NEGATIVE FACTORS COMBINE TO DRASTICALLY DRAG

UNCLAS SECTION 01 OF 02 HARARE 001581

SIPDIS

SENSITIVE

STATE FOR AF/S, AF/EX, HR/OE-MTRACY
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER
USDOC FOR 2037 DIEMOND
LONDON FOR CGURNEY
PARIS FOR NEARY
NAIROBI FOR PFLAUMER
PASS USTR - ROSA WHITAKER
RIO FOR WEISSMAN
TREASURY FOR ED BARBER AND C WILKINSON

E.O. 12958: DECL: N/A
TAGS: ECON EFIN ETRD ZI
SUBJECT: NEGATIVE FACTORS COMBINE TO DRASTICALLY DRAG
DOWN THE ZIMBABWEAN ECONOMY

REFTEL: HARARE 1406


1. (SBU) A powerful and negative combination of
factors is now causing significant damage to Zimbabwe's
economy, and the country's political leadership refuses
to take steps to address or reverse the crisis. The
more-evident ingredients of the disastrous mix are:

= an unsustainable government deficit (in 2002 at least
15 percent of GDP);
= money supply growth in excess of 90 percent
(annualized);
= a spread between the official and parallel market
forex rates of 7 to 10 times;
= the dominance of the GOZ's instinctive Marxist
reaction to exercise more market control rather than
less;
= resultant shortages or stockouts of price-controlled
items such as salt, oil, sugar and bar soap;
= the continuing decimation of the economy's foundation-
-commercial agriculture;
= a resultant food shortage exacerbated by a regional
drought;
= highly credible threats by the chief executive that
lawless expropriation and theft will extend to the rest
of the formal economy;
= blame for the current ills shamelessly attributed to
businesspersons and the model of Western capitalism;
= and, all of the foregoing resulting in a
geometrically reinforcing mix of high and climbing
inflation and rapidly shrinking real GDP.


2. (SBU) With this occurring in real time outside the
window, a cabinet meeting held on June 27 to address
the economic crisis resulted only in outright rejection
of steps advised by the Reserve Bank and the Finance
Ministry. (Though tightly held we have heard that
these steps included: an official rate devaluation;
recognition of the role of the parallel market and an
admission of GOZ use of it; raising of interest rates
to more realistic levels; a public and credible
reversal of the order to commercial farmers to halt all
activity; and the revision upward of controlled prices
to at least breakeven levels.) Rather than recognize
the laws and tenets of the social science of economics,
the cabinet blamed the two civil agencies for allowing
market forces to wreak havoc on the GOZ agenda of the
Third Chimurenga; where the economy is the land and the
land the economy. Neither had done enough to "control"
the hard currency markets and flows, and insidious
private companies with mostly white ownership were
purposely sabotaging the economy under the very nose of
the Ministry and the Bank by hoarding and profiteering
-- with an intent to cause the populace to suffer to
such an extent that they lose faith in the leadership
and beneficence of the ruling ZANU-PF party. Both were
told to do more to stamp out the damaging forces of the
open market, and not try to bring murungu (Shona for
white or caucasian, and uttered by the President)
solutions to an African environment.


3. (SBU) On the public relations side, all the GOZ has
done is point the finger at business owners small and
large, accusing them of putting greed and a lust for
profits ahead of the interests of the nation and its
people. A food subsidiary of Anglo-American is accused
by the President of hoarding salt and threatened with
swift takeover, and legitimate businesses and black
market profiteers are accused of forming an unholy
alliance to stymie the GOZ's sensible and good price
control regime. "We are looking only after your
interests," the people are told by the ruling party,
"and we need your help to not allow the conspirators to
thwart us." In the meantime Zimbabwe's economy is
tanking and the damage is becoming monumental.


4. (SBU) Comment: Zimbabwe's leadership seems
determined to stay on the current disastrous path
regardless of the harm done, as the President deems it
to be necessary for his retention of power. At this
point it appears that there is no one that can or will
convince him otherwise, either domestically or
internationally. End Comment.
SULLIVAN