Cablegate: Zim Notes 7-18-2008

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RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSB #0623/01 2031541
ZNR UUUUU ZZH
R 211541Z JUL 08
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC 3199
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHUJA/AMEMBASSY ABUJA 2020
RUEHAR/AMEMBASSY ACCRA 2162
RUEHDS/AMEMBASSY ADDIS ABABA 2281
RUEHRL/AMEMBASSY BERLIN 0813
RUEHBY/AMEMBASSY CANBERRA 1558
RUEHDK/AMEMBASSY DAKAR 1916
RUEHKM/AMEMBASSY KAMPALA 2337
RUEHNR/AMEMBASSY NAIROBI 4768
RHEHAAA/NSC WASHDC
RHMFISS/EUCOM POLAD VAIHINGEN GE
RUEHGV/USMISSION GENEVA 1427
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RHEFDIA/DIA WASHDC
RUEAIIA/CIA WASHDC

UNCLAS SECTION 01 OF 03 HARARE 000623

AF/S FOR S.HILL
ADDIS ABABA FOR USAU
ADDIS ABABA FOR ACSS
NSC FOR SENIOR AFRICA DIRECTOR B.PITTMAN
TREASURY FOR J.RALYEA AND T.RAND
STATE PASS TO USAID FOR L.DOBBINS AND E.LOKEN
COMMERCE FOR BECKY ERKUL

SIPDIS

E.O.12958: N/A
TAGS: PGOV PREL ASEC PHUM ECON ZI

SUBJECT: ZIM NOTES 7-18-2008

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1. SUMMARY
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Topics of the Week:

- MOU on Hold
- UN Briefs Donors on Re-Opening NGO Operations, Return of IDPs
- Zim Delegation Walks out of SADC Tribunal Hearing
- EU to Widen Sanctions
- South Africa Continues Deporting Zimbabweans
- ZBC Bans Politically Incorrect Programs
- The Zimbabwean Crippled under New Tax
- Mugabe Launches Commodities Supply Program
- RBZ Concedes Inflation in the Millions
- Hyperinflation Raises Demand for Cash; Shortages Expected
- Air Zim Fares Swing from Cheap to Exorbitant
- Penury and the Police
- China Cleared to Purchase Zimbabwe Ivory
- Corrigendum

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2. Price Movements-Exchange Rate and Selected Products
--------------------------------------------- ----------

Parallel rate for cash doubled to Z$90billion:US$1 against
inter-bank average of Z$28 billion:US$1.

Bank transfer rate more than trebled to Z$450 billion:US$1; official
rate: Z$$30,000:US$1.

Bread on the parallel market more than doubled to Z$120 billion vs.
controlled price of Z$400 million.

Sugar rose to Z$300 billion/2kg vs. controlled price of Z$8
million/2kg.

Cooking oil inched up to Z$100 billion/750ml vs. controlled price of
Z$9.3 million/750ml.

Petrol and diesel more than doubled to Z$120 billion/liter vs.
controlled price of Z$60,000/liter.

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On the Political/Social Front
-----------------------------

3. MOU on Hold - ZANU-PF, the MDC, and South African mediators
drafted an MOU last week that establishes a framework for
negotiations between ZANU-PF and the two MDC factions. A July 16
signing had been planned, but MDC president Morgan Tsvangirai
indicated he would not sign unless an AU mediator was present with
South African president Thabo Mbeki in the negotiations. AU
commission chairperson Jean Ping was due in South Africa today to
discuss the negotiations with Mbeki and a possible role for the AU.
Once the MOU is signed, negotiations are contemplated by the MOU to
last two weeks. With ZANU-PF insisting it lead a government of
national unity, and the MDC insisting on a transitional government
led by Tsvangirai, there is scant room for optimism. See Harare
621, 607, 605.

4. UN Briefs Donors on Re-Opening NGO Operations, Return of IDPs -
The UN briefed donors this week on its strategy to persuade the GOZ
to lift the blanket suspension on NGO operations and resume
humanitarian assistance. On the internally displaced persons
crisis, government officials have impeded teams sent to assess
whether areas of IDP origin were propitious for return.
Nevertheless, the UN expected it could facilitate return for most of

HARARE 00000623 002 OF 003

the IDPs. Looking ahead, protecting humanitarian interventions from
political manipulation could grow increasingly difficult. See
Harare 615.

5. Zim Delegation Walks out of SADC Tribunal Hearing - On July 17,
the Zimbabwe delegation walked out of the politically charged SADC
Tribunal in Windhoek after failing to prevent the Tribunal from
agreeing to hear the white farmer's contempt charge against the GOZ.
The charge is based on the GOZ's failure to comply with an Interim
Relief Order issued by the Tribunal in December 2007 prohibiting the
GOZ from evicting any farmers involved until the Tribunal ruled on
the merits of the case. Since the June election, violence by ruling
party thugs against farmers involved in the case has increased. The
Tribunal has adjourned to consider its judgment.

6. EU to Widen Sanctions - European Union countries are expected
to agree on July 22 to widen sanctions on Zimbabwe, including more
travel bans, measures against companies propping up the regime, and
asset freezes on persons involved in election violence.

