEAR-END. (IN APRIL
THE EMBASSY PREDICTED IN REF C THAT THE DEFICIT WOULD
EASILY HIT 18-20 PERCENT.) THE FORECAST MEANS THAT
THE GOZ WILL HAVE TO FINANCE A 2000 BUDGET DEFICIT OF
CLOSE TO ZIM $70 BILLION (OR ABOUT U.S. $1.85 BILLION
AT THE OFFICIAL RATE OF Z$38), AN ASTRONOMICAL
FIGURE. (ZIMBABWE’S 1999 GDP IS ESTIMATED AT ABOUT
U.S. $5.6 BILLION.) SUCH FINANCING WILL ADD TO THE
ALREADY VERY HIGH STOCK OF TREASURY BILLS, WHICH AT
CONFIDENTIAL
CONFIDENTIAL PTQ2252
PAGE 01 HARARE 04207 02 OF 03 311108Z
ACTION AF-00
INFO LOG-00 NP-00 AID-00 AMAD-00 CEA-01 CIAE-00 CTME-00
DODE-00 SRPP-00 DS-00 EB-00 EXIM-01 E-00 VC-00
FRB-00 H-01 TEDE-00 INR-00 IO-00 ITC-01 LAB-01
L-00 VCE-00 AC-01 NSAE-00 NSCE-00 OIC-02 OMB-01
OPIC-01 PA-00 PM-00 PRS-00 ACE-00 P-00 SP-00
SSO-00 STR-00 USIE-00 FMP-00 PMB-00 DSCC-00 DRL-02
G-00 NFAT-00 SAS-00 /012W
——————745A0E 311109Z /38
P 311108Z JUL 00
FM AMEMBASSY HARARE
TO SECSTATE WASHDC PRIORITY 6722
INFO SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
USDOC WASHDC
DEPTTREAS WASHDC
C O N F I D E N T I A L SECTION 02 OF 03 HARARE 004207
SIPDIS
STATE FOR AF, AF/S, AF/EPS, EB/IFD/ODF, EB/TPP/ODC
TREASURY FOR ED BARBER, GRACE SONE
USDOC FOR 4510 ERIC HENDERSON
STATE PASS USTR/RWHITTAKER
STATE PASS NSC FOR SENIOR AFRICA DIRECTOR GAYLE SMITH
E.O. 12958: DECL: 07/31/07
SUBJECT: ZIMBABWE’S IMF RESREP ON THE RELATIONSHIP
AND THE ECONOMY
CONFIDENTIAL
PAGE 02 HARARE 04207 02 OF 03 311108Z
THIS TIME IS CLOSE TO ZIM $85 BILLION (AT A CURRENT
AVERAGE RATE OF 59 PERCENT). FOUR YEARS AGO THE
STOCK OF TREASURY BILLS WAS ZIM $13 BILLION. THE T-
BILL FINANCING WILL FURTHER CROWD OUT INVESTMENT BY
THE PRIVATE SECTOR, ADD TO INTEREST RATE PRESSURE,
AND RESULT IN INCREASED INTEREST PAYMENTS. THIS
YEAR’S BUDGET DEFICIT IS ALSO BEING FINANCED BY USE
OF THE GOVERNMENT OVERDRAFT AT THE RESERVE BANK,
WHICH AT JUNE 23 WAS ZIM $10.6 BILLION COMPARED TO
$3.5 BILLION AT JUNE 30, 1999. THE CURRENT OVERDRAFT
INTEREST RATE IS 70 PERCENT.
¶5. (C) RESERVE MONEY IS GROWING AT AN ANNUAL RATE OF
68.5 PERCENT (A ROUGH GUIDE TO FUTURE INFLATION), AND
INFLATION MEASURED BY CHANGES IN THE CONSUMER PRICE
INDEX IS 58.7 PERCENT (MAY 1999/MAY 2000). USABLE
RESERVES OF THE CENTRAL BANK ARE CURRENTLY EQUAL TO
JUST A FEW DAYS OF IMPORTS, AND THE STOCK OF EXTERNAL
ARREARS ON JUNE 23 WAS U.S. $114.4 MILLION, OF WHICH
$37 MILLION IS GOVERNMENT-GUARANTEED DEBT. IN
ADDITION, THERE ARE PRIVATE SECTOR ARREARS OF AT
LEAST U.S. $225 MILLION, INCLUDING $75 MILLION OF
SUPPLIERS’ CREDITS.
