ZIMBABWE LOAN TALKS RESUME; AGREEMENT NEAR

C O N F I D E N T I A L SECTION 01 OF 02 PRETORIA 004436

SIPDIS

DEPT FOR AF/S B. NEULING, M. TABLER-STONE
TREASURY FOR B. CUSHMAN

E.O. 12958: DECL: 11/02/2015
TAGS: PREL ECON ZI SF
SUBJECT: ZIMBABWE LOAN TALKS RESUME; AGREEMENT NEAR

REF: A. PRETORIA 4375

B. PRETORIA 4071

C. PRETORIA 4024 AND PREVIOUS

Classified By: Charge d'Affaires Jeff Hartley
Reasons 1.4(b) and (d)


1. (C) Summary. Talks on the proposed South African loan to
Zimbabwe resumed November 3 in Cape Town, according to ICG
analyst Sydney Masamvu. The two sides have agreed on the
economic conditions, but are still negotiating the political
terms. Mugabe has reportedly given Reserve Bank Governor
Gono some flexibility to negotiate political conditions, such
as a promise to review repressive legislation and resume
constitutional dialogue. While there will be haggling over
the loan's political conditions, we believe both sides want
an agreement and could conclude a deal as soon as this
weekend. End Summary.


2. (C) Zimbabwean Finance Minister Herbert Murerwa and
Reserve Bank Governor Gideon Gono traveled to South Africa
November 2 for negotiations on the proposed South African
loan to Zimbabwe. According to International Crisis Group
(ICG) Analyst Sydney Masamvu, Murerwa and Gono began meetings
with their South African counterparts, Finance Minister
Trevor Manuel and Reserve Bank Governor Tito Mboweni,
November 3 in Cape Town. In a November 3 telcon, Gono told
Masamvu that the Zimbabweans plan to remain in South Africa
through November 6 and hope to conclude the talks in that
timeframe. Masamvu said that the two sides want to keep the
talks secret, which is one reason they are holding them in
Cape Town, instead of Pretoria. (Note. To date, the SAG has
not announced the talks, nor has the South African press
picked up the story. Post has been unable to confirm the
talks with Treasury officials, but has learned that National
Treasury Chief Director for International Economics flew to
Cape Town on November 3rd. End Note.)

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Conditionality
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3. (C) Gono told Masamvu that the two sides have agreed on
the economic conditions for the loan. These include exchange
rate reforms and "depolitization" of the Zimbabwe Reserve
Bank. Masamvu said that the economic terms generally mirror
those pushed by the IMF, and that South Africa had been in
contact with IMF staff to discuss appropriate conditionals.
(Note: The SAG refuses to use the word "condition" to
describe the loan terms, but this is in fact what they are
imposing. End Note.)


4. (C) On political conditions, Gono told Masamvu that
President Mugabe had given him some flexibility to address
South Africa's key terms. South Africa reportedly seeks the
"normalization" of the political situation, which includes:
(1) repeal of repressive legislation (the Access to
Information and Protection of Privacy Act (AIPPA) and the
Public Order and Security Act (POSA)); and, (2)
constitutional dialogue with the opposition. According to
Masamvu, Mugabe gave Gono authority to guarantee to the South
Africans that he would "review" repressive legislation in the
near future, and would consider repealing AIPPA and removing
the more repressive elements of POSA. On the constitution,
Gono planned to explain how the new Zimbabwean Senate and
proposed harmonization of the election cycle would advance
reform. The GOZ would promise to seek an "appropriate
platform" to discuss constitutional reform with all
stakeholders, not just the opposition MDC party.


5. (C) Early indications suggested that the South Africans
were being "tough" on the political conditions, Gono told
Masamvu November 3. Masamvu speculated that Gono would be on
the phone with Mugabe often during the negotiations.

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Loan Amount
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6. (C) Gono told Masamvu that the total loan amount is
approximately $470 million, although the GOZ expected
approximately $200 million in the first tranche. Deputy FM
Pahad told CDA October 28 that South Africa was negotiating a
Rand 1.2 billion loan for Zimbabwe (approximately $180
million) (Ref A). (Comment: The R1.2 billion could refer to
the first tranche. End Comment.)

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Comment
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7. (C) We believe South Africa wants to conclude the talks
and make the loan. Stability in Zimbabwe remains a major
preoccupation for the SAG, and it views the loan as a means
to shore up Zimbabwe's collapsing economy, and at the same
time advance political reform. Mugabe's alleged
"concessions" on political conditionals, such as his
agreement to "review" AIPPA and POSA, seem vague, and South
Africa will likely push for more specific commitments.
However, both sides want to make a deal, and we suspect that
they could find common ground as soon as this weekend. End
Comment.
HARTLEY