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Cablegate: Zimbabwe Cash Crunch Tightens

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

011446Z Jul 03

UNCLAS SECTION 01 OF 02 HARARE 001339

SIPDIS

NAIROBI FOR CNEARY

E.O. 12958: N/A
TAGS: ECON ETRD ELTN ZI
SUBJECT: ZIMBABWE CASH CRUNCH TIGHTENS


1. Summary: The shortage of local currency continues to
worsen despite assurances by the Reserve Bank that more
money is being printed. This, in addition to other
widespread shortages in the country, has added to the burden
of most Zimbabweans, who now need wads of low-denomination
bills to procure basic necessities. It is apparent that
most people prefer to keep their cash at home to avoid the
disappointment of not getting any at the bank or being
restricted to amounts as little as Z $5,000 (US $2.12) per
withdrawal. End summary.

--------------------------------------
ILLEGAL TO CARRY LARGE AMOUNTS OF CASH
--------------------------------------

2. In another Alice-Through-the-Looking-Glass application
of the law, some policemen are arresting people and
confiscating the money of those who are in possession of
large amounts of local currency. The police are arbitrarily
demanding that people account for their money on mere
suspicion that they could be involved in illegal
transactions. The police seem oblivious to the fact that
the local currency has lost so much value that US $100 now
exchanges for Z $235,000 -- and is often only available in
$50 and $20 notes. MP David Chapfika, the Chairman of the
GOZ's Budget and Finance committee, was quoted stating
"there is no need for anybody to be carrying huge stacks of
money," and that all money belongs to the government anyway.
We note for the record that the bank Chapfika once headed
collapsed from insolvency in 2001.

3. The much-looked-for infusion of more than Z $2 billion
in Z $500 notes, originally slated for the end of June, has
not yet materialized despite GOZ-daily headlines to the
contrary. Commentators across the board note that the GOZ
should be printing $1,000 (or even $5,000) notes. Some
reports indicate that a $1,000 note may be introduced by
November 1. Those reports also hint, however, that upon its
introduction, all existing $500 notes must be converted
within a prescribed time period, after which they will no
longer be legal tender. One local economist warns that if
the GOZ limits the amount that an individual can convert (as
has happened in other nations' banking catastrophes), the
public stands to lose millions in capital while the GOZ
stands to gain an immense windfall. The possibilities for
corruption under such a scenario boggle the imagination.

-----------------------------------
MOST TRANSACTIONS NOW ON CASH BASIS
-----------------------------------

4. While a few banks use the availability of cash through
their ATM machines as an incentive to account holders, even
those sources have largely dried up. Commercial bank ATMs
which previously offered maximum withdrawals of up to Z
$90,000 (US $38.30) have been empty for the past week.
Further, many of those banks which provided large amounts of
cash through ATMs are commercial banks which cater to an
upscale clientele. Due to structural differences such as
transaction fees and minimum balances, most Zimbabweans hold
accounts (and receive their paychecks) through building
societies and the Post Office savings bank, which are more
on a par with US homestead or savings & loan institutions.
Unfortunately, it is these institutions -- which service
the majority of the population -- that are struggling most
with the cash shortage, since they have less access to cash
than the commercial banks. During the past few weeks, it is
routine to see queues of several hundred people lined up at
each building society branch by 6:00 am. When the doors
finally open at 8:00 am, the patrons are often limited to Z
$5,000 to Z $10,000 (US $2.13 to $4.25) apiece.

5. Many businesses, including doctors and pharmacies, are
now demanding cash instead of checks because of the
downstream problems associated with withdrawing money from
the banks. More and more shops and restaurants display
announcements that checks are not accepted. Almost all fuel
for individual motorists is now sold on the black market,
and on a strictly cash basis. Public transport -- whether
through commuter omnibuses or ride-sharing with a helpful
motorist with extra seats -- is available only to those with
cash. Commercial banks now request their clients to make
prior arrangements to withdraw large amounts of cash, which
may take days or weeks to process. Traditionally, cash has
become short at the end of the month as many employers
process their payrolls on a monthly basis, with uniformed
services drawing their pay first and civil servants last.
At the end of the month, the queues grow longer, the cash
supply becomes tighter, and the tempers of even normally
placid Zimbabweans grow short.

-------
COMMENT
-------

6. The burden of the cash shortage falls primarily on
ordinary Zimbabweans, and disproportionately on those least
able to afford it. Many of the more affluent, including
diplomats and other expatriates, are shielded to some
degree, but even the Embassy's American employees are
limited in the amount of cash they can obtain on a weekly
basis. This week's accommodation exchange through the
Embassy was US $50; last week's was US $40 (which is still
more than many Zimbabweans make in a month). While this
constitutes an inconvenience for Embassy employees, many
locals are making the hard decision between spending their
scarce cash on healthcare, food, or transport. It remains
to be seen whether this situation is an aberration, rather
than a new order of business, in the quagmire of the
Zimbabwean economy.

Sullivan

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