Cablegate: Parallel Market Takes Off

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




E. O. 12958: N/A
SUBJECT: Parallel Market Takes Off

Ref: Harare 1206

1. Summary: The GOZ's overvalued currency still plagues
exporters. Despite GOZ enforcement against parallel
trading, the gulf between auction and market rates is
growing. Notwithstanding the GOZ propaganda onslaught
that the country is experiencing a socio-economic
turnaround and faces bright prospects, most recently
expressed by President Mugabe in his opening address of
the fifth session of Parliament, the economy continues on
its downward path. Ordinary Zimbabweans bear the brunt
of GOZ mismanagement. End summary.

The overvalued zimdollar
2. The zimdollar now fetches up to Z$7,000:US$ in
parallel trading, an approximate 40 percent premium to
the Reserve Bank (RBZ)-determined Z$5,300:US$ auction
rate. Absent GOZ harassment of parallel traders, the
zimdollar would probably have devalued further.
Purchasing power parity models, using December as a
baseline, put the rate at about Z$8,000-10,000:US$.

3. Demand for U.S. dollars at the official discounted
rate has understandably exploded. Bids at each auction
now reach nearly US$40 million, with only US$9.5 million
on offer. (It has lately taken the RBZ two months to
transfer forex into the accounts of auction-winners,
further evidence of its overstretch.) Ironically, the
few importers that the RBZ deems eligible at auctions
also qualify for the RBZ's productive sector loans.
These loans carry interest rates of only 50 percent,
heavily negative in real terms, with market lending rates
ranging 270-300 percent. Cheap forex and borrowing
create enormous rent-seeking opportunities.

4. Exporters are hurting. Beyond an overvalued exchange
rate, they still generally surrender 25 percent of
revenue through an indirect tax (by exchanging that
portion at Z$824:$US). Most no longer believe they can
compete regionally.

5. Official statistics are of little value, but our best
evidence suggests exports are rapidly declining.
Zimbabwe exports to the U.S., for example - an admittedly
narrow window - were off 16 percent Jan-May 2004 compared
to the same period in 2003. That's on top of a 33
percent drop from 2003 to 2002. (Note: Post is trying
to develop a better and broader gauge of export revenue,
arguably Zimbabwe's single most telling economic
indicator.) Some exporters have told us this week they
are shifting production to domestic sales, an absurd
twist. Meanwhile and despite RBZ rhetoric to the
contrary, the economy continues to tank.


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