Identifier
Created
Classification
Origin
01HARARE2692
2001-09-13 13:19:00
CONFIDENTIAL
Embassy Harare
Cable title:  

IMF ARTICLE IV REVIEW TEAM PROVIDES A BLEAK OUTBRIEF

Tags:  ECON EFIN PGOV ZI 
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This record is a partial extract of the original cable. The full text of the original cable is not available.



 CONFIDENTIAL PTQ0271

PAGE 01 HARARE 02692 131335Z 
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 ------------------1EA99C 131335Z /38 
FM AMEMBASSY HARARE
TO SECSTATE WASHDC PRIORITY 9700
INFO SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
NSC WASHDC
USDOC WASHDC
DEPT OF TREASURY WASHDC
AMEMBASSY NAIROBI
C O N F I D E N T I A L HARARE 002692 

SIPDIS

STATE FOR AF/S, AF/EPS, EB/IFD/ODF, EB/TPP/ODC
TREASURY FOR ED BARBER, AND C WILKINSON
USDOC FOR 4510 ERIC HENDERSON
STATE PASS USTR/RWHITTAKER
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER
LONDON FOR CGURNEY
PARIS FOR NEARY

E.O. 12958: DECL: 09/13/06
TAGS: ECON EFIN PGOV ZI
SUBJECT: IMF ARTICLE IV REVIEW TEAM PROVIDES A BLEAK OUTBRIEF
AND A GLIMPSE OF THE LIBYA OIL DEAL

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

REFS: A) HARARE 2577, B) HARARE 2022, C) HARARE 2531, D) HARARE
2533, E) HARARE 2247

C O N F I D E N T I A L HARARE 002692

SIPDIS

STATE FOR AF/S, AF/EPS, EB/IFD/ODF, EB/TPP/ODC
TREASURY FOR ED BARBER, AND C WILKINSON
USDOC FOR 4510 ERIC HENDERSON
STATE PASS USTR/RWHITTAKER
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER
LONDON FOR CGURNEY
PARIS FOR NEARY

E.O. 12958: DECL: 09/13/06
TAGS: ECON EFIN PGOV ZI
SUBJECT: IMF ARTICLE IV REVIEW TEAM PROVIDES A BLEAK OUTBRIEF
AND A GLIMPSE OF THE LIBYA OIL DEAL

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

REFS: A) HARARE 2577, B) HARARE 2022, C) HARARE 2531, D) HARARE
2533, E) HARARE 2247


1. (C) ON SEPTEMBER 12 THE IMF RESREP, GERALD JOHNSON, AND THE
NEW IMF COUNTRY TEAM LEADER, DAVID COE (REPLACING PAULO
NEUHAUSS),PROVIDED THE DCM AND ECONOFF WITH AN OUTBRIEF ON THE
TEAM'S TWO WEEK ARTICLE IV REVIEW OF ZIMBABWE. COE PROVIDED NO
SURPRISES OR BOMBSHELLS, AND LAID OUT AN ASSESSMENT OF THE
COUNTRY THAT MATCHES OUR OWN, AS PROVIDED IN OUR REPORTING.
COE'S SUMMARIZED OBSERVATIONS ARE THAT THE SITUATION IS DIRE,
AND ZIMBABWE'S ECONOMIC DECLINE IS ACCELERATING. OUTPUT, WEAK
FOR FOUR YEARS, IS NOW DECLINING MORE RAPIDLY THAN WAS THE CASE
DURING THE LAST TEAM VISIT SIX MONTHS AGO. THEIR ESTIMATE OF
REAL GDP DECLINE FOR THE CALENDAR YEAR IS A MINIMUM 7 TO 8
PERCENT, VERY POSSIBLY MORE. THE SHARP SLIDE IS EXACERBATED BY
POOR MACROECONOMIC POLICIES (PRINCIPALLY ACCLERATED MONEY
SUPPLY GROWTH (REF A),THE LOW INTEREST RATE REGIME (REF B) AND
THE VERY UNREALISTIC OFFICIAL PEGGED FOREX RATE),AND THE
PRIMACY OF POLITICS OVER ECONOMIC REALITIES AND REQUIRED STEPS.


