IMF Assesses Zimbabwe

UNCLAS HARARE 000542 SIPDIS 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: IMF Assesses Zimbabwe Ref: Harare 531 ¶1. Summary: Unless the GOZ augments its recent devaluation with additional reforms, a visiting International Monetary Fund delegation predicted the country will lose voting rights in June. End summary. ¶2. Alongside World Bank observers, the IMF team concluded the annual "Article 4" review of the Zimbabwean economy on March 12. Southern Africa Chief Doris Ross characterized Zimbabwe's recent devaluation as a "very big step forward." She also said the IMF appreciated the GOZ's decision to begin "symbolic" payments of US$ 1.5 million per quarter toward arrears. At the same time, the team encountered "different degrees of enthusiasm within the Government" for reform. The GOZ assured it, however, that cabinet will soon consider relaxing price and wage controls, proposals from the government/industry/labor Tripartite Negotiating Forum. ¶3. Ross also recounted a familiar litany of economic distortions and challenges: Real GDP off at least 30 percent since 1998, inflation over 200 percent and arrears around US$ 1.5 billion. Meanwhile, monetary policy remains wildly expansionary and negative interest rates are promoting excessive borrowing. Unsurprisingly, the IMF suggested the GOZ tighten money supply, raise interest rates and ease price controls. IMF's next step -------------- ¶4. The IMF already suspended technical assistance to Zimbabwe in June 2002. It will vote on suspending voting rights this June, using the final Article 4 report and any further progress made in the next 3 months. A negative vote would be the final step before full suspension from the lending body. When pressed, the delegation speculated that the GOZ has not yet enacted sufficient reforms to survive the June vote. Comment -------------- ¶5. Ross made every effort to strike a hopeful tone. But, as we argued reftel, further reforms come at a higher political price. Sullivan