IMF BRIEFS US AT START OF ZIMBABWE VISIT TO

C O N F I D E N T I A L SECTION 01 OF 02 HARARE 004883

SIPDIS

STATE FOR AF/S, AF/EPS, EB/IFD/ODF, EB/TPP/ODC
TREASURY FOR ED BARBER, GRACE SONE AND HOFFMAN BARAK
USDOC FOR 4510 ERIC HENDERSON
STATE PASS USTR/RWHITTAKER
STATE PASS NSC FOR SENIOR AFRICA DIRECTOR GAYLE SMITH

E.O. 12958: DECL: 08/31/07
TAGS: EFIN PGOV ZI
SUBJECT: IMF BRIEFS US AT START OF ZIMBABWE VISIT TO
CONDUCT AN ARTICLE IV REVIEW
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PAGE 02 HARARE 04883 01 OF 02 011039Z

CLASSIFIED BY ECON/COMM OFFICER MARK PROKOP, REASON
1.5 (B),(D)

REFS: A) HARARE 2927, B) HARARE 2684, C) HARARE 2081,
D) HARARE 4084


1. (C) SUMMARY: ON AUGUST 29 THE IMF RESREP, ROBERT
FRANCO, AND THE VISITING IMF ARTICLE IV REVIEW TEAM
LEADER, PAULO NEUHAUS, MET WITH THE AMBASSADOR, USAID
DIRECTOR, AND ECON AND POLOFF TO DISCUSS ECONOMIC AND
POLITCAL CONDITIONS IN ZIMBABWE, POST ELECTION
POLICIES AND LEADERSHIP, AND SHARE INFORMATION AND
INSIGHTS. NEUHAUS' PRELIMINARY ASSESSMENT OF
CONDITIONS IN ZIMBABWE, AT LEAST FROM A POLICY AND
PLANNING STANDPOINT IS, IN HIS OWN WORDS, "DISMAL;
THERE ARE NO HARD PLANS OR DETAILS ON HOW TO DEAL
WITH THE MANY CRISES FACING THE COUNTRY." HAVING
ONLY ARRIVED ON SUNDAY, AUGUST 27, THE TEAM LEADER
HAD SO FAR JUST MET WITH THE MINISTER OF FINANCE,
SIMBBA MAKONI, AND THE RESERVE BANK GOVERNOR, LEONARD
TSUMBA. NEUHAUS SOUGHT OUR FEEDBACK, WHICH WE

SIPDIS
PROVIDED HIM, ON KEY ISSUES SUCH AS THE ABILITY AND
FREEDOM OF THE TECHNOCRATS TO FUNCTION, ON THE AREAS
AND PROSPECTS OF GOZ SPENDING CUTS, AND WHERE LAND
REFORM WAS HEADED. END SUMMARY.

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DETAILS AND PLANS ARE LACKING
--------------

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PAGE 03 HARARE 04883 01 OF 02 011039Z

2. (C) SOMEWHAT FRUSTRATED, NEUHAUS TOLD US THAT THE
ANSWERS HE HAD RECEIVED FROM BOTH THE FINANCE
MINISTER AND THE CENTRAL BANK GOVERNOR WERE
DISAPPOINTING AND INADEQUATE. "I SEE NO HARD PLANS
FROM EITHER OF THEM OF HOW A HOST OF PROBLEMS ARE TO
BE SOLVED OR THINGS TURNED AROUND," HE STATED. "THE
FINANCE MINSTER CANNOT TELL US WHAT THE FISCAL
DEFICIT FOR THE YEAR IS GOING TO BE OR HOW IT WILL BE
FINANCED. ON HOW MUCH PRIVATIZATION CAN EARN AND
WHEN, I ALSO GOT NO ANSWERS. THE GUIDELINES FOR THE
2001 BUDGET, WHICH IS IN PREPARATION NOW, ARE ALSO
VERY VAGUE," HE CONTINUED, "AND THIS IS DISTURBING."
WHEN I ASKED WHY THE DEVALUATION STOPPED AT 50, THE
ONLY ANSWER I GOT WAS THAT IT WAS AN ACCEPTABLE
"PSYCHOLOGICAL" LEVEL. IN ANSWER TO THE AMBASSADOR'S
QUERY ON THE EXCHNAGE RATE, NEUHAUS REPLIED THE RATE
SHOULD HAVE BEEN ALLOWED TO SLIDE TO 65 OR 70, AS
ONLY THEN COULD AN EQUILIBRIUM BE TESTED.


3. (C) COMMENTING ON THE RESERVE BANK (RBZ),NEUHAUS
SAID THAT IT IS "CLEARLY, TOTALLY SPACED OUT, AND ANY
LIMITS ON MONETARY GROWTH HAVE CLEARLY BEEN
SUSPENDED. THEY COULD ONLY TELL ME THAT THEY WILL
STOP LENDING TO THE GOVERNMENT WHEN THEY HIT THE
STAUTORY LIMITS." "WHERE IS THAT LIMIT?" HE QUERIED
OUT LOUD, CLEARLY DISAPPOINTED WITH THE SUSPENSION OF
DISCIPLINE AT THE CENTRAL BANK. BROAD MONEY SUPPLY
GROWTH WAS SURGING AT 70 PERCENT AS OF MID-AUGUST, HE
AND THE RESREP OBSERVED, AND THE INFLATION
CONSQUENCES WILL BE TERRIBLE. THE IMF TEAM LEADER
TOLD US THAT ZIMBABWE CURRENTLY HAD NO PLANS TO
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PAGE 04 HARARE 04883 01 OF 02 011039Z
APPROACH THE PARIS CLUB FOR DEBT NEGOTIATIONS, AND
THEY COULD PROVIDE HIM NO PLAN FOR HOW THE COUNTRY'S
BALANCE OF PAYMENTS GAP COULD BE MET. THE ABILITY OF
THE RBZ TO MANUEVER OR STICK TO ITS COMMITMENTS, HE
STATED, IS CLEARLY VERY LIMITED. HE ADDED THAT THE
MEETINGS HIS TEAM HAD SCHEDULED AT BOTH THE RBZ ABND
THE FINANCE MINSTRY ON AUGUST 24 AND 25 WERE
CANCELLED WITH NO EXPLANATION, AND THEREFORE THE
REVIEW OF THE NUMBERS WAS SLOW IN STARTING.

