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Cablegate: Zim Notes 5/2/2008

VZCZCXRO5306
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSB #0397/01 1261141
ZNR UUUUU ZZH
R 051141Z MAY 08
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC 2865
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHUJA/AMEMBASSY ABUJA 1953
RUEHAR/AMEMBASSY ACCRA 1962
RUEHDS/AMEMBASSY ADDIS ABABA 2084
RUEHRL/AMEMBASSY BERLIN 0636
RUEHBY/AMEMBASSY CANBERRA 1361
RUEHDK/AMEMBASSY DAKAR 1718
RUEHKM/AMEMBASSY KAMPALA 2140
RUEHNR/AMEMBASSY NAIROBI 4571
RHEHAAA/NSC WASHDC
RHMFISS/EUCOM POLAD VAIHINGEN GE
RUEHGV/USMISSION GENEVA 1223
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RHEFDIA/DIA WASHDC

UNCLAS SECTION 01 OF 03 HARARE 000397

SIPDIS

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

SIPDIS

E.O.12958: N/A
TAGS: PGOV PREL ASEC PHUM ECON EAGR EFIN ZI

SUBJECT: Zim Notes 5/2/2008


-------------
1. SUMMARY
-------------

Topics of the week:
- Presidential Election Results Still Pending
- MDC Reconciliation
- Violence Continues
- Winter School Term Begins
- Ambassador Warns Perpetrators of Violence
- SADC Tribunal Sets Date To Hear White Zimbabwean
Farmers' Case
- HIFA 2008 Kicks Off
- RBZ Governor Liberalizes Exchange Rate
- Rate Of Inflation Reaches Half Million Percent
- Tobacco Auctions Start
- Gold Production Falls Further
- Poor Start to Winter Wheat Season

---------------------------------
2. Price Movements-Exchange Rate
and Selected Products
---------------------------------

Parallel rate for cash ZW$120 million:US$1

Bank transfer rate shot to: Z$220 million
Interbank determination of "official" exchange rate re-introduced
(under clarification)

Sugar fell to Z$350 million/2kg vs. controlled price of
Z$8million/2kg

Cooking is steady at Z$350 million/750ml vs. controlled price of
Z$9.3million/750ml

Petrol and diesel rose to Z$160 million/liter vs. controlled price
of Z$60,000/liter

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

3. Presidential Election Results Still Pending... Over four weeks
after elections, the Zimbabwe Electoral Commission (ZEC) has begun
verification of presidential election results. The process is
expected to take several days. The Herald reported that Tsvangirai
will be announced the winner with over 47 percent of the vote.
After results are announced, the ZEC will presumably set a date for
a runoff election within 21 days. The MDC, claiming that Tsvangirai
in fact won over 50 percent of the vote (obviating the requirement
for a runoff), and noting that the current climate of violence would
make an election difficult, if not impossible, has indicated it will
not participate in a runoff.

4. MDC Reconciliation... Despite media reports to the contrary,
the two factions of the MDC have not reunited. In a diplomatic
briefing this week, Welshman Ncube, Mutambara faction secretary
general, stated that his faction would back Tsvangirai if a runoff
is held. Further cooperation would be subject to negotiation.

5. Violence Continues... ZANU-PF-directed violence continues
unabated throughout Zimbabwe. To date, approximately 15 people have
been killed, over 120 persons admitted to hospitals, and over 500
persons have received treatment. There are increasing reports of
the authorities preventing victims accessing treatment.

6. Winter School Term Begins... In addition to pervasive

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psychological and physical trauma inflicted on ordinary Zimbabweans,
The Financial Gazette reported this week that a number of schools
had failed to open due to intimidation and violence against
teachers. Many teachers served as ZEC supervisory officials in
polling stations. In addition, hyperinflation has rendered the
March salary increases for teachers meaningless. The Ministry of
Education and many school heads have appealed to anyone with O level
or A level passes to apply to be temporary teachers to relieve the
shortage. This year's O level examination results saw a sharp
decline in the country's pass rates in all subjects.

7. Ambassador Warns Perpetrators of Violence... Ambassador McGee
told the press this week that senior army officers deployed in the
10 provinces and whose names featured repeatedly on affidavits of
victims of violence would be closely watched. "We are looking and
taking note of the people responsible for the violence. Out of the
500 cases that I have seen, only one has been attributed to the MDC
as aggressor. We have affidavits; we have the names of the
perpetrators. We know the perpetrators and there will be justice at
the end of the day." Thursday's The Financial Gazette gave
front-page coverage to the story.
8. SADC Tribunal Sets Date To Hear White Zimbabwean Farmers'
Case... The case before the Southern African Development Community
(SADC) Tribunal in which white former commercial farmers are seeking
to halt compulsory land acquisition in Zimbabwe is set to resume in
Windhoek on May 28. In late March the Tribunal granted the farmers
interim relief against eviction, however it did not protect them
from a new spate of post-election farm invasions.

