AFTER MUGABE: POST RECOMMENDATIONS FOR A U.S.

C O N F I D E N T I A L SECTION 01 OF 03 HARARE 001130

SIPDIS

STATE FOR AF, AF/S, DRL, EB/IFD
NSC FOR SENIOR DIRECTOR FRAZER
STATE PASS USAID
STATE PASS EXIM/OPIC

E.O. 12958: DECL: 06/01/2005
TAGS: EAID PGOV ECON EFIN KDEM PHUM PREL SENV SOCI ZI EXIM
SUBJECT: AFTER MUGABE: POST RECOMMENDATIONS FOR A U.S.
RESPONSE

Classified By: Econchief William Weissman. Reason: 1.5 (b/d).


1. (c) Summary: While it is still uncertain whether President
Robert Mugabe will depart in the next days or months, Post
considers it prudent to offer policymakers "day after"
recommendations at this stage. Assuming a transition
government is committed to political and economic reform, the
U.S. should immediately assist with elections, humanitarian
needs and infrastructure loan guarantees. A transition
government will not completely overcome the country's
political divisions or recession, but it could lay the
foundation for a viable democracy and market economy. To
accomplish this, we suggest the U.S. establish the legal
groundwork for waiving the Brooke-Alexander Amendment and
620(q) at the appropriate time. End Summary.


2. (c) Of course, it matters not just that Mugabe goes, but
who comes. We do not recommend policy modification if Mugabe
remains in power behind the scenes or if a transition
government is headed by a "hard-liner" - at least until we
discern which way the wind is blowing. It is possible that
such a government would entrench itself and further restrict
liberties. Even under a reformist government, we emphasize
that there is no quick fix for Zimbabwe. It may take a
decade of healthly growth before the economy returns to 1997
levels. Health and education systems might not reach
mid-1990s levels for a generation, if ever.

Transition Headed by Bonafide Reformist
--------------

3. (c) If, on the other hand, a reform-minded transition
government comes to power, the U.S. has a role in assuring
that the transition to a freely-elected government occurs and
that essential political and economic reforms are begun. In
general, we could help steady Zimbabwe's first-ever political
transition under very trying circumstances. We could begin
to rebuild a strained bilateral relationship and selectively
lift travel and financial sanctions. If appropriate, we
could revise travel warnings that affect tourist inflows.
Codel and high-level USG visits would also underscore our
enthusiasm for a reforming Zimbabwe.

Democracy Assistance
--------------

4. (c) More specifically, we could help the transition
government's most pressing task - carrying out free and fair
elections, our top Mission Performance Plan goal. USAID
should provide assistance and expertise to establish an
Independent Electoral Commission. In order to promote an
environment in which candidates and parties can wage open and
non-violent election campaigns, the GOZ will need to
repeal/amend an existing body of repressive legislation,
including the Public Order and Security Act, the Access to
Information and Protection of Privacy Act, the Elections Act
and the Media and Broadcasting Act. As the new election
approaches, USAID would fund the training and deployment of
election observers, polling agents for political parties,
transparent ballot boxes and computerized voter rolls. We
would also continue Voice of America and independent media
support. Using existing mechanisms such as National
Democratic Institute, International Republican Institute and
State University of New York/Albany, we estimate additional
total cost at $7 million. Some of these costs could be
shared with other donors, although we think that USAID, NDI,
IRI, and SUNY are in the best position to lead these
activities.

Humanitarian/Economic Assistance
--------------

5. (c) To begin the process of economic recovery, we would
strongly encourage a reformist transition government to
modify/remove macroeconomic distortions by:

- adopting the Zimdollar's floating (parallel) rate for
exporters
- raising interest rates (currently over 150 percent
negative) above inflation
- eliminating universal fuel and electricity subsidies
- reducing public borrowing and spending
- curtailing price controls
- disbanding the government's grain monopoly

During the initial 6-12 month reform phase, we believe the
Zimbabwean economy, currently shrinking by an annualized rate
of 16 percent, will continue to recede. Zimbabweans will
suffer as the country moves from an interventionist to market
economy, triggering acute humanitarian needs. For that
reason, we should supplement existing assistance efforts by
immediately drawing upon $250 million in PL 480 funds for
additional urban and rural feeding programs, contingent on
agricultural policy reforms. From Disaster Assistance Funds,
we suggest $6 million for water treatment/purification
chemicals (covering approximately 6 months for Harare and
Bulawayo),$20 million for seeds and other agricultural
inputs, and $10 million for the national health system. Of
the $10 million, channeled through USAID and the Centers for
Disease Control and Prevention, we would devote $5 million to
essential drugs, supplies and equipment, $3 million to
anti-retroviral therapy (ARV) sustaining between 3,000 and
5,000 persons and $2 million to an integrated network of
clinics for voluntary counseling and testing (VCT) and
prevention of mother to child transmission (MTCT).

