Cablegate: Zimdollar Is in Tailspin

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

UNCLAS HARARE 002382

SIPDIS

STATE FOR AF/S
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER
USDOC FOR 2037 DIEMOND
PASS USTR ROSA WHITAKER
TREASURY FOR ED BARBER AND CWILKENSON
USAID FOR MAJORIE COPSON

E.O. 12958: N/A
TAGS: EFIN ECON ZI
SUBJECT: Zimdollar is in tailspin

Ref: a) Harare 2323 b) Harare 2308 c) Harare 2339

1. Summary: The USG has just purchased Zimdollars at
Z$1500:US$1 on parallel markets. That makes a 58 percent
devaluation in just 8 days, raising the danger that economic
meltdown is on the horizon. End Summary.

2. As we noted when the exchange hit Z$950:US$1 (ref a), the
Zimdollar's pace of devaluation is accelerating. With each
leap in value of the U.S. dollar, cash-strapped and
sometimes underfed Zimbabweans must pay even more for
staples. Although the official market-basket indicates that
an average Zimbabwean family devotes 33.6 percent of income
to foodstuffs (ref b), we suspect that portion of household
spending now reaches 80-90 percent.

3. Comment: We believe the main causes of the Zimdollar's
collapse -- a) expansionary monetary policy, b) forecasts
for a continued sharp decline in GDP and c) flight by
Zimbabwean investment to U.S. dollar havens -- outlined in
ref a still hold. Contributing factors may also be the
close of tobacco markets, which generally earn one-third of
Zimbabwe's foreign exchange, as well as a growing migration
of business to the informal economy (ref c). The
Zimdollar's reluctance to find a bottom raises the
possibility of economic meltdown, or at least the onset of
hyperinflation.

Sullivan

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