Cablegate: Auction Rate Passes Diaspora/Exporter Rate

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

UNCLAS HARARE 000731

SIPDIS

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

E. O. 12958: N/A
TAGS: ECON EAID BTIO EINV PGOV ZI
SUBJECT: Auction Rate Passes Diaspora/Exporter Rate

1. Summary: The most noteworthy new policy announced in
Reserve Bank (RBZ) Governor Gideon Gono's second policy
statement may last just one week. End Summary.

2. Gono offered unhappy exporters as well as recipients
of Diaspora transfers a floor price of Z$5,200:US$, a 10
percent bonus to last week's controlled auction rate. In
the two ensuing auctions, however, the RBZ has pushed the
weighted average to Z$5,272:US$, leaving the incentive
rate in the dust. While Gono said the new rate could be
"reviewed periodically," he has not readjusted it yet.
If he leaves it at Z$5,200:US$, the most innovative
aspect of his speech will have already faded into
oblivion.

Comment
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3. Comment: Compared to his December 18 address, Gono's
speech was poorly-conceived. Buying U.S. dollars for a
rate 10 percent higher than its own sell-price meant the
RBZ had to cover the difference. On the US$16 million it
auctions each week, the RBZ would have subsidized
importers to the tune of US$1.6 million. As soon as the
RBZ did the math, it no doubt decided to boost the
auction rate.

4. How sloppy was Gono's statement? When discussing the
$Z5,200:US$ rate, he said: "To the extent that inflation
is expected to decline, our expectations are that this
floor price will be reviewed downwards . . ." The RBZ is
projecting - optimistically - a reduced inflation rate of
200 percent by year-end, not deflation.

Sullivan

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