¶6. (C) WITH REGARD TO THE REAL SECTOR, INVESTMENT,
BOTH DOMESTIC AND EXTERNAL, HAS COME TO A STANDSTILL.
IN 1999 REAL GDP GROWTH WAS NEGATIVE TO THE TUNE OF
ABOUT ONE PERCENT. IN 2000 THE DECLINE IS FORECAST
AT BETWEEN 5 AND 10 PERCENT; ON A PER CAPITA BASIS,
THE DECLINE IS ABOUT 2.8 PERCENTAGE POINTS HIGHER.
CONFIDENTIAL
PAGE 03 HARARE 04207 02 OF 03 311108Z
THE PEGGING OF THE ZIMBABWE DOLLAR SINCE JANUARY 1999
AT THE OFFICIAL EXCHANGE RATE OF U.S. $1 EQUALS ZIM
$38 HAS SEVERELY DISTORTED FINANCIAL MARKETS AND
FUNDS FLOWS, AND ALONG WITH DECLINING EXPORTS HAS
CAUSED THE HARD CURRENCY SHORTAGE. THE OFFICIAL RATE
POSES A LIFE-THREAT TO THE VIABILITY OF EXPORTERS WHO
ARE FORCED TO REMIT SOME OR ALL OF THEIR PROCEEDS TO
THE RESERVE BANK AT THE DIRECTED RATE (GOLD PRODUCERS
100 PERCENT, SEE REF D, AND TOBACCO GROWERS, 25
PERCENT). FRANCO AGREED WITH ECONOFF’S EVALUATION
THAT MOVEMENT BY THE GOVERNMENT AND THE NEW MINISTERS
ON THE EXCHANGE RATE ISSUE WILL BE THE FIRST ACID
TEST OF THE WILL AND ABILITY OF THE RULING PARTY TO
BECOME PART OF THE SOLUTION TO ZIMBABWE’S ECONOMIC
ILLS.
——————–
ARREARS TO THE IFI’S
——————–
¶7. (C) AS OF JULY 28 ZIMBABWE’S ARREARS TO THE WORLD
BANK STOOD AT U.S. $28 MILLION. FRANCO HAS SEEN NO
REAL EFFORT TO DATE BY THE GOZ TO PAY THE ARREARS.
THE WORLD BANK RESREP “ONCE THE MOST OPTIMISTIC OF
FELLOWS” ACCORDING TO FRANCO, HAD HIMSELF BEGUN TO
LOSE HEART IN ZIMBABWE, TIRED OF CONSISTENTLY HAVING
PROMISES MADE TO HIM BROKEN.
¶8. (C) WHILE ZIMBABWE HAS REMAINED CURRENT IN ITS
PAYMENTS TO THE IMF, HE BELIEVES THIS WILL SOON
CHANGE. ON JULY 28 ZIMBABWE OWED THE FUND U.S. $6.5
CONFIDENTIAL
PAGE 04 HARARE 04207 02 OF 03 311108Z
MILLION, AND THE RESERVE BANK GOVERNOR HAD TOLD HIM
THE AFTERNOON BEFORE THAT IT WOULD BE UNABLE TO MAKE
THE PAYMENT ON SCHEDULE. THE GOVERNOR PROMISED HIS
BEST EFFORTS TO MAKE THE PAYMENT THE WEEK OF JULY 31,
BUT COULD MAKE NO GUARANTEES. FRANCO DESCRIBED THE
DEVELOPMENT AS “SUICIDAL.”