9. HIFA 2008 Kicks Off... The Harare International Festival of the
Arts (HIFA) 2008, "The Art of Determination," kicked off this week
before an audience of several thousand with a politically charged
opening that attacked President Mugabe (and got away with it).
Other performances range from popular music to opera and drama;
several shows have political components. Also of note was a reading
by Zimbabwean author Peter Godwin who has been barred from entering
the country for years. His sister Georgina, also in exile for
starting an independent radio station, returned as well to
co-present some shows. HIFA continues through Sunday with dozens of
performances by artists from around the world.

-----------------------------------
On the Economic and Business Front
----------------------------------

10. RBZ Governor Liberalizes Exchange Rate... In his 2008
First-Quarter Monetary Policy Statement (MPS) on April 30, Reserve
Bank of Zimbabwe (RBZ) Governor Gono partially liberalized the
exchange rate by introducing a "willing buyer-willing seller"
concept to be administered by authorized dealers, and depending on a
priority list determined by the RBZ. While not equivalent to
adopting a fully-fledged floating system, it is likely to make
exporting more profitable in Zimbabwe dollar terms. In addition,
Gono raised the RBZ's accommodation rates to control credit
creation. However, the quasi-fiscal activities of the central bank
in the form of deeply subsidized BACOSSI and ASPEF funding for
industry and agriculture, as well as the introduction of a Z$300
trillion Strategic Products Price Controls Mitigation Fund, will
continue to fuel money supply growth and, with it, inflation.
Reflecting this, the stock market soared to new heights this week.

11. Rate Of Inflation Reaches Half Million Percent... The April
y-o-y inflation figures of a leading local supermarket chain ranged
from 490,000-500,000% for food, 535,000% for clothing and textiles,
and 610,000% for house wares.

12. Tobacco Auctions Start... At mid-week, the tobacco auction
floors finally opened after government awarded farmers a generous

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support price for every US dollar earned. Rodney Ambros, CEO of the
Zimbabwe Tobacco Association, told us that the MPS was also a shot
in the arm for the industry. Banks were seeking to clarify details
of the new exchange rate regime, but the industry expected a "viable
package" of both support price and flexible exchange rate that would
cushion against hyperinflation; they also welcomed the extension of
deeply subsidized ASPEF funding into the next growing season. The
RBZ still has not settled its forex arrears to the growers but
Ambros said farmers would deliver their crop on good faith and
quickly, as most of them had commercial bank overdrafts to pay off,
and the RBZ had never failed to eventually meet its payment
obligations to tobacco growers. Ambros estimated this year's crop
at 70 million kg. In 2007, the tobacco crop (63 million kg) made up
17% of export shipments, according to the RBZ, down from 18% in
2006.
13. Gold Production Falls Further... The Herald reported figures
from the Chamber of Mines this week that showed gold production at a
record low level of 295.7 kg in March, down from 746.8 kg in the
same month last year. Publicly traded Falgold Zimbabwe issued a
lackluster report for 15 months to December 31, 2007 reflecting
shrinking production, spiraling inflation, power outages, frequent
breakdowns, and an unviable exchange rate; the company is carrying
out minimal exploration. The RBZ's failure to release US dollar
revenue to gold producers is a major constraint on production.

14. Poor Start to Winter Wheat Season... A shortage of inputs in
all provinces is hindering preparation for the winter wheat crop,
according to the FAO-supported Agriculture Coordination Working
Group. The Ministry of Agriculture has set a target of planting
70,000 ha, but as of April 24, only 1,350 ha had been prepared and
350 ha planted. The recommended timeframe for wheat planting is
mid-April to mid-May. The Working Group reported seed availability
at 7,900MT against a requirement of 7,000MT; 7,000MT of compound D
fertilizer was available against a requirement of 35,000MT (20%) and
about 3,000MT of top dressing was on hand against a requirement of
28,000MT (11%).
The Working Group also reported on the second round of a national
crop and livestock assessment undertaken by the Ministry of
Agriculture. The summer crop harvest was drastically reduced by
poor rainfall distribution. Maize seed was available late, and
there were critical shortages of fuel, fertilizers, chemicals and
labor throughout the season. Highlights:
--The maize production was 49% of last season's production.
--Small grains production was 78% of last season's production.
--Maize and small grains production is enough to cover 28% of
national requirements.
--The national average maize yield was the lowest recorded since
1980.
--The highest yield was recorded among large-scale commercial
farmers; average yield in the communal areas was less than 1/10th of
the large-scale commercial farmers' yield.
The Working Group concluded that unless the macro-level issues of
poor timing, centrally-controlled markets, and an environment of
limited resources are addressed and resolved, the same problems are
likely to occur in the next growing season.

MCGEE

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