Cablegate: Govt Shuts Bureaux de Change

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

UNCLAS HARARE 002747

SIPDIS

STATE FOR AF/S
NSC FOR SENIOR AFRICA DIRECTOR J FRAZER
USDOC FOR 2037 DIEMOND
PASS USTR ROSA WHITAKER
TREASURY FOR ED BARBER AND C WILKINSON
USAID FOR MARJORIE COPSON
PARIS FOR R BOUHAKER
CHARLESTON FOR D SIMMONS
AF/EX BUD

E. O. 12958: N/A
TAGS: ECON EPET EFIN ETRD ZI
SUBJECT: Govt shuts bureaux de change

1. Summary: Hundreds of bureaux de change have closed
their doors as part of a GoZ strategy to kill the
parallel currency market. Many bureaux are moving to
more discreet locations, while several banks continue to
exchange money at parallel rates. End Summary.

"Talking down" the dollar
-------------------------
2. As part of its 2003 budget plan, the GoZ ordered
bureaux to cease operations on Saturday. The GoZ is
trying to solve its acute foreign exchange crisis by
eliminating the parallel market, where the current rate
of Z$ 1580: US$ 1 is nearly 30-fold the official rate of
55:1. However, this is an attack on psychological rather
than fundamental grounds, with the GoZ "talking down" the
rate. The official media claim the street price has
fallen to 600:1, though our quick check of local prices
indicated rates around 1600-1700:1, a drop of 10-15
percent from the highs of 3 weeks ago. The USG has most
recently purchased Zimdollars at a rate of 1580:1 in
parallel markets abroad.

3. A local source tells us street-side bureaux are
relocating to less obvious venues, mostly tucked away in
office buildings. Fearing reprisals, foreign banks such
as Barclays are no longer exchanging at parallel rates.
On the other hand, indigenous banks continue to process
these ostensibly illegal transactions. Ironically, the
GoZ has made no effort to close down Western Union, whose
local clients receive US$ 4 million in monthly remissions
in U.S. notes from relatives living abroad. Presumably,
the GoZ realizes that these recipients of U.S. dollars in
cash are not purchasing Zimdollars at 55:1.

Comment
-------
4. Obviously, the GoZ cannot destroy a parallel market
that is supported by macroeconomic fundamentals and
expectations. For the present, however, the GoZ has
succeeded in raising enough doubts that it can kill the
parallel market to shore up the Zimdollar's value by at
least 15 percent. (The U.S. dollar's dip may also
reflect a correction of temporary overshoot, since the
greenback has doubled in value in about 2 months,
arguably appreciating faster than fundamentals would
dictate.) Until Zimbabwe addresses its loose money
supply, negative GDP growth and high inflation rate, we
expect fundamentals to eventually send the Zimdollar to
new depths.

Sullivan

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