Financial Assistance
--------------

6. (c) A caveat: It is imperative the U.S. only provide
financial support if the GOZ first moves aggressively to tear
down the distortions cited above. It is not in the U.S.
interest to broadly subsidize fuel or electricity
consumption. For approximately a year, Libya's Tamoil
infused over $300 million into Zimbabwe through fuel
donations, perpetuating macroeconomic distortions and
stunting growth. The U.S. should not take over Libya's role,
as Zimbabwean businesses and consumers need to come to terms
with real-world tariffs. After the elimination of these
subsidies, however, the U.S. could assist the GOZ to finance
public transport and minimum-use electricity for low-income
households. For this purpose, we propose an initial $60
million for a half-year through the PL480 or 416(b) programs,
generating local currency through monetized food programs.


7. (c) In a reform environment, we also recommend OPIC and
ExIm Bank consider loan guarantees for projects that promote
U.S. exports and shore up Zimbabwe's dilapidated
infrastructure (in spite of existing arrears - see next
paragraph). This could involve badly-needed rejuvenation of
General Electric locomotives at the National Railway of
Zimbabwe, Caterpillar machines at coal-miner Wankie Colliery
and Boeing jets at Air Zimbabwe. Furthermore, the country's
participation in African Growth and Opportunity (AGOA)
sessions as an observer (with full admission following free
and fair elections) would allow Zimbabwean firms to plan a
reentry into the U.S. market. (Most U.S.-bound textile
production here has migrated to AGOA countries.) We should
also explore possibilities for including Zimbabwe in free
trade negotiations with the Southern Africa Customs Union.


Funding Obstacles
--------------

8. (c) The main obstacle to much of this support is the
Brooke-Alexander Amendment and 620(q),legislation
prohibiting assistance to the GOZ because of its default on
official U.S. loans. Overcoming Brooke-Alexander and 620(q)
requires that the GOZ become current on outstanding debt to
the U.S., or obtain a waiver. GOZ arrearages on two ExIm
Bank loans total about $17 million and on a USAID loan about
$127,000. Understandably, an incoming transition government
would not make a priority of paying down the ExIm arrears.
Thus, we recommend that the GOZ pay off the small USAID
arrears and receive a waiver of the Brooke-Alexander and
620(q) restrictions for the ExIm loan. Additionally, we
might wish to report to Congress on how changes in Zimbabwe
impact upon Zimbabwe Democracy Act (ZDERA) implementation.
Post suggests the U.S. undertake a comprehensive legal
analysis of this option now and, for rapid response, have a
strategy already in place as soon as Mugabe departs.

Comment
--------------

9. (c) We have outlined "day after" recommendations above.
Following free and fair elections, the U.S. could do a great
deal more. We assume only a democratically-elected
government will be able to tackle Zimbabwe's most daunting
issues, such as rationalizing land reform, privatizing
inefficient parastatals and restarting International Monetary
Fund and WorldBank support. At that point, the U.S. could
reengage Zimbabwe across the spectrum - granting debt relief,
redeploying the Peace Corps, offering AGOA membership,
including the country in President Bush's HIV/AIDS
initiative, restoring International Military Education and
Training (IMET) and lifting all sanctions. There will be
ample time to plan for this during the transition phase.


10. (c) While the above appears the most likely scenario, we
would wish to be flexible in case the transition government
is able and willing to undertake more thorough and
comprehensive reforms. (After all, it would likely be far
easier to roll back land redistribution abuses with ZANU-PF
collaboration than with ZANU-PF opposing such changes from
the outside.) In the event of a seriously reformist
transition government, we would also wish to encourage
agreement with the International Monetary Fund/WorldBank and
to consider use of the U.S. Treasury Exchange Stabilization
Fund as a bridge to an IMF loan.

SULLIVAN