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

>