SOUTH AFRICA INTENSIFIES ENGAGEMENT IN ZIMBABWE;

C O N F I D E N T I A L SECTION 01 OF 03 PRETORIA 002854

SIPDIS

DEPT FOR AF/S B. NEULING AND T. CRAIG, EB/IFD, EB/OMA
LONDON, PARIS, BRUSSELS, ADDIS FOR AFRICA WATCHERS

E.O. 12958: DECL: 07/18/2015
TAGS: PREL PHUM ECON EFIN KDEM ZI SF
SUBJECT: SOUTH AFRICA INTENSIFIES ENGAGEMENT IN ZIMBABWE;
CONSIDERS BAILOUT LOAN

REF: PRETORIA 2841

Classified By: Charge d'Affaires John J. Hartley
Reasons 1.4(b) and (d)


1. (C) Summary. Over the last ten days, South Africa has
become increasingly concerned about the deteriorating
economic situation in Zimbabwe and has intensified its
diplomatic activity to find a solution to the crisis. Deputy
President Mlambo-Ngcuka traveled to Zimbabwe July 13 and met
with Zimbabwean Vice President Mujuru and President Mugabe.
Mugabe sent Reserve Bank head Gono to South Africa to
follow-up and discuss a possible South Africa bailout loan to
Zimbabwe. South Africa is considering loaning Zimbabwe funds
to pay creditors, including the IMF, hoping to use this loan
as leverage for political and economic reform. End summary.

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Diplomatic Flurry and Church Pressure
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2. (C) Following a period of relative inactivity after the
March 31 Zimbabwean parliamentary elections, the South
African Government (SAG) has significantly stepped up its
diplomatic engagement in Zimbabwe:

-- President Mbeki met with Zimbabwe opposition leader Morgan
Tsvangirai of the Movement for Democratic Change (MDC) July 3

SIPDIS
in Pretoria. Tsvangirai claimed publicly after the meeting
that Mbeki was changing his strategy in Zimbabwe. According
to Tsvangirai, Mbeki admitted to him that "quiet diplomacy"
had not worked.

-- South African Deputy President Phumzile Mlambo-Ngcuka
traveled to Zimbabwe with Deputy Finance Minister Jabu
Moleketi July 13 and met with Zimbabwean Vice President Joyce
Mujuru and President Robert Mugabe. Mlambo-Ngcuka said she
visited Harare to gain a "global understanding of the
challenges" facing Zimbabwe. According to Sydney Masamvu of
the International Crisis Group, who spoke to Mujuru's husband
Solomon, Mlambo-Ngcuka delivered a tough message to Vice
President Mujuru, pushing for the resumption of dialogue with
the MDC and the end to Operation Restore Order.

-- President Mbeki met with a South African Council of
Churches delegation July 15 to discuss the humanitarian
situation in Zimbabwe. SACC had organized a senior-level
delegation to Zimbabwe July 10-12, led by the President of
the SACC, Russel Botman, and Archbishop Njongonkulu Ndungane.
The delegation strongly condemned Operation Restore Order,
saying that it has caused "widespread suffering to the most
vulnerable people." The SACC called on the operation to stop
"in God's name." According to Botman, Mbeki committed to
supporting church humanitarian relief operations in Zimbabwe.

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Possible Bailout Loan
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3. (C) South Africa is considering loaning funds to Zimbabwe
to stave off an economic collapse. EconOff spoke with
National Treasury Director for International Economics Danel
van Rensburg (strictly protect) July 19, who confirmed that
Zimbabwe asked South Africa for a $1 billion loan to make
payments to the IMF, African Development Bank, World Bank,
and Paris Club creditors, as well as to pay for food and fuel
imports. In the very near term, Zimbabwe is looking at
making payments on its general resources account (GRA) and
poverty reduction and growth facility (approximately $291
million) at the IMF. An IMF Board meeting will be held on
August 3 during which management will request that Zimbabwe
be expelled from the IMF. According to van Rensburg, South
Africa is concerned that once the IMF walks, all financial
flows to Zimbabwe will stop, resulting in serious
repercussions for South Africa if "things go really wrong;"
for example, South Africa might have to set up refugee camps
on the border. President Mbeki and Finance Minister Manuel
are lobbying to postpone the August 3 IMF decision for one
month, to give them time to negotiate conditions with the
Zimbabweans and for the Zimbabweans to "show good faith."
Manuel reportedly called U.S. Treasury Secretary Snow, U.K.
Chancellor Brown, and Canadian Finance Minister Goodale to
make this pitch.


