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Cablegate: Zimdollar Slips Again

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

UNCLAS HARARE 000951

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: Zimdollar Slips Again


1. (U) Summary: The Zimdollar devalued sharply from Z$
1451 to 2100: US$1 last week. Economists expect it to
soon reach Z$2500-3000, Harare's present desperation
street price. As a consequence, it now appears unlikely
the GOZ will be able to phase out its unaffordable fuel
subsidy. End Summary.

Z$17:US$1 in 1997
-----------------
2. (U) Since 1998, the Zimdollar has steadily lost value:

1/1/1998 - 17
1/1/1999 - 37
1/1/2000 - 41
1/1/2001 - 71
1/1/2002 - 345
1/1/2003 - 1605
Now - 2100 : US$1

Zimbabweans continue to see their salaries rise in
nominal but fall in real terms, the pronounced earnings
trend of the past 5 years. US$ 5/month is an above-
average salary for domestic workers. The largest
Zimbabwean bill is now worth less than a quarter. (The
GOZ still maintains unsupported official rates of Z$55:1
for government transactions and Z$824:1 for
exporters/tourists/remissions recipients converting forex
into local currency.)

Comment
-------
3. (U) The GOZ's recent flooding of parallel markets with
Zimdollars may has sparked this drop. However, it is the
inevitable long-term consequence of poorly conceived
policies - in particular, expansionary monetary policy,
export-unfriendly land reform and negative real interest
rates.

4. (SBU) Last week's devaluation means the GOZ squandered
its best shot at eliminating a fuel subsidy, which shrank
to just 25 percent after the GOZ tripled the regulated
pump price in April. Now the subsidy has bounced back to
over 50 percent; at Z$3000:1, it will be 67 percent. The
GOZ has trapped itself in a futile cycle of a) printing
money to pay subsidies for imported fuel and energy, b)
weakening the Zimdollar in the process and c) creating a
heftier subsidy the next time around. When it raised the
fuel price to within 25 percent of the actual import
price last month, the GOZ came close to breaking free of
the cycle. By raising fuel from Z$ 450 to 600/liter,
market forces would have ended a crippling fuel shortage
and the GOZ would have slowed monetary expansion.

5. (SBU) Although the GOZ has brought little new fuel
into the country, it has reportedly bowed to pressure
from neighbors and made modest payments toward
electricity debts. Recent forex purchases probably paid
down arrears from South Africa's ESKOM and Mozambique's
HCB. The Financial Gazette, a business weekly, also
alleges the GOZ is trying to coax Libya's Tamoil into new
fuel donations (packaged as commodity exchanges). Only
the largess of others, it seems, postpones the final
chapter in Zimbabwe's economic meltdown.

Sullivan

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