Cablegate: Banks Eye Parallel Market

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: Banks eye parallel market

1. Summary: In spite of the GOZ's strong-armed efforts
to enforce a fixed (auction) rate, local businesses tell
us parallel currency trading is becoming more widespread.
NMB now discreetly offers its best customers access to
the parallel market. End summary.

Zimdollar expensive at any rate
2. Business-to-business weekend trading generally took
place within a Z$7,800-8,500/US$ band. Because the
parallel exchange is still covert and untransparent, many
traders offered unwitting smaller clients as little as
Z$6,200/US$. Although the higher-end parallel exchange
nets about 40 percent more than the official rate, it
still overvalues the zimdollar by any historic purchasing
parity measure. Inflation, for example, has registered
360 percent since August 2003, while today's rate is
nearly identical to that of one year ago (Z$5600:US$ on
Aug 22, 2003 vs. Z$5602:US$ at last Thursday's auction).
Zimbabwe has become an expensive place to do business, so
much so that Coca-Cola now considers Johannesburg a
cheaper venue. As a cost-cutting measure, the firm is
relocating its top Zimbabwean executives from depressed
Harare to the southern African business hub.

3. GOZ enforcement requires parallel traders to adopt
extreme precautions. We have seen traders rely on
multiple levels of intermediaries; we have heard them
speak in code over phone lines. Finance Minister Chris
Kuruneri remains behind bars, however, as a grim but
symbolic deterrent to parallel trading and foreign
exchange externalization. We understand repeat-offender
NMB has again begun to tempt its best customers with
parallel exchange rates, the first commercial bank to do
so since January.

4. Reserve Bank (RBZ) Governor Gideon Gono vilifies
parallel traders as economic saboteurs. Actually, they
enhance his potency. Since most prices for goods and
services reflect the parallel exchange, Gono can offer
select importers amplified profit margins by granting
them discounted access to foreign exchange at the
official rate. (The RBZ formally dismisses most
unsuccessful forex applications with a single word -
"cause." There is no further explanation.) In effect,
Gono has created a subsidy for privileged importers
through an indirect exporter tax.


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