4. (C) Van Rensburg confirmed that Manuel met with Zimbabwe
Reserve Bank head Gideon Gono July 15, and that this was
followed by a more technical meeting at the working level.
(Note: ICG's Masamvu also talked to Gono, who said that
Mugabe sent him to Pretoria as his envoy to discuss the terms
of a possible loan.) Loan discussions are still in the
preliminary stage. There is no agreement on the amount of
the loan or on the conditions. South Africa is looking at
making a payment on the GRA of about $170 million to
forestall the IMF expelling Zimbabwe, but South Africa wants
more time to negotiate conditions. According to van
Rensburg, conditions at this point include very general
issues such as ending Operation Restore Order, adherence to
the rule of law, and protection of property rights. Van
Rensburg thought that there would be some economic conditions
as well, e.g., dealing with price controls and ensuring the
autonomy of the Zimbabwe Central Bank -- which may require a
constitutional change. The bailout would be extended as a
loan, to be repayable with interest in tranches.


5. (C) At this time, South Africa has no
government-to-government loan with Zimbabwe. The South
Africa Reserve Bank has extended a line of credit to the
Zimbabwe Central Bank, but this has never been used, although
van Rensburg believes that Zimbabwe may have recently
requested to use it. Van Rensburg thought that Zimbabwe owed
Eskom, the South Africa state electricity company, and South
African petroleum companies about $200 million, but is not
definite on the amount.


6. (C) Senior SAG spokesman Joel Netshitenzhe said publicly
July 18 that it was "quite possible" that recent discussions
between the GOZ and SAG covered "assistance that Zimbabwe
required." Netshitenzhe said that principles guiding the
possible loan would be Zimbabwe's economic recovery and
political normalization. He added that the decision to offer
financial assistance to the GOZ must pass through Cabinet and
Parliament. The opposition Democratic Alliance criticized
the possible loan to Zimbabwe, saying it was extending a
lifeline to a dying regime.

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Comment
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7. (C) South Africa has apparently decided that it cannot
stand on the sidelines as Zimbabwe's economy collapses. For
the last five years, Zimbabwe's decline has been a
"predictable disaster" which the South Africans believed they
could manage while seeking a political solution to the
crisis. In recent weeks the situation has become much less
predictable. This has led to the SAG's flurry of activity to
find an economic and political solution to the crisis.
"Containing" the situation in Zimbabwe so that it does not
spill over into South Africa -- at least not too much -- has
always been one of the prime motivations behind SAG policy.
South Africa wants Mugabe gone, but through controlled
constitutional change -- not economic implosion or a violent
uprising.


8. (C) It appears that a deal is in the works: South Africa
will provide a loan to Zimbabwe (and help stave off the IMF
expulsion vote) in return for commitments on serious economic
reform and dialogue with the MDC. President Mbeki's call to
the Charge July 18 urging that the U.S. react with caution to
the forthcoming UN report on Operation Restore Order (reftel)
suggests that he does not want the international response to
the UN report to scuttle his plan. In the SAG view, the
potential loan deal has the twin benefits of staving off the
economic collapse while reenergizing the dormant political
talks on reforming the constitution.


9. (C) The question is whether Mugabe will really stick to
the agreement once South Africa has provided funds and helped
bail him out with the IMF. We note that the South Africans
do not appear to have asked for a timetable for Mugabe's exit
or a commitment not to run in 2008. We also note that Mugabe
is reportedly traveling to China July 23 (and may have sent
feelers to Indonesia and/or Iran),possibly to request
financial assistance as a counter to Pretoria. Mugabe has
consistently outplayed the South Africans, but this time
Pretoria thinks it finally has the upper hand.
HARTLEY