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Cablegate: Zimbabwe Donor Dialogue - Planning for Re-Engagement,

VZCZCXYZ0005
RR RUEHWEB

DE RUEHSB #0907/01 2811137
ZNR UUUUU ZZH
R 071137Z OCT 08 ZDK
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC 3540
INFO RUEHSA/AMEMBASSY PRETORIA 5554

UNCLAS HARARE 000907

SIPDIS
AIDAC

FFP/W for JBORNS, ASINK, LPETERSEN
AFR for JHARMON, ELOKEN, LDOBBINS, KALMQUIST, FMOORE
PRETORIA FOR HHALE, JWESSEL, PDISKIN, SMCNIVEN

E.O. 12958: N/A
TAGS: EAID EAGR PREL PHUM ZI
SUBJECT: ZIMBABWE DONOR DIALOGUE - PLANNING FOR RE-ENGAGEMENT,
STABILIZATION, AND RECOVERY

REF: HARARE 894

-------
SUMMARY
-------

1. A number of donor meetings have taken place in the last two
weeks to plan for re-engagement, stabilization, and recovery in
Zimbabwe when political conditions permit. On September 25, heads
of assistance agencies met to discuss and come to agreement on a
range of issues, including: the nature of a recovery program;
practical application of the common set of principles and benchmarks
drafted to determine when and to what extent it is appropriate to
implement expanded assistance; issues of coordination; and bilateral
programmatic interests and funding expectations. A report of the
discussion and key agreements will be discussed at the high-level
donor meeting in Ottawa on October 30. On September 26, Morgan
Tsvangirai and members of his technical transition team and the
Government Strategic Unit (GSU), which has been established as an
advisory and operational arm of the Office of the Prime Minister
(OPM), met with the Policy Committee of the World Bank Multi-Donor
Trust Fund (MDTF). Tsvangirai called the meeting to convey to
donors the immediate priorities that will be taken up by the OPM and
the Council of Ministers once a political agreement is reached, and
to discuss issues of GOZ/donor coordination, as well as
international plans for providing economic recovery assistance. On
October 1, the UNDP and the World Bank revived the Imba Matombo
Consultative Forum, which is intended to facilitate convergence of
multiple stakeholders on analysis, constraints, and policy options
facing Zimbabwe. At the half-day seminar, UNDP presented the
"Comprehensive Economic Recovery in Zimbabwe - A Discussion
Document," which lays forth a long-term economic recovery and
development program. A summary of each of these three meetings is
provided below. END SUMMARY.

--------------------------------------------- ------
DONOR RE-ENGAGEMENT: GETTING ON THE SAME SONG SHEET
--------------------------------------------- ------

2. Harare-based heads of assistance agencies met on September 25,
regrouping after the summer holidays and assessing appropriate
responses to political events in Harare. The meeting also sought to
follow up on the last donor conference in Stockholm and plan for the
upcoming high-level donor meeting in Ottawa (now scheduled for
October 30). In addition, the all-day meeting provided an
opportunity to clarify and consolidate thinking on what
re-engagement with the Government of Zimbabwe (GOZ) will require
should the recently signed power-sharing agreement bear fruit. It
was agreed that the outcome of the meeting should be a presentation
for the Ottawa Donors' Conference.

3. The UK's representative for the Department for International
Development (DFID) presented an outline of a recovery plan which put
forward three scenarios. The first was optimal - fully funded and
fast-tracked with full cooperation and buy-in from the GOZ. The
second envisioned a slight lag in funding and more negotiation with
the GOZ on reform, and the third was premised on partial reforms.
The Mission will forward via e-mail the entire analysis. While the
first scenario was shown to have the quickest impact and best
recovery potential, the price tag of USD 300 million in balance of
payments support is ambitious, as is the projected overall
assistance requirement estimate of USD 5.1 billion over 5 years.
This scenario depicts key stabilization actions taking place during
the first 12 months with balance of payments support, technical
assistance, and support for demobilization which would parallel GOZ
steps to reengage the international financial institutions, stand up
functioning ministries, develop an approach to deal with arrears,
and demobilize militias. Clearly all of this depends upon the
outcome of current negotiations, political will, and the ability of
progressive forces to bring along the rest of the GOZ. The second
scenario would be slower and socially more costly; donor response
would also be slower. The third could very well lose any impact
during implementation and donors would likely limit their support to
humanitarian assistance.

4. Participants also discussed the sequencing of arrears clearance,
possible involvement of regional actors such as the African
Development Bank and South Africa in the process, steps toward HIPC
(Heavily Indebted Poor Country initiative) status, the need for
parallel efforts in key development sectors, and financing. Donors
voiced concerns about the need for confidence building steps on the
part of the GOZ prior to any major investment and harkened back to
the donor principles agreed in previous donor meetings. Managing
expectations was seen as critical as was coping with the reality
that while all parties may want to be in scenario 1, the more
realistic likelihood would be scenario 2.

