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Cablegate: Zim Notes 10-31-2008

VZCZCXRO1383
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSB #0991/01 3080826
ZNR UUUUU ZZH
R 030826Z NOV 08
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC 3650
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHUJA/AMEMBASSY ABUJA 2120
RUEHAR/AMEMBASSY ACCRA 2408
RUEHDS/AMEMBASSY ADDIS ABABA 2528
RUEHRL/AMEMBASSY BERLIN 1028
RUEHBY/AMEMBASSY CANBERRA 1804
RUEHDK/AMEMBASSY DAKAR 2159
RUEHKM/AMEMBASSY KAMPALA 2584
RUEHNR/AMEMBASSY NAIROBI 5012
RHEHAAA/NSC WASHDC
RHMFISS/EUCOM POLAD VAIHINGEN GE
RUEHGV/USMISSION GENEVA 1677
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RHEFDIA/DIA WASHDC
RUEAIIA/CIA WASHDC

UNCLAS SECTION 01 OF 03 HARARE 000991

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

SIPDIS

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

SUBJECT: ZIM NOTES 10-31-2008

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

Topics of the week:

- SADC Troika Fails to Break Deadlock...
- Parliament adjourns until November 11...
- Civil Society Critical of Agreement, Constitutional Reform...
- Without Doctors or Nurses, Public Hospitals Stop - Admitting
Patients...
- Cholera Outbreaks Continue...
- Global Fund wraps up in-country audit...
- Heartbreak in the Heartland...
- Public Universities to Start November 3...
- Barely Coping in the Economic Meltdown...
- Industry Backs Pro-Market Reform...
- Gold Production Crisis...
- Zeros Return With a Vengeance...
- Government Increases Tax-Free Income Threshold...

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

Parallel rate for cash nearly doubled to Z$95,000:US$1

Check rate skyrocketed to Z$145,000,000,000:US$1 against inter-bank
average of Z$620:US$1

Bread on the parallel market doubled to Z$150,000

Sugar rose to $200,000/2kg

Petrol and diesel declined to Z$75,000/liter

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

3. SADC Troika Fails to Break Deadlock... Despite 13 hours of
meetings with the SADC Troika (Politics, Defense and Security) on
Monday October 27, implementation of the September 15 agreement
remains elusive. Hundreds of Zimbabweans attempting to demonstrate
outside the venue were rebuffed by riot police armed with tear gas
and batons. At least two dozen were injured. Police arrested 47
and released them that night after paying a fine. The Troika is
calling for an extraordinary SADC summit to address the Zimbabwe
crisis; it is expected to take place within the next two weeks. See
Harare 966, 968 and 974.

4. Parliament adjourns until November 11... In the continued
absence of a deal, MPs have gone home until November 11 when they
will take up a motion to investigate election related violence. See
Harare 980.

5. Civil Society Critical of Agreement, Constitutional Reform...
Civil society leaders held a public forum on October 30 where they
questioned how civil society could play a role in monitoring a
power-sharing agreement, since it is still nonexistent. Privately,
one leader shared his skepticism of any constitutional reform
process. See Harare 970.

6. Without Doctors or Nurses, Public Hospitals Stop Admitting
Patients... The three major public hospitals in the Harare area -
Parirenyatwa, Harare Central, and Chitungwiza - have been reduced to
empty shells. Starting around October 23 Parirenyatwa and Harare

HARARE 00000991 002 OF 003


Central began discharging nearly all of their patients, as doctors
and nurses refused to come to work. Medical professionals are
angry not only about their paltry salaries but because they are
tired of the lack of supplies that leaves them helpless to do
anything but watch patients die.

7. Cholera Outbreaks Continue... The UN estimates at least 120
cholera-related deaths have occurred this year, including about 30
since the end of August. The Harare high-density suburb of Budiriro
is presently of greatest concern, as 55 cases and 4 deaths were
reported there this week. Indicative of poor monitoring and
reporting, the Budiriro outbreak began on October 14, but was only
reported on the 27th.

