BLEAK WORLD BANK ASSESSMENT OF PROSPECTS FOR

C O N F I D E N T I A L SECTION 01 OF 02 HARARE 005677 SIPDIS NSC FOR SENIOR AFRICA DIRECTOR GAYLE SMITH USDOC FOR DHENKE-ROGERS LONDON FOR CGURNEY PARIS FOR BISA WILLIAMS PASS USAID FOR AFR/SD - DWELLER, AFR/SA - CPALMA, NNEWMAN, AA/AFR - VNEWTON, AND A/AID - RMCCALL PASS USTR - ROSA WHITAKER E.O. 12958: DECL 10/06/10 CONFIDENTIAL PAGE 02 HARARE 05677 01 OF 02 091255Z TAGS: PGOV PHUM EAGR PREL EAID ZI SUBJECT: BLEAK WORLD BANK ASSESSMENT OF PROSPECTS FOR GOVERNMENT OF ZIMBABWE IMPLEMENTING SOUND ECONOMIC POLICIES CLASSIFIED BY AMB MCDONALD. REASONS 1.5 (B) AND (D). ¶1. (C) SUMMARY: DESK OFFICER, IN HARARE ON AN ORIENTATION TRIP, AND ECONOFF MET WITH ROGIER VAN DEN BRINK, WORLD BANK DEPUTY RESIDENT REPRESENTATIVE AND SENIOR ECONOMIST IN HARARE ON OCTOBER 5 TO OBTAIN HIS PERSPECTIVE ON THE ECONOMIC SITUATION IN ZIMBABWE. VAN DEN BRINK MADE CLEAR DURING THE MEETING THAT THE GOVERNMENT OF ZIMBABWE (GOZ) WAS NOT TAKING THE STEPS NECESSARY TO RESOLVE THE COUNTRY'S SERIOUS ECONOMIC PROBLEMS. JUST THIS WEEK, ZIMBABWE WAS PLACED IN NON- ACCRUAL STATUS BY THE WORLD BANK FOR NOT MAKING PAYMENTS FOR SIX MONTHS. THIS STATUS PUTS ZIMBABWE AT THE BOTTOM RANKING OF COUNTRIES WITH THE WORLD BANK, INCLUDING LIBERIA, IRAQ, AND BURMA. VAN DEN BRINK DOES NOT EXPECT ANY DRAMATIC CHANGES IN ECONOMIC POLICIES FROM THE GOZ, BECAUSE TOP GOZ OFFICIALS VIEW ZIMBABWE'S ECONOMIC PROBLEMS AS LARGELY BEING THE RESULT OF A BRITISH CONSPIRACY. END SUMMARY. -------------- ALL WORLD BANK PROJECTS SUSPENDED -------------- ¶2. (C) ROGIER VAN DEN BRINK, THE WORLD BANK'S DEPUTY RESIDENT REPRESENTATIVE IN HARARE, TOLD DESK OFFICER AND CONFIDENTIAL PAGE 03 HARARE 05677 01 OF 02 091255Z ECONOFF ON OCTOBER 5 THAT ALL EIGHT OF THE WORLD BANK'S PROJECTS IN ZIMBABWE HAVE BEEN SUSPENDED BECAUSE OF NON- PAYMENT, AND ZIMBABWE HAS ENTERED INTO NON-ACCRUAL STATUS. THIS PLACES ZIMBABWE AT THE BOTTOM OF THE WORLD BANK RATING SYSTEM FOR FINANCIAL WORTHINESS, IN THE COMPANY OF STATES SUCH AS LIBERIA, IRAQ, AND BURMA, AND MEANS THAT ZIMBABWE IS NOW LARGELY ISOLATED FROM INTERNATIONAL FINANCING. VAN DEN BRINK SAID HIS OFFICE WAS NOT CURRENTLY PURSUING NEW STRATEGIES TO HELP THE GOZ OUT OF ITS CURRENT DIRE ECONOMIC PLIGHT, AS THE GOZ KNOWS THE ECONOMIC ACTIONS THAT NEED TO BE TAKEN, BUT IS NOT TAKING THEM. -------------- DOING EVERYTHING WRONG -------------- ¶3. (C) VAN