Identifier
Created
Classification
Origin
05HARARE327
2005-03-01 08:22:00
CONFIDENTIAL
Embassy Harare
Cable title:  

CENTRAL BANK TO TOLERATE PARALLEL MARKET UNTIL

Tags:  EFIN PGOV ZI ECON EINV ZANU PF 
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C O N F I D E N T I A L HARARE 000327 

SIPDIS

AF/S FOR BNEULING
EB/IFD FOR FCHISHOLM
NSC FOR SENIOR AFRICA DIRECTOR C. COURVELLE, D. TEITELBAUM
TREASURY FOR OREN WYCHE-SHAW, STATE PASS USAID FOR MARJORIE COPSON
DEPT PASS ALL AFRICAN DIPLOMATIC POSTS

E.O. 12958: DECL: 12/31/2009
TAGS: EFIN PGOV ZI ECON EINV ZANU PF
SUBJECT: CENTRAL BANK TO TOLERATE PARALLEL MARKET UNTIL
ELECTIONS

Classified By: Ambassador Christopher Dell for reason 1.4 b/d

C O N F I D E N T I A L HARARE 000327

SIPDIS

AF/S FOR BNEULING
EB/IFD FOR FCHISHOLM
NSC FOR SENIOR AFRICA DIRECTOR C. COURVELLE, D. TEITELBAUM
TREASURY FOR OREN WYCHE-SHAW, STATE PASS USAID FOR MARJORIE COPSON
DEPT PASS ALL AFRICAN DIPLOMATIC POSTS

E.O. 12958: DECL: 12/31/2009
TAGS: EFIN PGOV ZI ECON EINV ZANU PF
SUBJECT: CENTRAL BANK TO TOLERATE PARALLEL MARKET UNTIL
ELECTIONS

Classified By: Ambassador Christopher Dell for reason 1.4 b/d


1. (C) Reserve Bank (RBZ) Exchange Control Chief O.C. Masiiwa
told Econoff on February 22 that the Governor Gideon Gono has
instructed him not to pursue high-profile parallel traders
until after the March 31 parliamentary elections. Masiiwa
said Gono fears many parallel traders are well-connected
members of the ruling ZANU-PF and that the RBZ Governor does
not want to divide the Party at this time.


2. (C) Masiiwa told us he expects Gono to devalue the
official rate sometime following elections. Masiiwa
acknowledged devaluation will be an unpopular move among some
within ZANU-PF, but he believes Gono has accepted the
necessity of a weaker zimdollar.


3. (C) Masiiwa expressed frustration to us over the RBZ,s
inability to keep up with demand for foreign exchange. Even
though forex demand at the twice-weekly auctions is now over
US$ 100 million, Masiiwa does not expect the RBZ to offer
more than more than the present US$ 11 million at each
auction. He hopes the situation will improve once this
year,s tobacco revenues begin to reach the RBZ in early
April.


4. (C) Comment: The GOZ was able to deter most parallel
market activity during 2004 only by arresting or exiling many
high-profile traders, including Finance Minister Chris
Kuruneri and Intermarket Chief Executive Nicolas Vingirai,
and by forcing exporters to remand hard currency at an
artificial rate. Administrative controls lose effectiveness
over time as businesses discover ways around them, a process
that is well along in Zimbabwe. A devaluation of the
official zimdollar exchange rate could help exporters and
thereby attract more foreign exchange to Zimbabwe, but it is
not a panacea for economic revival, especially given the
GOZ,s interventionist policies. Moreover, the parallel
exchange rate - largely determined by market forces - is a
moving target. A post-election devaluation of 20-30 percent
might have little impact if, as seems quite likely given
Zimbabwe,s inflation rate and the lack of forex, the
zimdollar,s value on parallel rate falls further during the
next month. The economy could fare better if the GOZ
continued to turn a blind eye toward parallel trading or,
better yet, allowed the currency to float freely. The former
may be a better bet. The enforced official exchange rate
enables the RBZ to determine which businesses prosper, a
power the GOZ will likely be loath to give up.
DELL