BUSINESS LEADERS PLEAD FOR IMF LENIENCY

C O N F I D E N T I A L SECTION 01 OF 02 HARARE 000977

SIPDIS

SENSITIVE

AF FOR DAS T. WOODS
AF/S FOR B. NEULING
OVP FOR NULAND
NSC FOR DNSA ABRAMS, SENIOR AFRICA DIRECTOR C. COURVILLE
STATE PASS TO USAID FOR MARJORIE COPSON
USDOC FOR ROBERT TELCHIN
TREASURY FOR OREN WYCHE-SHAW
PASS USTR FOR FLORIZELLE LISER

E.O. 12958: DECL: 12/31/2010
TAGS: PGOV PREL EINV ZI
SUBJECT: BUSINESS LEADERS PLEAD FOR IMF LENIENCY


Classified By: Charge d' Affaires a.i. under Section 1.4 b/d

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Summary
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1. (C) At a meeting with the CDA on July 13, Congress of
Zimbabwean Industries (CZI) President Patison Sithole, CZI
immediate past president Kumbirayi Katsande, and Chamber of
Mines of Zimbabwe President Jack Murehwa urged that the USG
not support IMF expulsion of Zimbabwe. They expressed
concern that expulsion would have disastrous economic
consequences. The CDA responded that the goal was to get the
GOZ to adopt sound economic policies and that in that regard
there were arguments in favor of expulsion. Moreover, the
GOZ discounted the importance of the IMF and might choose to
withdraw voluntarily. He suggested that the businessmen also
make clear to the GOZ their concern over the effects of a
rupture in GOZ relations with the IMF. The three businessmen
expressed confidence in Reserve Bank of Zimbabwe (RBZ)
Governor Gideon Gono while acknowledging that he worked
within strict political constraints, and suggested that
fiscal discipline, a floating exchange rate, good relations
with the IFIs, and a positive investment climate were the key
reforms the GOZ needed to undertake to restore Zimbabwe,s
economy. End Summary.

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Zimbabwe Expulsion Disastrous
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2. (C) Speaking for the group (including the Zimbabwe Chamber
of Commerce, the representative for which was unable to
attend),Sithole told the CDA that expulsion from the IMF
would be disastrous, inducing even greater capital flight and
accelerating the exodus of Zimbabwe's best and brightest.
Katsande added that the GOZ would likely tighten its grip on
the economy in reaction to expulsion. Murehwa voiced his
concern that industry and commerce interests were not
adequately considered in the calculus over IMF expulsion,
even though their interests were severely affected. To that
end, Sithole added, the three men had also scheduled meetings
with the British and South African Embassies and EU Mission
in Harare.


3. (C) The CDA responded that the USG understood their
concerns and was sympathetic. However, the central challenge
was how to get the GOZ to make the right policy choices and
in that regard there were legitimate arguments to be made in
favor of expulsion. The CDA noted that the bar to expulsion
was quite high and said it was quite conceivable that the GOZ
would respond to a recommendation to expel by voluntarily
withdrawing from the IMF. He recommended that the business
community also approach government officials and also make
clear to them that expulsion or withdrawal would have
disastrous consequences, something he doubted many in the GOZ
besides Gono believed to be true.


4. (C) Katsande noted that business leaders played a key role
a few years ago in preventing the GOZ from going down that
very road. Sithole and Murehwa agreed that they needed to
lobby their own government about prospective IMF expulsion
and its consequences. Katsande stated that Gono would be the
natural conduit for business to influence the GOZ, especially
with the lack of leadership from the Ministers of Finance,
Economic Development, and Industry and Trade. The CDA
suggested that Gono's influence appeared to have waned and
that motivating other players could be potentially useful.
Sithole said that a meeting with Joyce Mujuru might be
appropriate.
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Confidence in Gono Despite General Economic Decline
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5. (C) Sithole stated that Gono was doing his best under
strict political constraints, citing Gono,s ingenuity in
getting an effective exchange rate of Z$13000/US$1 even
though his political masters had not allowed a straight
devaluation beyond Z$9000/US$1. Gono remained the key
advocate for economic reform; indeed, he stood practically
alone in this regard. Sithole emphasized that the
international community could strengthen Gono,s hand by
extending inducements and encouragements. The CDA responded
that the Embassy encouraged Gono in private meetings to
pursue reforms and sensible policies. However, we could not
separate Gono from the rest of the GOZ; tangible shifts in
the right direction by the GOZ would have to precede positive
signals by the USG.

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Private Sector Priorities
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6. (C) CDA asked the businessmen what key reforms they would
recommend Gono and the GOZ pursue. In response, Katsande
suggested that Gono's first priority should be to focus on
fiscal discipline and accountability in GOZ spending. For
his part, Sithole said Gono should begin by floating the
exchange rate and re-establish relationships with the IFIs.
Murehwa agreed with Sithole, asserting that GOZ strategy of
stimulating exports (and generating essential forex) through
subsidies and domestic price supports would fail as long as
the exchange rate regime was fundamentally flawed. They all
agreed that restoring an overall positive investment climate
was crucial for recovery.

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Comment
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7. (C) Mugabe's well-known low regard for the IMF makes it
highly unlikely that the GOZ would initiate any policy
reforms necessary for the IMF to re-engage meaningfully as
long as he remains in charge, whether Zimbabwe is expelled or
not. Nonetheless, we are encouraged that private sector
leaders, long submissive and co-opted by the ruling party,
may be prepared to generate political pressure on the
regime's completely moribund circle of economic
policy-makers. Their initiative - this is the first such
approach to the diplomatic community since IMF expulsion came
under discussion - is symptomatic of the beleaguered private
sector's growing desperation here. As to Gono, the three
businessmen are probably overly optimistic in their
assessment of his influence. We see little evidence that he
has rebounded since he reportedly tried to resign and issued
his disappointing monetary policy statement in May.
SCHULTZ