Zimbabwe banks whistle past the graveyard

Zimbabwe’s banks were awash with so much cash-nine months after the introduction of the multiple currencies in 2009- that they did not seem to notice that the Reserve Bank of Zimbabwe had robbed them of $39 million. 

A cable just released by Wikileaks says the banks had ample reserves beyond what the RBZ had diverted, and steady growth in deposits had helped the banking system to remain stable.

But the cable said the case could increase tension between Finance Minister Tendai Biti and RBZ Governor Gideon Gono.

Biti was at the time fighting to get Gono’s appointment nullified.

“And when the full story finally registers with the public,” the cable says. “Zimbabwe will look like an even riskier place to do business.

Full cable:

Viewing cable 09HARARE886, ZIMBABWE BANKS WHISTLE PAST THE GRAVEYARD

If you are new to these pages, please read an introduction on the structure of a cable as well as how to discuss them with others. See also the FAQs

VZCZCXRO2289

PP RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN

DE RUEHSB #0886/01 3111228

ZNR UUUUU ZZH

P 071228Z NOV 09

FM AMEMBASSY HARARE

TO RUEHC/SECSTATE WASHDC PRIORITY 5118

INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE

RUEHAR/AMEMBASSY ACCRA 3160

RUEHDS/AMEMBASSY ADDIS ABABA 3272

RUEHBY/AMEMBASSY CANBERRA 2533

RUEHDK/AMEMBASSY DAKAR 2902

RUEHKM/AMEMBASSY KAMPALA 3320

RUEHNR/AMEMBASSY NAIROBI 5768

RUEHRL/AMEMBASSY BERLIN 1699

RUEHGV/USMISSION GENEVA 2452

RUEAIIA/CIA WASHDC

RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK

RHMFISS/EUCOM POLAD VAIHINGEN GE

RHEFDIA/DIA WASHDC

RHEHAAA/NSC WASHDC

UNCLAS SECTION 01 OF 02 HARARE 000886

SENSITIVE

SIPDIS

AF/S FOR B.WALCH

DRL FOR N.WILETT

ADDIS ABABA FOR USAU

ADDIS ABABA FOR ACSS

STATE PASS TO USAID FOR J.HARMON AND L.DOBBINS

STATE PASS TO NSC FOR SENIOR AFRICA DIRECTOR M.GAVIN

E.O. 12958: N/A

TAGS: ECON EFIN ZI

SUBJECT: ZIMBABWE BANKS WHISTLE PAST THE GRAVEYARD

Ref: Harare 863

¶1. (SBU) SUMMARY: Bankers in Harare seem not to have noticed that

the Reserve Bank of Zimbabwe (RBZ) has robbed them of US$39 million.

Local papers reported details of the RBZ’s latest malfeasance just

days after IMF officials gave details to the GOZ and diplomats

(reftel). The banks have ample reserves beyond what the RBZ has

diverted, and steady growth in deposits helps the banking system

remain stable. Even in the best case, this incident will increase

tension between Finance Minister Tendai Biti and RBZ Governor Gideon

Gono. And when the full story finally registers with the public,

Zimbabwe will look like an even riskier place to do business. END

SUMMARY.

¶2. (SBU) IMF officials recently told diplomats in Harare that the

RBZ had undermined the stability of the banking system by spending

banks’ reserve deposits. Within two days of the IMF briefing, local

papers had reported this tale of the ultimate in insider bank

heists, along with direct quotes from the IMF’s report to the GOZ.

But the press reports did not create queues of nervous bank

depositors rushing to withdraw money, and none of the banks have

complained in public. Even our own discreet enquiries revealed no

alarm among the banks.

¶3. (SBU) One reason Harare bankers remain calm is that past

experience of RBZ recklessness has taught them to take precautions.

Beyond the minimum reserves required by RBZ rules (10 percent of

deposits), the banks maintain excess reserves equivalent to at least

5 percent of deposits. And the banks remain cautious about lending.

The volume of bank credit is still less than half of deposits. In

1999, by contrast, banks’ loans to the private sector exceeded 90

percent of deposits.

¶4. (SBU) Like other victims of Ponzi schemes, the banks also have

empirical reasons to hope for the best. There has been rapid growth

in deposits since February, so the RBZ has seen a steady increase in

banks’ required reserves. As a consequence, when a given bank

experiences a decline in deposits and requires a refund of required

reserves, the RBZ has always been able to fund that obligation

through the increase in other banks’ reserve deposits. This is a

risky game for a central bank to play, but the RBZ can get away with

it as long as the level of deposits is rising. So far, according to

our banking contacts, the RBZ has never failed to refund reserves to

a bank when necessary.

¶5. (SBU) It is also possible that the banks may not yet be aware of

the scale of the RBZ’s latest malfeasance. While at least one

independent newspaper has the full story as set out in the IMF’s

report, the reporting so far has not been entirely coherent. The

main point may have escaped the notice of even financially astute

readers. One bank director told us it was bad for the RBZ to spend

bank’s reserves, but the practice could be tolerated as long as most

of the reserves were left in place and the RBZ did not use the

Qof the reserves were left in place and the RBZ did not use the

banks’ money to fund its operations. In fact, as of the end of

August the RBZ had diverted over 80 percent of banks’ required

reserve balances to fund salaries, pay off debts, and even subsidize

the national airline.

¶6. (SBU) COMMENT: This incident is sure to escalate the friction

between Biti and Gono. Biti and his party, the MDC, have been

trying to remove Gono from his position since the formation of the

transitional government in February. They will cite the reserves

fiasco as further evidence of Gono’s incompetence. When the story

broke, Gono publicly stated that the Ministry of Finance was to

blame because it had not given the RBZ sufficient funding. Whether

they are still in the dark or just pretending to be, the banks will

inevitably find it necessary to protect their interests. Once the

penny drops, so to speak, they could confront the RBZ and insist on

HARARE 00000886 002 OF 002

having the missing funds restored (as the IMF has already done).

Additionally, they can scale back lending to improve their reserve

positions. In any event, the full story will eventually emerge and

do further damage to Zimbabwe’s battered business climate. END

COMMENT.

RAY

(11 VIEWS)