¶9. (C) THE RESREP ALSO INFORMED US THAT EVEN IF THIS
RELATIVELY SMALL PAYMENT IS MADE, ZIMBABWE WILL FACE
A FUND PAYMENT OF U.S. $55 MILLION IN AUGUST. FRANCO
JUST SHOOK HIS HEAD AT THIS PROSPECT, WRYLY OBSERVING
THAT THE ARRIVAL OF THE ARTICLE IV AUDIT TEAM WILL
LIKELY COINCIDE WITH ZIMBABWE’S DEFAULT ON ITS IMF
DEBT. REVEALING FOR THE FIRST TIME THAT HIS NEXT AND
LIKELY FINAL ASSIGNMENT BEFORE RETIREMENT WILL BE
OUAGADOUGOU (FRANCO WILL BE OPENING A NEW FUND OFFICE
THERE BY YEAR END), THE 27 YEAR IMF-VETERAN COMMENTED
THAT EVEN THOUGH OUAGADOUGOU IS A ROUGH ASSIGNMENT,
CONDITIONS WILL PROBABLY BE BETTER THERE THAN WHAT
HARARE LOOKS SET TO BECOME IN THE NEAR FUTURE.
——-
COMMENT
——-
CONFIDENTIAL
CONFIDENTIAL PTQ2251
PAGE 01 HARARE 04207 03 OF 03 311108Z
ACTION AF-00
INFO LOG-00 NP-00 AID-00 AMAD-00 CEA-01 CIAE-00 CTME-00
DODE-00 SRPP-00 DS-00 EB-00 EXIM-01 E-00 VC-00
FRB-00 H-01 TEDE-00 INR-00 IO-00 ITC-01 LAB-01
L-00 VCE-00 AC-01 NSAE-00 NSCE-00 OIC-02 OMB-01
OPIC-01 PA-00 PM-00 PRS-00 ACE-00 P-00 SP-00
SSO-00 STR-00 USIE-00 FMP-00 PMB-00 DSCC-00 DRL-02
G-00 NFAT-00 SAS-00 /012W
——————745A16 311108Z /38
P 311108Z JUL 00
FM AMEMBASSY HARARE
TO SECSTATE WASHDC PRIORITY 6723
INFO SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
USDOC WASHDC
DEPTTREAS WASHDC
C O N F I D E N T I A L SECTION 03 OF 03 HARARE 004207
SIPDIS
STATE FOR AF, AF/S, AF/EPS, EB/IFD/ODF, EB/TPP/ODC
TREASURY FOR ED BARBER, GRACE SONE
USDOC FOR 4510 ERIC HENDERSON
STATE PASS USTR/RWHITTAKER
STATE PASS NSC FOR SENIOR AFRICA DIRECTOR GAYLE SMITH
E.O. 12958: DECL: 07/31/07
SUBJECT: ZIMBABWE’S IMF RESREP ON THE RELATIONSHIP
AND THE ECONOMY
CONFIDENTIAL
PAGE 02 HARARE 04207 03 OF 03 311108Z
¶10. (C) FRANCO, CLEARLY STYMIED AND DISAPPOINTED BY
THE RESULTS OF HIS TENURE IN ZIMBABWE, IS NOT AT THE
MOMENT ONE OF ITS BIGGEST FANS. HOWEVER, HIS AND THE
FUND’S ASSESSMENT OF THE DISMAL FIRST-HALF-OF-THE-
YEAR PERFORMANCE NUMBERS AGREE WITH OUR OWN ECONOMIC
EVALUATION AND REPORTING. THE DEBT HOLE THE COUNTRY
HAS DUG ITSELF IS EXTREMELY DEEP AND WILL TAKE AT A
MINIMUM TWO TO THREE YEARS TO CLIMB OUT OF UNDER THE
BEST OF CIRCUNSTANCES. IT REMAINS TO BE SEEN WHETHER
THE NEW INDUSTRY AND FINANCE MINISTERS WILL HAVE THE
AUTONOMY, AND STOMACH TO MAKE THE TOUGH DECISIONS
NECESSARY. EXPERIENCE HAS SHOWN THAT BOTH PRESIDENT
MUGABE AND HIS POLITBURO ARE LOATH TO MAKE ANY
CONCESSION ON POWER, PARTICULARLY TO OUTSIDERS, AS
THESE MINISTERS STILL CLEARLY ARE. END COMMENT.
IRVING
CONFIDENTIAL
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