GOZ Announces Export Support Mechanism

UNCLAS HARARE 000347

SIPDIS

STATE FOR AF/S AND AF/EX
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER
USDOC FOR 2037 DIEMOND
PASS USTR ROSA WHITAKER
TREASURY FOR ED BARBER AND C WILKINSON
STATE PASS USAID FOR MARJORIE COPSON


E. O. 12958: N/A
TAGS: ECON EINV ETRD ZI
SUBJECT: GOZ Announces Export Support Mechanism

Ref: Harare 343


1. Summary: As previewed in reftel, the GOZ has
announced a long-awaited support mechanism for exporters,
which amounts to a targeted devaluation on export
revenue. This is welcome news for exporters, but it is
unclear if forex-starved importers will be able to access
U.S. dollars at the new 800:1 rate. End Summary.


2. Under the previous mechanism, exporters were required
to exchange 50 percent of revenue at the official rate of
55:1 and had to petition the Reserve Bank for access to
the other 50 percent in hard currency. (The market rate
is currently around 1400:1.) In many cases, the GOZ
withheld over 95 percent of revenue. Now exporters will
exchange the first 50 percent at 800:1, receiving about
15-times as many Zimdollars. They will still have to
petition for the second 50 percent within a 60-day
period. If the Reserve Bank grants them access to the
second 50 percent, they will earn an effective blend rate
of around 1100:1.


3. After the GOZ announced its 2003 budget in November,
most exporters halted production or exchanged forex
earnings exclusively on the black market. The new policy
may induce some of them to restart operations and return
to legality. The Confederation of Zimbabwe Industries
and a host of other organizations have lobbied the GOZ
for export relief. The new 800:1 rate replaces all
previous rates, in particular those for tobacco and gold
exports.

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

4. In yesterday's announcement, the GOZ took a small step
toward acknowledging macroeconomic reality and moving
beyond its unsupported and preposterous official exchange
rate of 55:1. However, unresolved issues remain. Most
importantly, the GOZ has not disclosed whether it will
sell U.S. dollars to importers at 800:1. Given the
present array of price controls, many are unable to
import goods at market cost. Furthermore, exporters will
want to see whether the GOZ withholds their second 50
percent of export revenue (deposited in the Reserve Bank
foreign currency accounts),which could effectively
deflate the blend rate from 1100 to 400:1. Post will
continue to track the impact of the devaluation and other
measures noted in reftel.

Sullivan