GOZ Steps Up Arrests of Forex Externalizers

UNCLAS HARARE 001862 SIPDIS STATE FOR AF/S USDOC FOR ROBERT TELCHIN TREASURY FOR OREN WYCHE-SHAW PASS USTR FLORIZELLE LISER STATE PASS USAID FOR MARJORIE COPSON SENSITIVE ¶E. O. 12958: N/A TAGS: ECON ETRD EINV PGOV ZI SUBJECT: GOZ Steps Up Arrests of Forex Externalizers Sensitive but unclassified. Not for Internet posting. ¶1. (SBU) Summary: The GOZ has again been arresting prominent Zimbabwean businesspersons for sending foreign exchange offshore. The GOZ appears to believe that these high profile arrests will deter others from exchanging forex on the ever-resilient parallel market. End summary. ¶2. (SBU) Over the past week, the GOZ has arrested at least eight leading businesspersons affiliated with mobile phone operators Econet and Telecel. Among those detained: - James Makamba, who has already spent most of the year behind bars on similar charges. The opposition press has asserted that Makamba's alleged extramarital liaison with First Lady Grace Mugabe is the underlying reason for his arrest. - Econet CEO Douglas Mboweni, an Embassy contact. - PG Industries COO Nyasha Zhou, who serves on the Econet Board of Director but does not oversee the firm's day-to- day operations. Zhou participated in a U.S. Embassy- sponsored seminar about hyperinflationary coping tactics for businesses last year, and serves as Chairman of the Board of Zambuko Trust, a micro-finance institution and longstanding USAID partner. - Jane Mutasa, one of Zimbabwe's top businesswomen and a member of Telecel's board of directors. These new inmates join Finance Minister Chris Kuruneri in detention. The GOZ has held Kuruneri since March and alleges that he externalized funds to build a beachfront Cape Town mansion. This week, a local judge denied Kuruneri bail for the third time. ¶3. (SBU) Reserve Bank Deputy Governor Charity Dhliwayo, who oversees exchange control, told us on Monday that the GOZ still considers the parallel market trading a threat to the economy and will pursue anyone who trades or sends abroad forex through these informal channels. In his October 28 policy statement, Reserve Bank Governor Gideon Gono said he seeks to "ensure that regulatory provisions around parallel market dealing are tightened further." Comment -------------- ¶4. (SBU) The GOZ's approach to monetary policy and disinflation is largely limited to exchange rate management. To frighten people and firms from dealing on the parallel market, the Government has sporadically arrested high-profile businesspersons. One senior banker commented that cracking down on businessmen and corruption is part of the GOZ's demagogic pandering to the masses to gain popularity in advance of the March elections. The consensus of Zimbabwean businessmen from various sectors is that this tactic is resonating with large numbers of Zimbabweans. At the same time, the GOZ's selective crackdown against "externalizers," which includes almost all businessmen, keeps the moneyed elite off balance and beholden to Mugabe and his favored inner circle. In terms of economic impact, the GOZ's zealous enforcement has dampened but not eliminated parallel trading. Local contacts tell us this week's buy/sell midpoint for U.S. dollars has been Z$8,700, a forty percent premium to the official Z$6,200 exchange rate. Weisenfeld