8. Global Fund wraps up in-country audit... The Global Fund's
Inspector General and the Lead of the Audit Team will debrief the GF
Executive Director this week and a full report will be available in
December. The audit confirmed that the Reserve Bank of Zimbabwe's
financial procedures handling GF monies were neither transparent nor
appropriate. Over US$7 million of Global Fund resources intended to
provide life saving medical care to thousands of Zimbabweans was
diverted for other purposes by the Reserve Bank of Zimbabwe since
November 2007. Zimbabwe's Round 8 application for US$500 million
has been provisionally approved after technical review and will go
to the GF Board for review in the near future. See Harare 981.

9. Heartbreak in the Heartland... Last week we visited Gweru and
Masvingo, in Zimbabwe's once-rich farmlands, as part of our election
outreach and to get a sense of life in the heartland. Increasingly,
everyone from the vegetable vendor to the landlord demands foreign
currency, putting the squeeze on Zimbabweans. See Harare 985.

10. Public Universities to Start November 3... The Minister of
Education announced universities will open their doors on November
3, although residence halls remain closed and professors do not have
salary packages. For a complete overview on the crumbling education
system, see Harare 988.

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

11. Barely Coping in the Economic Meltdown... Zimbabweans are
tightening their belts, relying on food aid, finding new informal
work opportunities within the distortions and contradictions of the
economy, emigrating, and sending back remittances. What alarms us
particularly in comparing today's coping mechanisms with those of
1-1/2 years ago is the rise in disdain for the law as "corruption
out of need" joins "corruption out of greed." See Harare 982.

12. Industry Backs Pro-Market Reform... At its annual congress
this week, the Confederation of Zimbabwe Industries (CZI) resolved
to advise government to implement pro-market policies to revive the
ailing manufacturing sector. Noting the negative effects of the
Reserve Bank of Zimbabwe's (RBZ) interventions, and in an
encouraging sign of possible activism by the country's leading
business organization, it called for the Bank to revert to its core
business and desist from quasi-fiscal (i.e. off-budget) spending.
It also resolved to send a delegation to President Mugabe to advise
him of the dire food situation, and to become more engaged in the
design of economic policies.

13. Gold Production Crisis... According to the CEO of Central
African Gold, Greg Hunter, speaking at an investment conference in
Johannesburg, Zimbabwe's gold sector is in a crisis primarily
because of pricing distortions. He calculated that the
RBZ-determined buying price of gold is only US 60 cents per ounce
compared to the international market price of around US$850 per

HARARE 00000991 003 OF 003


ounce. Moreover, on October 26, the Chamber of Mines announced that
the RBZ was US$30 million in arrears to gold producers, which held
up investment in capital projects and exploration.

14. Zeros Return With a Vengeance... The 10 zeros that were lopped
off when the Zimbabwe dollar was redenominated on August 1, 2008,
have reappeared with a vengeance thanks to hyperinflation and the
continued excess demand for foreign exchange. Using the cash
exchange rate, the Zimbabwe dollar lost 99.9999% of its value in the
last three months while the Old Mutual Implied Rate, at US$890.1
billion:US$1, breached its pre-revaluation high of Z$676.1
billion:US$1 this week. In response to the return of the zeros,
most banks and service providers are removing between 6 and 12 zeros
to enable their systems to cope. In view of these developments and
the lack of other investment opportunities, activity on the Zimbabwe
Stock Exchange continues to push record levels nearly every day.

15. Government Increases Tax-Free Income Threshold... Against this
backdrop, the GOZ raised the tax-free income threshold from Z$15,000
(about US 16 cents at the cash rate) to Z$200,000 (US$2.10) per
month with effect from October 1. Those earning above Z$4 million
(US$42.10) per month will be taxed at the highest rate of 47.5%.
Bracket creep will make the benefits short lived.

-----------------
Quote of the Week
-----------------

16. Just look at how young our Secretary for Information is and how
old Robert Mugabe is." MDC Secretary General, Tendai Biti in an
October 27 press conference, referring to the generational gap
between MDC's 30-year-old Nelson Chamisa and the 84-year-old Robert
Mugabe.


MCGEE

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