ZIMBABWE: GLOBAL FUND TO FIGHT AIDS, TUBERCULOSIS

1. (U) The US Embassy, HHS/CDC and USAID have had a series
of discussions on coordinating the US Government response to
the HIV and AIDS crisis in Zimbabwe. One of the current
discussions and concerns has been the use of Global Fund for
AIDS, TB, and Malaria (GFATM) monies in Zimbabwe.



2. (U) Over the last two years the GOZ has established a
fixed exchange rate of ZW$55:US$1. This is an artificial
exchange rate that does not correspond to the market value
and has created a severe shortage of foreign currency. For
example the current rate, (known as the "parallel market
rate") which the US Government, most donors and the majority
of import and export businesses use to exchange money, is
approximately ZW$700:US$1.



3. (SBU) The GFATM has approved US $15m for Zimbabwe.
However, we would have serious concerns if this money were
brought into the country and exchanged at the fixed exchange
rate, resulting in a loss of 90% of GFATM purchasing power.
Due to the severe shortage of foreign exchange it is in the
interest of certain elements of the GOZ to exchange at the
fixed rate.



4. (U) As the largest contributor to the GFATM, it is in
the interest of the USG and the GFATM to negotiate a
favorable exchange rate. Two of the largest industries --
tobacco and the mining industry -- have negotiated higher
rates. Even the GOZ Department of Customs and Excise is
currently using an exchange rate of ZW$300:US$1 for import
duty. The UN Representative in Zimbabwe very recently
issued a memorandum directing the UN agencies to immediately
begin accounting for ZW$ transfers at a rate of ZW$322:US$1.
If any currency conversion occurs from the GFATM resources,
it would be critical that a floor be established at this `UN
accounting rate of exchange.'



5. (SBU) In the views of the US Mission and other
international agencies in Zimbabwe, an even better solution
exists than to exchange at an intermediate, `blended' rate
such as the UN accounting rate of exchange. The optimal
solution would be to re-program the grant resources to focus
heavily or exclusively on critical international
procurements of drugs, reagents, equipment, and the like.
Those elements now are critical bottlenecks in the entire
health system and the response to AIDS, TB, and malaria, and
require foreign exchange. This would completely avoid the
complex and politically charged issue of a preferable rate
of exchange being provided to GFATM, while local
manufacturers, farmers, and others are restricted to the
official but economically meaningless ZW$55:US$1 rate. It
would also achieve maximal efficiency and purchasing power
of GFATM resources in Zimbabwe.



6. (SBU) However, and this is the key issue, the approach
proposed in Paragraph 5 would require reprogramming the
resources in the fund to allow GFATM to cover foreign
exchange needs of Zimbabwe in its response to HIV/AIDS, TB,
and Malaria. The scope of work set out in the Zimbabwe
application for GFATM calls for substantial work in country,
such as training, workshops, local salaries, and many other
elements that would require ZW$. CDC and USAID will suggest
through the Zimbabwe Country Coordinating Mechanism (CCM)
that Zimbabwe propose to meet those local currency costs
principally from GOZ resources, since the government,
including Ministry of Health and the National AIDS Council
(NAC), do have access to local currency, or by recruiting
other partners to help meet those local currency needs. The
GFATM secretariat would need to understand and be supportive
of such a redirection of Zimbabwe's GFATM grant resources to
meet Zimbabwe's international procurement needs for the
three diseases. It would be reasonable and advantageous if
GFATM, in return for this flexibility, required special
financial management from Zimbabwe, including holding the
funds in a special trust fund and use of an experienced
international procurement agency to manage procurements.



7. (U) We also suggest that GFATM tighten requirements for
governance of the fund resources by the CCM, seek
independent letters of description of the process of the CCM
from listed CCM members, and make independent contact with
international members of the CCM (not just the Chair) by
visiting staff of GFATM. It would strongly support good
governance of GFATM resources if GFATM secretariat strongly
insisted on active CCM governance, in Zimbabwe and
elsewhere, that involves open and transparent deliberation
and decision-making involving international partners. The
effect of such an ongoing requirement by GFATM is not being
experienced now at country level. There is no evidence of
any duplicity or bad intention, but MOH (the Minister is
Chair of CCM) understandably slides into business as usual
if there is no external pressure to maintain an open,
consultative, innovative approach that truly draws upon
active involvement of international partners.



8. (U) The GFATM was established in response to a call for
new and innovative ways to increase levels of funding and
their impact on fighting three devastating diseases. But
allowing the GOZ to exchange their grant funds at the fixed
rate Zimbabwe will not be meeting the intent of the GFATM to
have the maximum possible effect in combating these
diseases. Zimbabwe is at the epicenter of the AIDS pandemic
with a third of the population infected with HIV. A
favorable exchange rate will provide substantially more
prevention, care and support programs to those desperately
in need. Re-allocation of grant funds to meet critical
foreign exchange procurement requirements for battling AIDS,
TB, and malaria would constitute an even more powerful use
of resources, and would necessarily involve GOZ supplemental
commitment to meeting the local currency needs of the
activities described in the successful Zimbabwe application.



9. (U) We seek assistance from USG addressees and GF
participants to assure that GFATM secretariat would support
proposals from the Government of Zimbabwe to reprogram
originally proposed use of GFATM grant, lest CDC and USAID
waste time and lose credibility with technicians in the MOH
and NAC of Zimbabwe by suggesting that they submit a revised
proposal.

SULLIVAN