7. South Africa Continues Deporting Zimbabweans - On July 11, the
UN High Commission for Refugees implored the South African
government to halt the deportations of Zimbabweans, many of whom
would seek asylum if they could reach the asylum office in Pretoria.
In the 40 days prior, South Africa had deported some 17,000
Zimbabweans. Since 2000, South Africa has only granted asylum to
710 Zimbabweans, while rejecting over 4,000; 62,000 cases are
pending.

8. ZBC Bans Politically Incorrect Programs - Independent film
producers got a slap in the face on July 15, when Zimbabwe
Broadcasting Holdings Acting CEO Happison Muchechetere told them the
state broadcaster will not accept politically incorrect programs.
In a meeting with the producers, Muchechetere also said ZBC would
shun advertisers who were seeking a political agenda. ZBC violated
SADC Principles and Norms on Democratic Elections by failing to
provide news and current affairs coverage of the opposition MDC in
the run up to the June presidential election, an omission noted by
the election observers.

9. The Zimbabwean Crippled under New Tax - The 40 percent "luxury
tax" on foreign newspapers imposed by the GOZ last month is
crippling the UK-based and strongly pro-opposition The Zimbabwean
newspaper. Editor and Publisher Wilf Mbanga said taxes now amount
to 70 percent of the total cost of the newspaper. Mbanga said the
newspaper is paying the GOZ Sterling 37,000 (about US$75,000) every
week in taxes.

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On the Economic and Business Front
----------------------------------

10. Mugabe Launches Commodities Supply Program - President Mugabe
formally launched the Basic Commodities Supply Enhancement Program
on July 15 with an assortment of locally produced and imported goods
for distribution at a subsidized price. The Herald reported that
the imports were financed with the help of Russian/Ukrainian
investors and a Namibian company. National Foods provided trucks
and warehouses for the goods. Having apparently learnt nothing from
the disastrous effects of last year's price controls, Mugabe
promised no more price increases and threatened offenders with
imprisonment. In a rare admission of the unsustainability of the
importation program, RBZ Governor Gono, who bankrolled the
initiative, stated that local producers will be financed to produce
goods. Since Gono is likely to create the money for the exercise,
there is no end in sight to hyperinflation in Zimbabwe.

11. RBZ Concedes Inflation in the Millions - RBZ Governor Gono

HARARE 00000623 003 OF 003

revealed this week that the annual rate of inflation, already the
highest in the world, hit 2.2 million percent in June. The GOZ had
not announced any inflation figures since putting the rate at around
165,000 percent for February. The GOZ's flawed methodology uses the
controlled prices of goods, but because the goods cannot be found at
those prices, the rate sharply lags private sector estimates that
take actual transaction prices into account.

12. Hyperinflation Raises Demand for Cash; Shortages Expected -
Hyperinflation has rendered the use of debit cards and checks almost
irrelevant as point of sale systems can't cope with trillions and
merchants are charging commissions of up to 50 percent on checks
that take time to clear. Barter trade is increasing and cash-rich
businesses have begun to offer notes at a 10-20 percent premium.
The Z$100 billion (just over a US$1) daily bank withdrawal limit is
artificially drying up the cash supply--our bank contacts tell us
that the RBZ is still meeting all their daily cash requirements.
Nevertheless, retailers are anticipating a cash shortage also due to
the disruption in supply of bank note paper to Zimbabwe. One
supermarket chain told us their revenue ratio of cash to checks and
debit cards had shifted recently from 65/35 to 20/80. To cope, some
retailers are unveiling in-store debit cards to ease transactions
and get faster access to funds.

13. Air Zim Fares Swing from Cheap to Exorbitant - Usually lagging
inflation for weeks if not months in its airfares, Air Zimbabwe
caught up last week, and with a vengeance. The round trip airfare
to London shot from Z$21 trillion on July 13 (about US$420 at the
time) to Z$150 trillion the next day (US$2,500 on July 14, but
US$1,600 today), all fees included. In comparison, South African
Airways cheapest return fare on the same route is about US$1,400.
Air Zimbabwe introduced international fares payable only in foreign
currency a few months ago, but reversed the policy within two weeks
under accusations that it violated exchange control laws.

14. Penury and the Police - A police Assistant Inspector and
Embassy contact told us that his take home salary in June was Z$180
billion. That's worth US$2 today and was about US$35 in mid June on
the parallel market.

15. China Cleared to Purchase Zimbabwe Ivory - A meeting of the
Convention for International Trade in Endangered Species (CITES)
agreed that China could bid for up to 108 tons of ivory collected
from culls and natural deaths and offered for sale by Botswana,
Namibia, South Africa and Zimbabwe. CITES judged that China had put
sufficient measures in place to regulate sales and crack down on the
illegal domestic trade.

16. Corrigendum - Contrary to our Zim Note of last week that
ZANU-PF's campaign of violence had reportedly resulted in the deaths
of two MDC parliamentarians-elect, no MPs-elect have been confirmed
murdered.

DHANANI

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