--------------
THE MILLENIUM ECONOMIC RECOVERY PLAN (MERP)
--------------


4. (C) NEUHAUS RESERVED HIS MOST STINGING CRITICISM
FOR THE GOZ'S TURNAROUND PLAN, DUBBED THE MERP. "WHY
MAKONI EVER ADOPTED THIS THING I DON'T KNOW," HE TOLD
US. "IF THIS IS THE PATH FORWARD," HE CONTINUED,
"MAYBE THE AUTHOR SHOULD HAVE BEEN APPOINTED FINANCE
MINISTER." (COMMENT: THE PRINCIPAL AUTHOR IS THE
FORMER HEAD OF THE ECONOMIC PLANNING COMMISSION, WITH
MANY OF THE RECOMMENDATIONS DRAWN FROM MALAYSIA AND
THAT COUNTRY'S EXPERIENCE.) "THE MERP IS ALL FLUFF
AND NO SUBSTANCE," NEUHAUS CHIDED, "AND THE FEW
ACTUAL RECOMMENDATIONS IT CONTAINS ARE DRAWN FROM THE

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ACTION AF-00

INFO LOG-00 NP-00 AID-00 AMAD-00 CEA-01 CIAE-00 CTME-00
DODE-00 SRPP-00 DS-00 EB-00 EXIM-01 E-00 VC-00
FRB-00 H-01 TEDE-00 INR-00 IO-00 ITC-01 LAB-01
L-00 VCE-00 AC-01 NSAE-00 NSCE-00 OIC-02 OMB-01
OPIC-01 PA-00 PM-00 PRS-00 ACE-00 P-00 SP-00
SSO-00 STR-00 USIE-00 FMP-00 PMB-00 DSCC-00 DRL-02
G-00 NFAT-00 SAS-00 /012W
-------------- 809D8C 011040Z /38
P 011038Z SEP 00
FM AMEMBASSY HARARE
TO SECSTATE WASHDC PRIORITY 6990
INFO SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
USDOC WASHDC
DEPT OF TREASURY WASHDC

C O N F I D E N T I A L SECTION 02 OF 02 HARARE 004883

SIPDIS

STATE FOR AF/S, AF/EPS, EB/IFD/ODF, EB/TPP/ODC
TREASURY FOR ED BARBER, GRACE SONE AND HOFFMAN BARAK
USDOC FOR 4510 ERIC HENDERSON
STATE PASS USTR/RWHITTAKER
STATE PASS NSC FOR SENIOR AFRICA DIRECTOR GAYLE SMITH

E.O. 12958: DECL: 08/31/07
TAGS: EFIN PGOV ZI
SUBJECT: IMF BRIEFS US AT START OF ZIMBABWE VISIT TO
CONDUCT AN ARTICLE IV REVIEW
CONFIDENTIAL

PAGE 02 HARARE 04883 02 OF 02 011040Z

FAILED ACTION PLANS OF THE 1950'S IN LATIN AMERICA
SUCH AS INTEREST RATE CAPS, ILL-TARGETED TAX BREAKS
AND THE LIKE." "THIS PLAN IS NOT GOING TO SOLVE ANY
OF THE PROBLEMS," HE SUMMARIZED. "WHILE I HOPE TO
HAVE GOOD NEWS TO SHARE WITH YOU ON SPTEMBER 12 (THE
SCHEDULED DATE FOR THE TEAM'S OUBRIEFING TO THE
DONOR COMMUNITY),IT DOES NOT LOK GOOD NOW." HE
CONCLUDED, "I AM AFRAID OUR COMMNIQUE WILL NOT BE
GOOD NEWS FOR THE COUNTRY".
--------------
COMMENT
--------------


5. (C) THE TEAM LEDER'S OBSERVATIONS AND
CONCLUSIONS AFTER ONLY 48HOURS IN THE COUNTRY IS
NOT, IN OUR OPINION, A POPITIOUS START TO THE REVIEW
OF ZIMBABWE. HIS HIHLIGHTED AREAS OF CONCERN MATCH
THOSE WE HAVE REORTED ON AND WHICH WE TRACK CLOSELY.
WITH THE IM COMING UP EMPTY-HANDED ON THE POLICY AND
PLANNIG FRONT, WE FEAR THAT THE DEPTH AND BREADTH OF
TE BAD NEWS COMING OUT OF THE AUDIT AND NUMBER-
CRNCHING WILL CONSTITUTE A DOUBLE DOSE OF
UNFAVOURBLE REVIEW RESULTS FOR ZIMBABWE. FOR THE
NEAR TRM, BLEAK IS LOOKING BLEAKER. END COMMENT.

MCDNALD

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