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Cablegate: Almost No Fuel

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

UNCLAS HARARE 002809

SIPDIS

SENSITIVE

STATE FOR AF/S AND AF/EX
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER
USDOC FOR 2037 DIEMOND
PASS USTR ROSA WHITAKER
TREASURY FOR ED BARBER AND C WILKINSON
USAID FOR MARJORIE COPSON

E. O. 12958: N/A
TAGS: ECON EPET EFIN ETRD AMGT ZI
SUBJECT: Almost No Fuel

Ref: Harare 2544

1. (U) Summary: Short of foreign exchange and shunned by
Libya, this country is virtually running on empty.
Doggedly patient Zimbabweans wait days in mile-long fuel
lines that meander over and around city blocks. The
roads have lost 75 percent of normal traffic, as the
Government cannot muster the daily US$ 1 million it needs
to meet fuel demand at present pricing levels. We
believe the world's worst performing peacetime economy is
lurching toward meltdown. End Summary.

Negotiations with Libyans fall through
--------------------------------------
2. (SBU) Zimbabwe has entered a cycle of recurring fuel
shortages each 2-3 weeks, with every successive crisis
more punishing than the last. The Government has scant
export earnings to draw upon, the consequence of an
official exchange rate that overvalues the Zimdollar by
30-fold, land redistribution that has destroyed a robust
farm sector, tax policies that siphon nearly 100 percent
of company earnings, and price controls that induce
critical shortages. Negotiations with Libyan parastatal
Tamoil, provider of most Zimbabwean fuel this year, broke
down on Saturday. Reportedly, the Libyans now want hard
currency rather than theoretical stakes in theoretical
assets. A U.S. company rep told us the GOZ is trying to
avoid purchasing fuel again from Kuwait-based IPG, which
specializes in high-risk customers and has been charging
the GOZ 20-40 percent over the international price. More
conventional suppliers are cheaper but demand full
prepayment from the credit-poor GOZ.

What Now?
---------
3. (U) President Mugabe has few options. He can:

a) implore Libya not to let a fellow-African nation that
has challenged the West go under.

b) sell or trade remaining national assets for hard
currency.

c) print a fresh supply of Zimdollars to exchange for
hard currency on parallel markets, causing the Zimdollar
to resume its free-fall.

d) stop subsidizing fuel by over 90 percent.

e) unshackle the export sector by devaluing the official
exchange rate, reversing land redistribution or reducing
taxes.

(a-c) are quick fixes that win Mugabe no more than a few
weeks breathing room; (d) will prove unpopular and
trigger hyperinflation; (e) may be ideologically
unpalatable.

The Threat to U.S. Interests
-----------------------------
4. (SBU) At the weekend's party conference, Mugabe said
he might nationalize foreign oil companies, a contingency
we have warned of (ref) but one that, at the end of the
day, does not address the forex/fuel problem. U.S.
companies believe the GOZ will channel an increasing
share of the subsidized fuel to indigenous operators,
eventually pressuring multinationals into asset fire
sales. At present, indigenous operators have 7 percent
of distribution capacity but are receiving 30 percent of
incoming fuel.

Comment
-------
5. (U) Even Zimbabwe's still-vibrant informal economy
cannot run without fuel. Unless the GOZ modifies its
scorched-earth policies, the economy will continue to
retract by over 1 percent per month, its foreign exchange
shortfall growing more pronounced at every turn.

Sullivan

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