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Cablegate: Zim Notes February 1, 2008

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ZNR UUUUU ZZH (CCY AD557829 MSI3936-695)
R 010812Z FEB 08
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC 2452
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHUJA/AMEMBASSY ABUJA 1841
RUEHAR/AMEMBASSY ACCRA 1761
RUEHDS/AMEMBASSY ADDIS ABABA 1887
RUEHRL/AMEMBASSY BERLIN 0472
RUEHBY/AMEMBASSY CANBERRA 1164
RUEHDK/AMEMBASSY DAKAR 1521
RUEHKM/AMEMBASSY KAMPALA 1943
RUEHNR/AMEMBASSY NAIROBI 4372
RHEHAAA/NSC WASHDC
RHMFISS/EUCOM POLAD VAIHINGEN GE
RUEHGV/USMISSION GENEVA 1014
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK
RHEFDIA/DIA WASHDC

UNCLAS HARARE 000092

SIPDIS

SIPDIS

C O R R E C T E D COPY TEXT PARA 14

AF/S FOR S.HILL
ADDIS ABABA FOR USAU
ADDIS ABABA FOR ACSS
NSC FOR SENIOR AFRICA DIRECTOR B.PITTMAN
TREASURY FOR J.RALYEA AND T.RAND
STATE PASS TO USAID FOR L.DOBBINS AND E.LOKEN
COMMERCE FOR BECKY ERKUL

E.O. 12958: N/A
TAGS: PGOV PREL ASEC PHUM ECON ZI
SUBJECT: Zim Notes February 1, 2008


1. The Embassy Harare Political/Economic Section began producing
Zim Notes in July, 2007 to present a perspective on current events
in Zimbabwe. Suggestions are always welcome. If you would like to
receive Zim Notes by email, as well, please contact Frances Chisholm
at chisholmfm@state.gov. Distribution is restricted to U.S.
government employees.

2. Price Movements-Exchange Rate and Selected products:
Parallel rate for cash: ZW$6.2 million:US$1; Bank transfer rate:
Z$7million; Official rate: ZW$$30,000:US$1
Sugar steady at Z$5 million/2kg vs. controlled price of
Z$247,000/2kg
Cooking oil rose to Z$13 million/750ml vs. controlled price of
Z$440,000/750ml
Petrol and diesel steady at Z$10 and Z$9 million/liter respectively
vs. Z$60,000/liter at controlled price

-----------------------------
On the Political/Social Front
-----------------------------

3. Elections Set For March 29 As Parliament Dissolves... President
Mugabe declared March 29 as the election date in a Presidential
Proclamation issued on January 24. Mugabe, who had ignored calls by
the opposition and c)[)\AQgKFQMarch. Mugabe's unilateral declaration comes

as a slap in the face to President Mbeki's mediation effort to
resolve the political impasse between the ruling party and
opposition.

4. Public Universities Closed Until After Elections... In a move to
impede the organizing capabilities of the politically active student
movement heading into elections, the government has ordered public
universities throughout the country, including University of
Zimbabwe, Midlands State University and National University of
Science and Technology, not to reopen until after elections
scheduled for March 29. The Universities were set to start the new
term in early February.

5. U.S. Treasury Hits Two More Regime Insiders With Sanctions...
Treasury's Office of Foreign Assets Control (OFAC) announced on
January 30 that ZANU-PF MP Leo Mugabe, the nephew of President
Mugabe, and Central Intelligence Organization (CIO) Director
Happyton Bonyongwe were added to the financial sanctions list for
their roles in "aiding Mugabe's efforts to cripple Zimbabwe,
including through violence and intimidation." OFAC also added ZIDCO
Holdings, a ZANU-PF financial holding company, as well as ZANU-PF's
publishing arm, Jongwe Printing and Publishing Company, aka
Printflo. The action means that any bank accounts or other
financial assets found in the U.S. belonging to these individuals or
entities may be seized. In addition, U.S. citizens are forbidden
from doing business with them.

6. Removal Of The Post Of Executive Mayor Signed Into Law...
President Mugabe has signed into law the Local Government Laws
Amendment Act which effectively eliminates the post of Executive
Mayor. Since the post was created in 1995 the MDC has won the
mayoral seats in most urban areas. Many of these mayors have found
it difficult to operate effectively due to interference from the
central government. The new law is a move to reduce MDC influence
in urban areas while at the same time creating greater ZANU-PF
presence.

7. Simon Mann Loses Appeal Against Extradition Order... Zimbabwean
High Court Judge Justice Rita Makarau dismissed an appeal by Briton
Simon Mann to stop his extradition to Equatorial Guinea to face
charges of plotting a coup. Mann, who denies the charges, argued
that he would face severe torture and not be afforded a fair trial
in Equatorial Guinea. Mann, who has finished serving his full
sentence after he was convicted in 2004 for breaching Zimbabwe's
immigration and firearms laws, will now lodge an appeal against this
ruling to the Supreme Court.

8. Can You Hear Me Now?... Widespread power outages temporarily
shut down GOZ-owned NetOne and privately-owned Econet mobile
providers last week. Both company's cellular towers have backup
generators or batteries to cover short-term brownouts, but the
duration and frequency of rolling power blackouts have been
exceeding their battery and diesel storage capacity. Landline
service by GOZ-owned TelOne also frequently collapses when power
cuts shut down entire exchanges. This week Harare's Highlands
exchange ran out of fuel after running on generator for five days,
disrupting fixed-line service to thousands of residences and
businesses. Embassy staff is not immune to the trouble; 25 to 30
percent of Embassy personnel haven't had reliable residential phone
service for weeks or months.