5. The donors reaffirmed their commitment to the common principles
and the need for a performance-based response. However, they also
agreed that it would not be a neat process. All agreed that a clear
commitment by the GOZ to put in place a number of immediate measures
to build confidence and create the conditions for a just and
transparent recovery process would be met with a process of donor
re-engagement and program development consistent with the Paris
Declaration on aid effectiveness. The confidence-building measures
include a sound and credible program of economic stabilization in a
context of peace and security. Although little can be done until
there is a credible government in place, donor representatives
agreed that one of the first steps would be to engage the government
to set clear benchmarks. The ensuing process would combine helping
the GOZ to meet the benchmarks and a clear response to achieving
them. Donors emphasized the need for clear and consistent
communication during this process as well as the development of a
communications strategy. The group also proposed development of a
transitional results matrix to enable joint monitoring of progress
to ensure mutual accountability.

6. Immediate steps required for re-engagement were seen as: the
complete re-opening of humanitarian space and assessment of needs; a
firm commitment to the impartial distribution of humanitarian aid
based on need; the immediate commencement of dialogue with regional
and international financial institutions and major creditors, with a
view to putting in place an internationally-approved economic
stabilization process and an agreed course of action to tackle the
country's arrears; an immediate end to political violence and
intimidation, including the standing down and cessation of
activities by militia groups and the release of all political
prisoners; and, actions that will quickly establish the conditions
for an open and accountable process of national reconciliation,
including the lifting of all constraints on the media and an end to
the harassment of civil society and human rights groups. Early
tests of intent include: a credible political settlement, a credible
Minister of Finance and Governor of the Reserve Bank, a credible
budget, and a credible commitment to an internationally-supported
stabilization package engaging the International Monetary Fund,
World Bank, and African Development Bank.

7. The final point of discussion was how to structure the
"architecture" for donor coordination as we move forward. All
participants are signatories to the Paris Declaration on Aid
Effectiveness which calls for coordination around a single, national
plan for recovery and the establishment of lead donor arrangements.
It was agreed that while we are committed to that direction, the way
forward will not be entirely clear until we are engaged with the
GOZ. In summary, there is emerging clarity on how to go forward and
continued consolidation around the donor principles. There is a
coherence of view and agreement that open and frank dialogue is
needed to ensure solidarity of action. DFID was tasked with
consolidating the results of the discussions to present at the
upcoming donor meeting in Ottawa.

---------------------------------------------
TSVANGIRAI MEETS WITH HEADS OF DONOR AGENCIES
---------------------------------------------

8. On September 26, Morgan Tsvangirai and members of his technical
transition team and Government Strategic Unit, which has been
established as an advisory and operational arm of the Office of the
Prime Minister (OPM), met with the Policy Committee of the World
Bank Multi-Donor Trust Fund (MDTF). The meeting was called by
Tsvangirai to convey to donors the immediate priorities that will be
taken up by the OPM and the Council of Ministers once a political
agreement is reached and to discuss issues of GOZ/donor
coordination, as well as international plans for providing economic
recovery assistance.

9. Tsvangirai reiterated that his top priorities were to address
the food crisis, stabilize the economy, and strengthen rule of law
(with media reform, human rights, and governance sector reform at
the top of the list). In particular, Tsvangirai requested
assistance from donors to address the humanitarian situation, to
provide policy guidance with regard to macro-economic stabilization
(e.g., advice as to whether a currency board is appropriate, when to
lift price controls, etc.), to develop the 2009 national budget
(which needs to be submitted to Parliament by the first week of
December), to reform tax administration, to provide for the needs of
people who will be adversely affected by an economic recovery
program, and to take stock of local level needs, including
rehabilitation of water infrastructure.

10. Tsvangirai asked donors for a notional idea of forthcoming
assistance. Donors responded that it was premature to discuss this
information until an agreement is reached and benchmarks are met.
The donor group presented the initial benchmarks that would need to

be achieved before recovery assistance could be provided, including
unimpeded humanitarian access, freedom of the press, disarming of
militias, freeing of political prisoners, and the announcement of an
electoral roadmap. Donors noted, however, that they were in the
process of increasing their humanitarian assistance to respond to
the food crisis and non-food emergency needs. Tsvangirai took away
from the meeting a strong understanding that he needed to manage
public expectations about forthcoming international assistance and
how quickly it would come. He also took away a greater
understanding of the complexity, uniqueness, and time constraints of
donor processes to approve assistance budgets and move money.

