Cablegate: Elections: Goz Accelerates Populist Economic

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

130910Z Sep 04

UNCLAS SECTION 01 OF 02 HARARE 001532

SIPDIS

STATE FOR AF/S
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 ETRD EINV PGOV ZI
SUBJECT: Elections: GOZ Accelerates Populist Economic
Measures

1. As expected, the GOZ has recently begun to devote
increasing, and disproportionate, resources to ensuring
the availability and affordability of politically
sensitive goods and services such as maize-meal, fuel and
educational expenses. In time-honored fashion, the GOZ
expects to pad its share of the vote by providing more
accessible food, transport and schooling (in addition to
more direct methods such as harassment, intimidation, and
biased media coverage). Zimbabwe cannot, of course,
afford these economic policies, whose implementation will
prove economically counterproductive over the long haul
and damage prospects for economic revival.

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Buying Votes n
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Maize
-----

2. Maize-meal is far and away Zimbabweans' main food
staple. In the past week, its price has dropped from Z$
2,000 (US$.36) to Z$1,200 (US$.21)/kg. This is the
direct result of the parastatal Grain Marketing Board
(GMB) providing an increased subsidy to wholesalers to
bring down the price. The subsidy is now on the order of
35 percent of the price of maize-meal.

Petrol
------

3. After service stations ran dry over the weekend of
September 4-5, Reserve Bank (RBZ) Governor Gideon Gono
took to the airwaves to assure the population that he had
provided sufficient foreign exchange to importers to
ensure adequate supplies of petrol in the future. Gono
revealed publicly for the first time that the RBZ was
devoting about 40 percent of its forex to oil firms.
Fuel has been among the most politically sensitive goods
in Zimbabwe. The opposition Movement for Democratic
Change (MDC) recruited many new members in the hours-long
lines of the 2001 shortages and in the economy's near
stand-still in late 2002 after Libya stop providing
discounted fuel.

School Fees
-----------

4. The GOZ announced on the front page of the September 6
State-run "Herald" that it was permitting only one
private school nationwide to raise fees for the third
term, which for most schools began September 7. Schools
were required to keep fees at last year's rates. By
keeping down tuition, the GOZ argues it is opening up
these formerly white enclaves to more black families.
Nonetheless, inflation has added about 50 percent to the
cost of school fees since the beginning of the last term
in May.

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Longer-Term Consequences
------------------------

5. The GOZ has given no indication it will revert to the
disastrous sub-market price controls it imposed in mid-
2003. At that time, retailers refused to restock most
items, since wholesale costs often exceeded controlled
prices. Still, even these more limited controls, aimed
at boosting the ruling party's electoral fortunes, are
costly, market-distorting and in the long-term,
counterproductive and unsustainable.

6. With maize-meal, for instance, the subsidized price
now barely beats input costs (seed/fertilizer/tillage),
acting as a disincentive to production. The decision to
devote a large percentage of Zimbabwe's available foreign
exchange to supporting fuel imports will also have
adverse economic effects. Importers of other goods will
have to settle for more expensive parallel-market forex,
making their businesses less viable. Finally, private
schools are dramatically cutting salaries and services as
a result of price controls, inducing still more teachers
and affluent families to leave Zimbabwe. Ultimately, the
country may pay a hefty price for Zanu-PF's
electioneering.

Dell

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