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Cablegate: Haphazard Economic Reform

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

UNCLAS HARARE 000852

SIPDIS

SENSITIVE

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

E. O. 12958: N/A
TAGS: ECON ETRD EINV PGOV ZI
SUBJECT: Haphazard Economic Reform


1. (U) Summary: The GOZ's rigidly statist economic policy
has metamorphosed into a hodgepodge approach since
January. Yet the Government still lacks commitment,
consensus and leadership to see through broad economic
liberalization. End Summary.

The Low Point
-------------
2. (U) Last November 14 was 9/11 for Zimbabwe's business
community. Finance Minister Herbert Murerwa unveiled a
breathtakingly interventionist budget that:

- controlled almost every retail price, often below
production cost.

- reaffirmed the Grain Marketing Board (GMB)'s monopoly
on maize.

- taxed export revenue indirectly at over 90 percent.

- made market-based currency trading illegal, shutting
down hundreds of exchange agencies.

The budget alleviated none of the country's gaping
macroeconomic distortions. Unable to secure a continued
supply of nearly free fuel from Libya, Zimbabwe was
marching rapidly toward economic meltdown by the year's
end.

3. (U) Since January, however, GOZ moderates have
implemented a string of reform measures. The GOZ devalued
its still arbitrary official exchange rate from Z$ 55 to
824/US$, eliminated most indirect export taxes, reduced
its fuel subsidy from around 88 to 25 percent and began
to negotiate dollarized energy tariffs. Last week the
GOZ loosened the GMB's control, permitting the free
barter of small maize quantities.

Comment
-------
4. (SBU) In spite of these overdue reforms, there is no
hint of economic revival. With the recent arrival of
energy rationing, in fact, the economy has lurched closer
to meltdown.

5. (SBU) Why no progress despite a positive policy shift?
First, reforms have been haphazard and narrow, probably
reflecting conflicting views within a GOZ that still
enforces unsustainable price controls and negative
interest rates. Second, the GOZ has made no effort to
undo damage to the economy's infrastructure - i.e., rail
transport, coal extraction, power generation, steel
production, large-scale agriculture - so businesses now
contend with costly inefficiencies. Third, the private
sector will not invest in an economy run by an unstable
and bumbling Government. For example, the GOZ is so
inept at calculating revenue inflows that it raised the
leaded fuel price from Z$ 74 to 450 without dedicating
funds for the procurement of less-subsidized fuel,
gaining nothing but an enraged population. Even when
trying, this GOZ does not appear up to the task of
leading Zimbabwe down a reform path.

Sullivan

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