DEN BRINK STATED THAT THE GOZ MILLENIUM ECONOMIC RECOVERY PLAN WAS NOT WELL THOUGHT OUT, AND THAT ACTIONS ARE BEING TAKEN BY THE GOZ FOR POLITICAL REASONS THAT ARE FURTHER DAMAGING THE ECONOMY. THESE INCLUDE THE FAILURE TO MOVE FORWARD ON PRIVATIZATION OF PARASTATALS, THE MUSHROOMING GOVERNMENT DEFICIT, AND ARTIFICIALLY SUPPRESSING THE INTEREST RATE TO SPUR ECONOMIC GROWTH. HE INSISTED THAT THE MINISTRY OF FINANCE ECONOMIC TEAM KNOWS WHAT NEEDS TO BE DONE FOR A SOUND ECONOMIC PROGRAM, BUT APPARENTLY IS BEING PREVENTED FROM TAKING CRUCIAL STEPS BY OTHER MINISTERS AND PRESIDENT MUGABE. -------------- CONFIDENTIAL PAGE 04 HARARE 05677 01 OF 02 091255Z DEVALUATION OF THE ZIM DOLLAR -------------- ¶4. (C) AN EXAMPLE OF COUNTERPRODUCTIVE ACTIONS BEING TAKEN BY THE GOZ IS THE CRACKDOWN ON THE PARALLEL CURRENCY MARKET. VAN DEN BRINK STATED THAT RIGHT AFTER THE GOZ DEVALUED THE ZIM DOLLAR FROM 36:1 TO 50:1, THE GOZ CRACKED DOWN ON THE PARALLEL MARKET, WHERE THE ZIM DOLLAR HAD BEEN TRADING AT BETWEEN 63:1 AND 65:1 AND WHERE 70 TO 80 PERCENT OF ALL FOREIGN CURRENCY TRANSACTIONS WERE OCCURRING. ACCORDING TO VAN DEN BRINK, THIS ACTION RESULTED IN AN INCREASE IN THE VALUATION OF THE ZIM DOLLAR FOR THE MAJORITY OF INDIVIDUALS AND COMPANIES INVOLVED IN FOREIGN CURRENCY EXCHANGE WHO HAD BEEN USING THE PARALLEL MARKET, AS THEY NOW HAD TO GET THE ZIM DOLLAR AT THE OFFICIAL RATE OF 50:1 VERSUS THE PRIOR PARALLEL MARKET RATE OF 63-65:1. -------------- COULD AN MDC GOVERNMENT DO BETTER -------------- ¶5. (C) WHEN ASKED IF HE THOUGHT THE OPPOSITION PARTY MOVEMENT FOR DEMOCRATIC CHANGE (MDC) WOULD DO A BETTER CONFIDENTIAL CONFIDENTIAL PTQ2479 PAGE 01 HARARE 05677 02 OF 02 091255Z ACTION AF-00 INFO LOG-00 NP-00 AGRE-00 AID-00 AMAD-00 ACQ-00 CIAE-00 DODE-00 SRPP-00 DS-00 EB-00 EUR-00 VC-00 H-01 TEDE-00 INR-00 IO-00 LAB-01 L-00 VCE-00 AC-01 NSAE-00 OIC-02 OMB-01 OPIC-01 PA-00 PM-00 PRS-00 ACE-00 P-00 SP-00 IRM-00 STR-00 USIE-00 PMB-00 DSCC-00 PRM-01 DRL-02 G-00 NFAT-00 SAS-00 /010W -------------- 8F52F8 091255Z /38 P 091255Z OCT 00 FM AMEMBASSY HARARE TO SECSTATE WASHDC PRIORITY 7310 INFO NSC WASHDC PRIORITY DEPT OF TREASURY WASHDC USDOC WASHDC SOUTHERN AFRICAN DEVELOPMENT COMMUNITY C O N F I D E N T I A L SECTION 02 OF 02 HARARE 005677 SIPDIS NSC FOR SENIOR AFRICA DIRECTOR GAYLE SMITH USDOC FOR DHENKE-ROGERS LONDON FOR CGURNEY PARIS FOR BISA WILLIAMS PASS USAID FOR AFR/SD - DWELLER, AFR/SA - CPALMA, NNEWMAN, AA/AFR - VNEWTON, AND A/AID - RMCCALL PASS USTR - ROSA WHITAKER E.O. 12958: DECL 10/06/10 CONFIDENTIAL PAGE 02 HARARE 05677 02 OF 02 091255Z TAGS: PGOV PHUM EAGR PREL EAID ZI SUBJECT: BLEAK WORLD BANK ASSESSMENT OF PROSPECTS FOR GOVERNMENT OF ZIMBABWE IMPLEMENTING SOUND ECONOMIC POLICIES JOB OF MANAGING THE ECONOMY, VAN DEN BRINK WAS DOUBTFUL. HE STATED THAT THE MDC PLAN FOR ECONOMIC REFORM IS "MORE IMF THAN THE IMF'S PLAN", BUT HE QUESTIONED WHETHER THE MDC WOULD HAVE THE POLITICAL SUPPORT TO IMPLEMENT IT. VAN DEN BRINK BELIEVES THAT THE WHITE ZIMBABWEAN BUSINESS COMMUNITY THAT SUPPORTS THE MDC, AND RECOGNIZES THE NEED FOR MAJOR STRUCTURAL CHANGES IN THE ECONOMY, HAS NO REAL POLITICAL POWER. THE MDC'S REAL POWER IS STILL TO BE FOUND IN THE LABOR UNION MOVEMENT FROM WHICH IT EMERGED, AND LABOR LIKELY WOULD OPPOSE MUCH OF THE MDC'S CURRENT ECONOMIC PLAN WERE THE PARTY TO GAIN POWER. -------------- ANTI-MUGABE CONSPIRACY -------------- ¶6. (C) VAN DEN BRINK STATED THAT PRESIDENT MUGABE AND MANY GOZ MINISTERS BELIEVE THAT ZIMBABWE'S CURRENT ECONOMIC PROBLEMS AND THE FAILURE OF THE IMF AND WORLD BANK TO PROVIDE NEEDED FINANCIAL ASSISTANCE ARE ALL PART OF A BRITISH CONSPIRACY TO FORCE MUGABE TO RESIGN. VAN DEN BRINK BELIEVES THAT IN THIS POLITICAL CLIMATE IT IS IMPORTANT THAT THE USG BE CAREFUL IN ITS STATEMENTS ON ZIMBABWE SO AS NOT TO GIVE THE GOZ FODDER FOR USING IT AS A SCAPEGOAT FOR ITS OWN ECONOMIC PROBLEMS. HE ALSO CONFIDENTIAL PAGE 03 HARARE 05677 02 OF 02 091255Z CAUTIONED THAT THE MDC HAS TO BE CAREFUL IN WHAT IT SAYS, BECAUSE HE BELIEVES THAT MUGABE AND THE GOZ ARE LOOKING FOR AN EXCUSE TO LAUNCH A VIOLENT CRACKDOWN ON THE MDC OR TO IMPOSE MARTIAL LAW. ¶7. (C) COMMENT: THE RESREP'S COMMENTS ON THE FUNDAMENTAL STRUCTURAL PROBLEMS OF THE ZIMBABWEAN ECONOMY WERE RIGHT ON TARGET AND HIS ANALYSIS OF THE COUNTERPRODCUTIVE RESULTS OF SOME OF THE GOZ'S ECONOMIC RECOVERY PLAN ACTIONS WERE INSIGHTFUL. IT IS CLEAR THAT THE GOZ IS FAILING TO ADDRESS THE FUNDAMENTAL STRUCTURAL PROBLEMS OF THE ECONOMY, AND AS A RESULT THE ECONOMIC SITUATION IS LIKELY TO CONTINUE TO WORSEN IN THE NEAR TERM. THE FACT THAT ZIMBABWE HAS NOW FALLEN TO THE BOTTOM OF THE WORLD BANK RATING SYSTEM, IN THE SAME CATEGORY AS LIBERIA, IRAQ, AND BURMA, IS COMPELLING EVIDENCE OF HOW BAD THE GOZ'S ECONOMIC MISMANAGEMENT HAS BECOME. END COMMENT. MCDONALD CONFIDENTIAL >