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Cablegate: Demand Explodes at Forex Auctions

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

UNCLAS HARARE 001319

SIPDIS

STATE FOR AF/S, AF/EX
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 EAGR EINV PGOV ZI
SUBJECT: Demand Explodes at Forex Auctions

1. Summary: With the bargain-basement exchange rate of
Z$5300:US$ still holding, buyers of foreign exchange at
the Reserve Bank's (RBZ) twice-weekly currency auctions
are gobbling up as much as they can. Yet with exports
apparently dropping, the RBZ lacks inflows to satisfy
most importers. End summary.

Dirt-cheap U.S. dollars
-----------------------
2. Consider the surge of total bid amounts at July
auctions:

7/1 US$ 30 million
7/5 27
7/8 30
7/12 29
7/15 32
7/19 35
7/22 38
7/26 40
7/29 44

Forex demand in July increased nearly 50 percent. As
recently as June 17, bids totaled just US$ 10 million.

3. Due to disappointing export revenue, the RBZ has been
able to offer a mere US$ 9.5 million at each auction.
Forex is so scarce that auction winners now must wait two
months until the U.S. dollars land in their accounts. At
the auction's steeply overvalued Z$5300:US$ exchange
rate, importers tell us they will buy any forex quantity
they can get their hands on. In his address last week,
RBZ Governor Gono expressed concern that auctions winners
might be using forex for speculative rather than
productive activities.

Comment
-------
4. We expect the auction rate to soon reach Z$5600:US$,
which is the RBZ's new guaranteed exchange for street
purchases. This will not help much, since a very
restrained parallel market (trading penalties are still
severe) now trades at Z$7200:US$. As we have said
repeatedly, the RBZ's commitment to an overvalued
zimdollar is undermining exporters, whose other costs -
wages, a new multi-layered value-added tax, electricity
at double the region's average - are also rising. Many
of these firms are only being kept afloat through RBZ
loans at negative real interest rates. Ultimately, we do
not know how many will survive this policy.

Sullivan

© Scoop Media

 
 
 
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