What is Zimbabwe's new exchange rate?

UNCLAS HARARE 000433 SIPDIS SENSITIVE STATE FOR AF/S 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: What is Zimbabwe's new exchange rate? Ref: Harare 347 ¶1. (SBU) Summary: Businessmen in Zimbabwe have spent the past week trying to figure out how the GOZ's new export support mechanism will work. Although different interpretations abound, two cabinet officials apparently reassured a group of prominent CEOs yesterday that exporters would enjoy a significant devaluation. End Summary. Conflicting Interpretations -------------- ¶2. (U) In reftel, we explained that exporters may exchange 50 percent of earnings at 800:1. Then we offered two scenarios for the other 50 percent: exchange at the official rate of 55:1 (1st option) or gain access to it in foreign currency -- presently, an effective market rate of 1420:1 (2nd option). On the other hand, some locals have been told the GOZ means to offer exporters a flat rate of 800:1 for their entire revenue (3rd option). A parallel but equally important debate centers on whether importers may access U.S. dollars at 800:1. Businessmen have complained to us that neither the Finance Ministry nor Reserve Bank has been willing to clarify the policy. The businessmen can only wait for the law's official printed version, which may appear in the government gazette within a few days. Given that companies are shutting down or cutting back operations at an alarming pace, a clear enunciation of Zimbabwe's exchange rate is crucial. The Latest Word from Govt -------------- ¶3. (SBU) The Finance Director of a large corporation told us that his and several other CEOs met yesterday afternoon with Vice President Simon Muzenda and Information Minister Jonathan Moyo to plead for clarification. They were apparently told the GOZ has "nearly" decided on a hybrid of the second and third options described above. Exporters must exchange the first 50 percent of revenue at 800:1. They then deposit the second 50 percent in the Reserve Bank and apply for permission to use it for qualified imports, permitting -- if granted -- an effective rate of 1420:1 currently on the parallel market). The blend rate would be over 1100:1. If exporters are unsuccessful convincing the GOZ to allow them access to the second 50 percent held in forex within 60 days, they also receive the other 50 percent at 800:1. Comment -------------- ¶4. (SBU) If true, this is not the worst of scenarios. Companies tell us 800:1 is the minimum effective rate needed to restart exports. However, those exporters still in operation have grown accustomed to sheltering earnings offshore and enjoying a market rate of 1400 or higher. Since the GOZ's export-unfriendly budget statement in November, in fact, indigenous banks like CBZ have found a new niche offering tax-evasion assistance for exporters. The GOZ will have a difficult job drawing them back to the fold. Sullivan