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Cablegate: Zimbabwe Economic Crises Update

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

UNCLAS SECTION 01 OF 02 HARARE 002006

SIPDIS

SENSITIVE

STATE FOR AF/S
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER
USDOC FOR 2037 DIEMOND
TREASURY FOR OREN WYCHE-SHAW
PASS USTR FLORIZELLE LISER
STATE PASS USAID FOR MARJORIE COPSON

E. O. 12958: N/A
TAGS: ECON EINV PGOV ZI
SUBJECT: Zimbabwe Economic Crises Update

Ref: Harare 1762

1.(SBU) Summary: We offer the following thumbnail update
of Zimbabwe's principal economic crises. Since reftel,
the GOZ has made progress on fuel and banknote shortages,
but inflation is worsening. End Summary.

Banknote Shortage
-----------------
2.(SBU) Through the GOZ euphemistically calls its new
larger denomination banknotes "bearer checks," most
Zimbabweans would gladly believe that up is down if it
means they can have money again. While their cash
languished in banks, inflation swallowed over one percent
of its value each day. Happily, merchants have accepted
the larger notes with hardly a glitch.

Overvalued Currency
-------------------
3.(SBU) No progress, with the parallel rate holding at
Z$5650:US$1, about 7-times the official rate. When the
GOZ devalued from Z$55 to 824:US$1 in February (and
promised further quarterly reviews), the official rate
had floated up to more than half the parallel rate. Our
next parallel market slide lurks no doubt around the
corner. Exporters are up-in-arms about exchanging half
their earnings to the Reserve Bank at the low official
rate, a policy that is eating away at one of Zimbabwe's
sole remaining forex sources. According to unconfirmed
press reports, President Mugabe has been adamant in
refusing cabinet requests for further devaluations.

Near-Hyperinflation
-------------------
4.(SBU) Closely related to the Zimdollar's plummeting
value, inflation continues on the upswing. Currently,
the Central Statistical Office pegs it year-on at 427
percent. The local International Monetary Fund office
forecast last November of 523 percent year-end inflation
appears uncannily accurate. Since the GOZ introduced the
new larger denomination banknotes on Sept 17, retail
prices have risen rapidly, perhaps by as much as 20
percent. Public transport in Harare has also jumped from
Z$300-600 to Z$400-1,000 in the past fortnight. With few
salaries keeping pace with inflation, Zimbabweans without
a forex source just get poorer.

Rationalizing Land Reform
-------------------------
5.(SBU) There's clearly no snappy ending to this ordeal.
Our contacts - including farming companies, Ministry of
Agriculture officials and various farmer groups -
universally doubt a GOZ commitment to make land reform
work. The GOZ will not even publish (let alone act upon)
the much-ballyhooed Utete Commission report, which was
supposed to chart a path out of the land reform chaos.
Consider the problems: (a) Both large- (A2) and small-
scale(A1) farms still form unviable economic models; (b)
the GOZ has made no effort to agree on a compensation
schedule for dispossessed farmers, the quickest route to
a restoration of title-deed and rule-of-law; (c) and
President Mugabe's two-week ultimatum for multiple-farm
recipients to return all but one farm seems to have
passed unheeded by all but a handful. Worst of all, land
invasions continue.

Fuel Shortage
-------------
6.(SBU) The GOZ has raised the controlled fuel price from
Z$ 1,170 to 1,980. Yet although it has escalated 29-fold
(from Z$69) this year, the controlled price does not
leave downstream oil companies sufficient room for
profit. The leaded-fuel street price now runs ZS 2,200
to 2,700. On the other hand, the GOZ is not presently
punishing most gas stations that sell above the
controlled price. We witnessed several TOTAL stations
outside Harare selling openly at Z$ 2,200 this week.
Should this lax enforcement continue, we believe all gas
stations will soon ignore the controlled price, signaling
the conclusion of Zimbabwe's fuel crisis.

Comment
-------
7. (SBU) Despite progress on the banknote and fuel
fronts, the GOZ has not returned to the modest economic
reform course it began in February. Escapism is still
the order of the day. The GOZ blames bad economic times
on fabricated Western trade sanctions. Then it couches
its piecemeal reform in language that disguises the
actual policy, where banknotes become "bearer checks" and
devaluation an "export support mechanism." Until this or
a future GOZ is able to confront the real causes of
Zimbabwe's economic decline, we do not expect meaningful
solutions.

Sullivan

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