The Zimbabwean government devalued its currency from Z$55 to Z$824 to the greenback in 2003, eliminated most indirect export taxes, reduced its fuel subsidy from 88 to 24 percent and began to negotiate dollarized energy tariffs but there was still no hint of economic revival.
According to the United States embassy energy rationing which had just been introduced was likely to plunge the economy closer to meltdown.
The embassy said there was no progress despite the policy shift because:
- First, reforms were haphazard and narrow, probably reflecting conflicting views within a government that still enforced unsustainable price controls and negative interest rates.
- Second, the government had made no effort to undo damage to the economy’s infrastructure – i.e., rail transport, coal extraction, power generation, steel production, large-scale agriculture – so businesses had to contend with costly inefficiencies.
- Third, the private sector would not invest in an economy run by an unstable and bumbling government.
Full cable:
Viewing cable 03HARARE852, Haphazard Economic Reform
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UNCLAS HARARE 000852
SIPDIS
SENSITIVE
STATE FOR AF/S
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER
USDOC FOR 2037 DIEMOND
PASS USTR FLORIZELLE LISER
TREASURY FOR ED BARBER AND C WILKINSON
STATE PASS USAID FOR MARJORIE COPSON
¶E. O. 12958: N/A
SUBJECT: Haphazard Economic Reform
¶1. (U) Summary: The GOZ’s rigidly statist economic policy
has metamorphosed into a hodgepodge approach since
January. Yet the Government still lacks commitment,
consensus and leadership to see through broad economic
liberalization. End Summary.
The Low Point
————-
¶2. (U) Last November 14 was 9/11 for Zimbabwe’s business
community. Finance Minister Herbert Murerwa unveiled a
breathtakingly interventionist budget that:
– controlled almost every retail price, often below
production cost.
– reaffirmed the Grain Marketing Board (GMB)’s monopoly
on maize.
– taxed export revenue indirectly at over 90 percent.
– made market-based currency trading illegal, shutting
down hundreds of exchange agencies.
The budget alleviated none of the country’s gaping
macroeconomic distortions. Unable to secure a continued
supply of nearly free fuel from Libya, Zimbabwe was
marching rapidly toward economic meltdown by the year’s
end.
¶3. (U) Since January, however, GOZ moderates have
implemented a string of reform measures. The GOZ devalued
its still arbitrary official exchange rate from Z$ 55 to
824/US$, eliminated most indirect export taxes, reduced
its fuel subsidy from around 88 to 25 percent and began
to negotiate dollarized energy tariffs. Last week the
GOZ loosened the GMB’s control, permitting the free
barter of small maize quantities.
Comment
——-
¶4. (SBU) In spite of these overdue reforms, there is no
hint of economic revival. With the recent arrival of
energy rationing, in fact, the economy has lurched closer
to meltdown.
¶5. (SBU) Why no progress despite a positive policy shift?
First, reforms have been haphazard and narrow, probably
reflecting conflicting views within a GOZ that still
enforces unsustainable price controls and negative
interest rates. Second, the GOZ has made no effort to
undo damage to the economy’s infrastructure – i.e., rail
transport, coal extraction, power generation, steel
production, large-scale agriculture – so businesses now
contend with costly inefficiencies. Third, the private
sector will not invest in an economy run by an unstable
and bumbling Government. For example, the GOZ is so
inept at calculating revenue inflows that it raised the
leaded fuel price from Z$ 74 to 450 without dedicating
funds for the procurement of less-subsidized fuel,
gaining nothing but an enraged population. Even when
trying, this GOZ does not appear up to the task of
leading Zimbabwe down a reform path.
Sullivan
(18 VIEWS)
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