11. Donors used the meeting to make a number of key points. They
urged Tsvangirai and his team to complete the 100 day plan as a
matter of priority. It would serve as a document against which to
contemplate assistance once conditions are right and to more fully
understand the priorities of government. Furthermore, donors urged
Tsvangirai to take a proactive lead with regard to donor
coordination and to establish an office to oversee this
responsibility. In addition, donors emphasized that once an
agreement is reached coordination would need to begin with the whole
of government, including ZANU-PF elements, versus only the MDC.
Tsvangirai responded positively to each of these requests, noting
that the 100 day plan is one of his immediate priorities and that he
intended to appoint a team to interface with donors until the
Ministry of Finance could be strengthened to take on this role.

12. At the conclusion of the meeting, all parties spoke of the
usefulness of the discussion and the need to continue dialogue.
Tsvangirai closed the meeting by reiterating his main takeaway
points: 1) that he needed to get government in place and initiate
reforms before donors could engage in recovery dialogue; 2) that he
needed to complete his 100 day plan immediately, and that individual
ministries needed to develop their own 100 day plans as soon as
possible to assist donor planning efforts; 3) that he needed to
lower public expectations regarding the immediacy with which
international assistance would be forthcoming; and 4) that he needed
to work toward expanding donor dialogue to include relevant ZANU-PF
individuals.

--------------------------------------------
UNDP PRESENTS ITS LONG-TERM DEVELOPMENT PLAN
--------------------------------------------

13. On October 1, the UNDP and the World Bank revived the Imba
Matombo Consultative Forum, which is intended to facilitate
convergence of multiple stakeholders on analysis, constraints, and
policy options facing Zimbabwe. At the half-day seminar, UNDP
presented the "Comprehensive Economic Recovery in Zimbabwe - A
Discussion Document," which is the culmination of more than a year
of research. The document summarizes the current situation and
outlines necessary actions to spur economic recovery in the areas of
macro-economic stabilization, financial sector recovery, private
sector development, agricultural reform, and labor and human capital
development. The research was facilitated by Dr. Mark Simpson, a
UNDP consultant; Zimbabwean sectoral experts took the lead to draft
the discussion document and define points of intervention. The
forum, which was co-chaired by Dr. Agostinho Zacarias (UNDP Res Rep)
and Dr. Mungai Lenneiye (Acting World Bank Country Manager), drew
participants from the diplomatic corps, bilateral and multilateral
donor agencies, the private sector, and the MDC.

14. The content of the document mirrors the points of sectoral
intervention that have been discussed in other venues, including the
MDTF and like-minded donor group. The recovery program outlined is
intended to provide a long-term development plan whereas the World
Bank's "Zimbabwe Economic Recovery Program" (ZERP) outlines an
immediate emergency plan of action. The World Bank plans to
implement the ZERP through a programmatic MDTF and the MDC has
provided input into the MDTF process. It is anticipated that in
time UNDP will request funding to pursue the programs highlighted in
its report.

15. Highlights of the discussion include:

--Macroeconomic stabilization: The researchers underscored the need
to remove price and exchange rate controls as well as capital
controls on individuals, and to establish and publish money supply
targets to reign in inflation. Post-stabilization, the researchers
underscored the need to carry out a public expenditure review,
establish and publish fiscal rules, conduct budgetary reviews,
strengthen public financial management, and establish inflation
targeting.

--Financial sector recovery: The researchers identified the lack of
financial intermediation by commercial banks and the role now being
played by the central bank, as an impediment to growth. Therefore,

there is need to restore the central bank to its core mandate and
constitutionally guarantee its autonomy. In order to achieve
pro-poor growth there is also a need to increase access to finance
for the poor by removing constraints on the operations of
micro-finance institutions.

--Private sector development: The researchers highlighted that
private sector development is being stifled by lack of foreign
currency to import raw materials, out-migration of skilled workers,
massive disinvestment, and diminishing competitiveness due to
hyperinflation and an overvalued exchange rate. Therefore, it was
suggested that attention be given to easing foreign currency
constraints, improving the regulatory environment, rehabilitating
and rebuilding productive infrastructure, workforce training, public
private partnerships, and formulating a strategy for the private
sector to participate in the global market place. It was noted that
special attention should be given to the mining sector (which
contributes 4 percent of GDP and 45 percent of exports) and to the
tourism industry. The researchers also stressed the need to
restructure and reform public enterprises, which have poor pricing
policies and conflicting policy goals.

--Agricultural reform: Reform of governmental institutions was
noted as a short-term priority as well as the need to announce
pre-planting prices. The research team placed land tenure reform in
the communal areas as a medium to long-term need that would not be
achievable until approximately 2015.

--Labor and human capital development: The researchers emphasized
the need for civil service reform, vocational education, and
programs that would facilitate the return of skilled professionals.


DHANANI

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