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
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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