2. (C) THE TEAM LABELED THE ATMOSPHERE AT THE RESERVE BANK AS
"SURREAL", BUT HAD PRAISE FOR THE FINANCE MINISTRY'S HARD LINE
ON A TIGHT FISCAL POLICY. ON THE LATTER TOPIC THE IMF OFFICIAL
CONFIDENTIAL

PAGE 03 HARARE 02692 131335Z
TOLD US THAT, BARRING A BLOWOUT CAUSED BY AN UPCOMING
SUPPLEMENTAL BUDGET, THE 2001 GOVERNMENT DEFICIT IS CURRENTLY
PROJECTED TO FALL WELL WITHIN THE TARGET OF 15.5 PERCENT OF
GDP. THE BIGGEST SUCCESS COMPONENT IS REDUCED INTEREST
EXPENSES DUE TO THE GOVERNMENT-INDUCED LOW INTEREST RATE
REGIME, AS WELL AS THE RESTRUCTURING OF THE MATURITY PROFILE OF
OFFICIAL, DOMESTIC DEBT. ALTHOUGH THE FINANCE MINISTRY HAS
KEPT THE SCREWS TIGHT, NON-INTEREST EXPENDITURES HAVE SWOLLEN
SLIGHTLY AND ARE PROJECTED TO RESULT IN A 3.5 PERCENT OF GDP
DEFICIT, VERSUS A TARGETED 2 PERCENT OF GDP SURPLUS. COE ALSO
TOLD US THAT HE FULLY EXPECTS ANNUAL INFLATION TO BE IN THE
THREE-DIGIT RANGE WELL BEFORE YEAREND, IF IT IS NOT ALREADY AT
SUCH LEVELS (REF C). BOTH IMF PERSONNEL AGREED FULLY THAT NO
TURNAROUND EFFORTS CAN BE EXPECTED UNTIL THE PRESIDENTIAL
ELECTION IS CONCLUDED.


3. (C) TO OUR INQUIRY ON ANY DETAILS OF THE LIBYAN OIL DEAL
THEY MIGHT HAVE GLEANED (REFS D, E),THE IMF TEAM LEADER LAID
OUT AN UNUSUAL FINANCIAL STRUCTURE THAT HAD BEEN PROVIDED THEM
BY THE OIL PARASTATAL, NOCZIM (WE HAVE NO CONFIRMATION OF
SUCH AN ARRANGEMENT BY ANY OTHER SOURCES). MR. COE EXPLAINED
THAT THE LIBYANS (PER NOCZIM OFFICIALS) ARE COMMITTED TO
PROVIDING TWO SHIPS A MONTH AT 21,000 MT OF REFINED PRODUCT
EACH. ON THE PAYMENT SIDE, NOCZIM CLAIMED THAT A 270-DAY GRACE
PERIOD FOR HARD CURRENCY REMITTANCE (COMMENCING WITH THE
UNLOADING) IS A TERM OF THE DEAL, THOUGH ZIMDOLLAR PAYMENT INTO
A LOCAL ACCOUNT WAS DUE ON DELIVERY. THE DEAL IS STILL BEING
NEGOTIATED, WITH DIFFERENCES OVER WHAT EXCHANGE RATE TO USE
BEING THE BIGGEST POINT OF CONTENTION (THE GOZ NATURALLY WANTS
TO FUND THE LOCAL CURRENCY ACCOUNT AT THE OFFICIAL RATE OF Z
$55 TO ONE USD; WHILE THE LIBYANS WOULD LIKELY BE MORE
CONFIDENTIAL

PAGE 04 HARARE 02692 131335Z
COMFORTABLE WITH THE BUILDUP BEING AT THE PARALLEL RATE,
CURRENTLY SOMEWHERE BETWEEN $330 AND $360). THE RESREP ALSO
STATED THAT THERE WAS A BARTER COMPONENT, THOUGH HE DID NOT
KNOW WHAT THE EXPORTS WOULD CONSIST OF, AND ALSO ASSET
PURCHASES, WITH THE OIL PIPELINE FROM BIERA AND NOCZIM STORAGE
FACILITIES THE LIKLIEST INITIAL CANDIDATES.


4. (C) COMMENT: IT IS CLEAR THAT SOME DEAL WITH THE LIBYANS IS
BEING FINALIZED, THOUGH GETTING SOLID INFORMATION ON THE TERMS
WILL TAKE ADDITIONAL TIME. A DEFERRED PAYMENT PLAN FOR THE
HARD CURRENCY IS WITHOUT DOUBT VERY ATTRACTIVE TO THE CURRENT
ADMINSTRATION, AS IT PUSHES THE PAINFUL ACT OF PAYMENTS OFF
UNTIL AFTER THE ELECTIONS. WE ARE HIGHLY CERTAIN THAT THE
FINAL TERMS WILL REQUIRE MORE OF ZIMBABWE THAN CURRENTLY MEETS
THE EYE, AND THAT THE CONSEQUENCES OF THIS RECENTLY EXPANDED
FRIENDSHIP WITH LIBYA WILL NOT BE ALL FOR THE POSITIVE.

ROTH

CONFIDENTIAL

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