Will the economy implode?

Zimbabwe’s economy was shrinking by one percent every month around 2002 that the United States embassy asked whether it would implode.

The embassy said the government of Zimbabwe was obsessed with control- of food, farmland, fuel, currency exchange and most other facets of economic activity.

In the process it had impoverished nearly every Zimbabwean in a case of collective downward mobility rarely experienced in countries not at war.

It said a gardener who earned US$150 a month at independence in 1980 now takes home less than US$15.

Although the Zimbabwe dollar was stronger than the United States dollar at independence, domestic workers were earning between Z$5 and Z$10 as month and this was raised to Z$30 (US$47)by the new government.

The minimum wage for those in industry was raised to Z$85 a month (US$133).

Full cable:

Viewing cable 02HARARE2482, Will the Economy Implode?

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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 HARARE 002482

SIPDIS

STATE FOR AF/S

NSC FOR SENIOR AFRICA DIRECTOR JFRAZER

USDOC FOR 2037 DIEMOND

PASS USTR ROSA WHITAKER

TREASURY FOR ED BARBER AND C WILKINSON

USAID FOR MARJORIE COPSON

¶E. O. 12958: N/A

TAGS: ECON EPET EFIN ETRD ZI

SUBJECT: Will the Economy Implode?

¶1. Summary: The Government of Robert Mugabe has

impoverished nearly every Zimbabwean, a case of

collective downward mobility rarely experienced in

countries not at war. A gardener who earned US$

150/month at independence in 1980 now takes home less

than US$ 15. As the economy continues to shrink — by

one percent each month at last count — so do the GoZ’s

options to stave off meltdown. End Summary.

The ultimate interventionist government

——————————————— —

¶2. Over the past 5 years, the GoZ has left few internal

markets to self-regulation. It has insisted on an

unsupported and unrealistic official exchange rate;

transferred farmland from productive businesspeople to

government-owned collectives, turning — to cite just one

crop — the planet’s number one tobacco export nation

into a minor player; let squatters live off quality

farmland by poaching, felling trees and panning for gold;

drawn private pension funds’ once formidable savings into

its own coffers by holding interest rates on short-term

treasuries to approximately one-tenth the real inflation

rate; and acted as sole price arbiter for fuel, gold,

grain, maize, milk, bread and other staples.

¶3. These policies have nearly destroyed Zimbabwe’s

formal economy, sent 10-20 percent of the population

packing and put half those remaining at risk of

starvation. Overtly, the GoZ still engages in denial.

An editorialist in the GoZ’s press refuted British

charges of bad policy last week, shooting back: “There

are, in Britain today, and standing outside the doors of

Westminster and Windsor Castle right now, thousands of

people with neither food nor shelter, sleeping rough, and

all driven by want and poverty.” Despite this

feistiness, even the architects of Zimbabwe’s

“unconventional” economic policy entertain private

doubts.

Comment

———–

¶4. The GoZ’s interventionist approach has been about

control — of food, farmland, fuel, currency exchange and

most other facets of economic activity. In the end, this

control may prove lethal, even though foreign food

assistance and a burgeoning informal economy may sustain

the country for a while. Still, almost every discussion

with Zimbabwe’s top-flight economists (there are still

dozens) comes around to the chances of total implosion.

Many believe a prolonged lack of fuel could be the

trigger, though there are other scenarios. Undoubtedly,

intervention is strangling the economy, and

liberalization without International Monetary Fund or

other support is very tricky. The CEO of a large bank

told us 80 percent of his borrowers would default if he

were allowed to raise interest rates to their natural

level. Similarly, ordinary Zimbabweans cannot endure the

inflationary jolt of a 7-to-10-fold increase in fuel

(i.e., international pricing) when the GoZ stops

subsidizing.

¶5. Can things just muddle along? Economists point out

the GoZ still has a few hard-currency assets left to

expropriate, sell or barter, such as the foreign currency

accounts of Zimbabweans who worked abroad from 1991-97

(permitted by an old law) or equity in Air Zimbabwe’s

Boeing fleet of 2 767s and 3 737s. The GoZ has

reportedly already passed several national assets to the

Libyans for fuel. However, this may only slow but not

halt an inexorable “meltdown clock.”

Sullivan

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