New Sources Drive Parallel Market

UNCLAS HARARE 001660

SIPDIS

STATE FOR AF/S
USDOC FOR AMANDA HILLIGAS
TREASURY FOR OREN WYCHE-SHAW
PASS USTR FLORIZELLE LISER
STATE PASS USAID FOR MARJORIE COPSON

SENSITIVE


E. O. 12958: N/A
TAGS: ECON EAGR ETRD EINV PGOV ZI
SUBJECT: New Sources Drive Parallel Market


1. (U) Summary: Zimbabwe-bound remittances through
Western Union have dropped by as much as 90 percent,
since July 28 when the Reserve Bank (RBZ) decreed that
transfer agencies must convert incoming foreign exchange
into zimdollars at the official rate and may not disburse
foreign exchange. According to local interlocutors, new
foreign exchange sources are filling some of the void.
End summary.


2. (SBU) At its peak early this year, Western Union's
managing director said his firm disbursed US$ 3 million
per week in Zimbabwe and was the country's top foreign
exchange cash source. By contrast, he expects transfers
totaling just US$ 300,000 this week, a ninety percent
reduction. Many Zimbabweans working in the United
Kingdom, South Africa or the U.S. relied on Western Union
to send small monthly support payments (i.e., less than
US$ 500) to family members. Prior to July 28, recipients
had the option to receive their money in zimdollars or in
foreign exchange. So-called "touts" used to gather
outside Western Union branches and offer recipients
competitive exchange rates, virtually always above the
official exchange rate. Since the July 28 RBZ ruling,
Western Union had been required to convert all incoming
remittances into zimdollars with the RBZ at the official
rate, before releasing the funds. The Z$5600:$US
official rate is currently 25 percent below the
Z$7600:US$ parallel rate.


3. (SBU) With Western Union and other transfer agencies
no longer providing forex cash for local parallel
trading, we wondered how much was getting through - and
from which sources. Recent interlocutors offer telling
insights. The Western Union MD noted that transfers to
the company's outlets in neighboring countries have grown
rapidly. He suggests that Zimbabweans are crossing the
borders to retrieve remittances in hard currency and then
smuggling the cash into Zimbabwe. However, CZI Vice-
President Florence Sachikonye cautions that GOZ
enforcement against parallel trading has made most
Zimbabweans too afraid to sell the U.S. dollars they are
storing at home. Neverthless, First Bank Executive
Director Mberikwazvo Chitambo explained he is advising
clients to apply for US$ 2,500 per family member for
"foreign travel," the maximum the RBZ allows. The RBZ
pays US$ 1,000 of the 2,500 in cash (the rest in
travelers checks),most of which - according to Chitambo
- ends up in the domestic parallel market.


4. (SBU) Comment: Each time the GOZ plugs up a forex
leak, another one pops open. The GOZ has yet to
recognize that where there's a will, there's a way; as
long as the official rate doesn't reflect the real value
of the currency, its resourceful citizens will identify
and find a way to exploit loopholes.

Dell