Mugabe kept in the dark to get things moving

President Robert Mugabe had to be kept in the dark with changes that his lieutenants wanted to implement to improve the economy being characterised in misleading, Orwellian terminology, according to a cable released by Wikileaks.

This is what the United States embassy was speculating central bank governor Gideon Gono might have to do to get Mugabe to allow devaluation and to abolish the mandatory 25 percent exporters had to surrender to the central bank at the official rate which was one-sixth of the market rate.

Exporters had literally stopped business because of the poor proceeds.

Board members of the Reserve Bank of Zimbabwe said Gono was aware of the problems but was trying to find a way to convince Mugabe to allow the changes.

“Still, Gono has to convince Mugabe, perhaps by characterizing the changes in misleading, Orwellian terminology. This was the means, in 2003, for devaluing the Zimdollar in January, eliminating price controls in May, creating larger banknotes in October and deregulating fuel tariffs in November,” the cable said.

“At one point, we are told, Mugabe’s handlers only had him driven on certain routes in Harare, lest he witness increased market-driven fuel prices.”

Full cable:

Viewing cable 04HARARE456, Export Slump Reaches Crisis Proportions

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

UNCLAS SECTION 01 OF 02 HARARE 000456

SIPDIS

SENSITIVE

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

TAGS: ECON EINV ETRD PGOV ZI

SUBJECT: Export Slump Reaches Crisis Proportions

Ref: Harare 361

1.(SBU) Summary: After surviving multiple economic red-

alerts, Zimbabwe is again up to its jowls in a self-

imposed imbroglio. Exporters have slowed operations to a

near-standstill, depriving importers of their main forex

source. We see no relief until the Reserve Bank (RBZ)

Governor Gono allows the Zimdollar to devalue

significantly or eliminates the GOZ’s quasi-tax on one-

quarter of export proceeds. Gono’s challenge is winning

President Mugabe’s approval, perhaps – as in the recent

past – by couching changes for the stubborn octogenarian

in face-saving, distortive phraseology. End summary.

String of Set-Backs

——————-

¶2. (SBU) Zimbabwe has passed through recurring economic

crises in recent years, each exacting its toll on gross

domestic product. We have seen corporate invasions

(2001), commercial farm seizures (2002), fuel shortages

(2002-03), sub-market price controls (2003), cash

shortages (2003) and national strikes (2003).

Concurrently, we have endured hyperinflation, drought,

brain drain, political stalemate, dilapidating railway

and repeated electricity outages. At one point in late-

2002/early-2003, many businessmen feared – mistakenly, as

it turned out – Zimbabwe was heading for economic

meltdown. Even so, the economy contracted between 13-14

percent last year and has shed about 40 percent since

1997, making it one of the world’s worst performing.

¶3. (SBU) On some fronts, the Government has made

progress. It halted corporate intrusions, deregulated

the fuel price, scrapped price controls and printed

larger banknote denominations.   Accommodatingly, nature

has brought back the rains. In other respects, however –

farm expropriations, inflation and poor

railway/electricity services – there is no advance. On

balance, local UN, World Bank and IMF economists feel

negative growth will slow modestly in 2004, but still

come in at 5-10 percent.

End of Exports?

—————

¶4. (SBU) The auction crisis is at least as serious as its

precursors. The GOZ’s narrow and selective crackdown on

corporate corruption has scared most firms away from

parallel currency trading. At the same time, few can

access forex through the auction’s limited supply. The

only lasting solution: more exports. Yet exporters

cannot boost or even maintain output so long as they must

sell 25 percent of revenue to the GOZ at a fractional one-

sixth of the market exchange rate – and 50 percent at the

sub-market auction rate. Many have frozen operations.

¶5. (SBU) Indeed, this year’s export outlook for

Zimbabwe’s “big four” – agriculture, mining,

manufacturing and tourism – is bleak. The quasi-

governmental Tobacco Industry Marketing Board (TIMB)

forecasts a tobacco harvest of just 45 million kgs this

year, down from 83 million in 2003 and a record 237

million in 2000. For a crop that traditionally accounts

for one-third of export revenue, this is a devastating

drop. Meanwhile, miners and manufacturers tell us they

are scaling back operations until conditions improve and

the GOZ reaffirms export processing zone privileges

(ref).   Tourism Board President Shingi Munyeza confirmed

for us last week that international arrivals are down

seventy percent from 2000 with no sign of recovery. (His

firm, ZimSun, is investing aggressively in other African

countries.)

Comment

——-

¶6. (SBU) Several RBZ oversight board members tell us

Governor Gideon Gono recognizes the problem and hopes to

resolve it in a late-March/early-April address. He may

elevate the GOZ-rigged auction rate, offer exporters

right of refusal or abolish the mandatory 25 percent

exchange requirement. Still, Gono has to convince

Mugabe, perhaps by characterizing the changes in

misleading, Orwellian terminology. This was the means,

in 2003, for devaluing the zimdollar in January,

eliminating price controls in May, creating larger

banknotes in October and deregulating fuel tariffs in

November. (At one point, we are told, Mugabe’s handlers

only had him driven on certain routes in Harare, lest he

witness increased market-driven fuel prices.)   In this

sense, RBZ Governor Gono’s next policy statement may be

more important and far-reaching than his first on Dec 18.

Sullivan

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