9. Information Blackout Threatens As Elections Approach... Access
to information in the run-up to the election is likely to be
severely hampered by a worsening shortage of newsprint owing to
production challenges at Mutare Board and Paper Mill. The newsprint
monopolist has not been producing to full capacity since a fire in
June 2007. Recent power outages and forex shortages add to the
woes. This week newspapers reduced their print run and copy size in
reaction; the Financial Gazette, for example, received only one
third of its required newsprint. Publishers of the opposition
Zimbabwe Independent and The Standard told PAS that they had enough
newsprint in stock to last until late February and they have begun
approaching donors for assistance. The independent press fears that
government intervention may be geared towards ensuring that only
government-controlled media remain operational.

---------------------------
Economic and Business News
---------------------------

10. Gono Presents Monetary Policy Statement... Highlights of RBZ
Governor Gono's MPS of January 31 were: a 10 percentage point
reduction in statutory reserves; the effective devaluation to
Z$525,000:US$ from Z$270,000 on the retained 32.5% portion of
exporters' proceeds (the official exchange rate remains unchanged);
an increase in the RBZ's overnight accommodation rate to 1,200% and
1,600% for secured and unsecured lending; and a tenfold increase in
the gold support price. Gono said that year-on-year inflation stood
at 26,470% in November; broad money supply (M3) was growing at
24,463% in October compared with 1,638% in January, 2007; and he
recommended that the National Income and Pricing Commission (NIPC)
confine its operations to the three controlled and 16 monitored
products, and not concern itself with tourism products, air travel,
entertainment, beer and other product prices. He said NIPC should
exercise "extreme caution" to ensure price control does not
"degenerate into yet another unintended catastrophic blitz
exercise."

11. Looming Bank Liquidity Crisis... Zimbabwe's banking sector is
facing a liquidity crisis that has arisen out of a patchwork of
misguided monetary policies and their disastrous consequences:
onerous statutory reserve requirements, punitive overnight
accommodation rates, hyperinflation, rapid informalization of the
economy and the accompanying erosion of banks' deposit base and
customer confidence, and, most recently, a breakdown in the bank
transfer system that has ground real-time transfers to a crawl. In
addition, the RBZ's deeply concessionary facilities have dried up
banks' commercial lending lines and driven some of them into
non-traditional and illegal activities that have begun to catch up
with them. For details, see Harare 0091.

12. Bubble Bursts On Zimbabwe Stock Exchange... After a year of
spectacular performance in real terms, the ZSE bubble has burst
under heavy selling by profit takers. Most counters have suffered
heavy losses. In addition to profit taking of the past three weeks,
the cash shortage as well as breakdown of the bank transfer system
has meant that most buying and selling orders through brokers could
not be executed. In addition, as noted above, some errant banks
that had taken positions on the ZSE with the aim of boosting returns
found themselves in liquidity trouble and had to sell under pressure
from the RBZ. These factors, together with the rise in short-term
money market interest rates, have resulted in a significant decline
in trading. The industrial and mining indices fell by 25.1% and
8.5% respectively from January 4-25.

13. Civil Servants Get Another Raise, Some Teachers Continue
Strike... In what will be the second increase in less than a month,
the GOZ has agreed to raise civil servant salaries by 120%. (They
got a 1,000% increase in January.) Although the agreement is not
yet public, the lowest paid teacher reportedly will now earn a total
package of ZW$550 million (about US$88) up from ZW$250 million
(about US$40). The new salary is less than one-third of the ZW$1.7
billion that the Progressive Teachers' Union of Zimbabwe has
demanded. A PTUZ rep told us that a stay-away called on January 24
has been hampered by a circular from the "governmen4w
jYQQQ(As Expected)... Government promises of a
record crop yield this summer will not be met, Agriculture Minister
Rugare Gumbo admitted on January 25. In October, the GOZ had
declared "the mother of all agricultural seasons" that would reverse
the record of poor food production, break the economic crisis, and
restore economic prosperity. "The season has not been as
spectacular as we had expected," Gumbo admitted last week. He
conceded for the first time that the GOZ had failed to supply enough
fertilizer to farmers, but he also blamed heavy rains. He urged
farmers to use traditional fertilizers - cattle dung and the soil of
anthills - in place of imported fertilizer.

15. Government To Go After Economic Saboteurs... Industry and
International Trade Minister Obert Mpofu said last week that the
Zimbabwe Development Corporation (ZDC) will be used to seize control
of private businesses engaging in "economic sabotage." Mpofu tasked
the newly appointed ZDC board to select "a few entities, which will
need to be (taken over and) resuscitated on a sustainable basis."
Mpofu said that a number of companies which were currently under
parastatals, would fall under ZDC. Olivine Industries, until
recently majority-owned by HJ Heinz, would immediately fall under
ZDC from the Industrial Development Corporation (IDC). ZDC will
also within the next 40 days open People's Shops countrywide after
cabinet last week approved the concept. The People's Shops will
provide basic commodities aimed at very low-income earners and
disadvantaged groups.

MCGEE

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