ZIMBABWE IMF: ITALY LEANING AGAINST EXPULSION IN

C O N F I D E N T I A L ROME 002953

SIPDIS


E.O. 12958: DECL: 09/21/2015
TAGS: EFIN PREL ZI IT IMF
SUBJECT: ZIMBABWE IMF: ITALY LEANING AGAINST EXPULSION IN
LIGHT OF RECENT PAYMENT

REF: A. STATE 158016

B. STATE 163126

Classified By: Economic M/C Scott Kilner, for reasons 1.4 (b)(d).


1. (C) Summary: The GOI is leaning towards giving Zimbabwe
additional time in light of the GOZ's recent partial payment
of its arrears. End summary.



2. (C) Economic Counselor and Econoff delivered reftel points
August 30 to Ignazio Angeloni, Director General for
International Affairs at the Ministry of Finance (who also
serves as President of SACE, Italy's export credit bank).
Poloff and Econoff also jointly delivered Ref demarche on 1
September to Claudio Spinedi and Giuseppina Zarra from the
MFA's Directorate General for Multilateral Economic and
Financial Cooperation; and to Umberto Maltani, MFA Zimbabwe
Desk Officer.

FINANCE MINISTRY VIEWS
--------------


3. (C) Angeloni said he wanted to confer with Italy's IMF
Executive Director before reacting to our points. On
September 1, he called Econ Counselor to say that Italy's IMF
Executive Director had reported that Zimbabwe had made a
"sizeable" payment on its arrears August 29. Using SDR,
rather than dollar figures, Angeloni said Zimbabwe had been
in arrears some SDR 200 million, but had repaid SDR 82, or
about two-thirds of its arrears. Angeloni believed the
repayment showed "some good will" on Zimbabwe's part, and
that when this is the case, Fund members try to continue to
work with the member in question.


4. (C) He said Italy's soundings at the Fund after the
arrears payment indicated there would not be sufficient
support to amass the necessary weighted fifty percent vote
for the Executive Board to recommend to the Board of
Governors to expel Zimbabwe from the IMF. Angeloni thought
under these conditions it would be better to wait to see if
Zimbabwe's "good will" continued - and if Zimbabwe could turn
around its disastrous economic policies.

MFA VIEWS
--------------


5. (C) Spinedi said Italy concurs with the USG assessment of
Zimbabwe and the IMF, and added that ultimately ousting
Zimbabwe will be a political decision. He said Italy
condemns the Mugabe government's slum-clearing operations
and does not exclude expelling Zimbabwe from the IMF, but
Italy must first confer with EU colleagues. (Spinedi said
this was the first demarche they had received on the topic.)
Rome's instructions to Italy's IMF executive director in
Washington are to join the consensus among other G-7
directors but not/not to openly advocate for Zimbabwe's
expulsion.


6. (C) Spinedi acknowledged that the IMF staff has not yet
issued its fact-finding report, but judged that it would
recommend an additional six-month delay in deciding
Zimbabwe's fate within the IMF. He noted that Zimbabwe's
Central Bank had taken "small steps" in the right direction,
despite Mugabe government policies. Spinedi and Maltani
noted that it will be difficult to take on Zimbabwe when
"other" African states, including the Southern African
Development Community, are trying to give Harare the benefit
of the doubt.


7. (C) Spinedi said he was aware of reports that Zimbabwe had
recently made a payment on its arrears and wondered how this
would change the mood within the IMF. He did not think
Harare had received financial assistance from South Africa,
but had probably "dug deep" into its own coffers to make a
last-minute gesture.

COMMENT
--------------


8. (C) We believe that Italy will follow the EU lead on
expelling Zimbabwe from the Fund, and may even press to give
Zimbabwe another chance, following the sizeable arrears
payment. End comment.
SPOGLI


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2005ROME02953 - Classification: CONFIDENTIAL