ADVERSE REACTION TO GONO'S POLICY STATEMENT

C O N F I D E N T I A L SECTION 01 OF 02 HARARE 000096

SIPDIS

SIPDIS

AF/S FOR B. NEULING
NSC FOR SENIOR AFRICA DIRECTOR C. COURVILLE
AFR/SA FOR E. LOKEN
TREASURY FOR J. RALYEA AND B. CUSHMAN

E.O. 12958: DECL: 12/31/2010
TAGS: PGOV PREL PHUM ZI
SUBJECT: ADVERSE REACTION TO GONO'S POLICY STATEMENT

Classified By: Ambassador Christopher Dell under Section 1.4 b/d

--------------
Summary
--------------


1. (C) Reaction to Reserve Bank (RBZ) Governor Gideon Gono's
Monetary Policy Statement for the Fourth Quarter (details
septel) has been largely negative. The independent media
gave the most prominent coverage to Gono's public reference
to the regime,s concern about public unrest over food
insecurity rather than his policy prescriptions. For its
part, the initial reaction from prominent businessmen was
largely dismissive, with one contact calling the speech a
&non-event.8 End Summary.

--------------
"Army Fears Food Riots"
--------------


2. (U) In covering the statement, the local independent
media seized principally on Gono's startling disclosure on
national television that Defense Forces Chief Chiwenga had
confided to him concerns about civil unrest over food
shortages. Gono's originally released statement noted only
that Chiwenga had warned him about Bob Marley's dictum: "A
hungry man is an angry man." During his nationally
televised speech, however, he departed from the script and
elaborated that Chiwenga had told him that he did not want to
have to "turn our guns on hungry Zimbabweans" protesting food
shortages. The Independent weekly headlined its article on
the speech, "Army Fears food Riots" and, joined by other
local and regional news outlets, portrayed the disclosure as
betraying the regime's deep anxieties that food shortages
could ignite civil unrest.

--------------
Private Sector Unimpressed
--------------


3. (C) As for Gono's economic prescriptions, Lionel
Chinyamutangira, Head of Risk Management at NMB Bank, told
econoff that the policy statement was a "non-event." Indeed,
even the state media could not elicit comments from the
private sector more positive than that Gono had "adequately
described the constraints we face." Chinyamutangira
underscored that Gono's anti-corruption and other rhetoric
were &familiar8 but that Gono had never been able to
deliver progress on issues that mattered, including official
corruption. He added that the exchange rate mechanism Gono
had announced had effectively removed official currency
trading from market forces and would make official trading
levels even thinner (septel).


4. (C) Economic analyst John Robertson told econoff that
Gono's excuses for inflation - largely revolving around
exogenous factors such as oil prices, parallel market
activities, and drought/ag sector relief - were &a measure
of Gono,s lack of power and a frenzied effort to find others
to blame.8 In that vein, Ralph Watungwa, Head of Consumer
Banking at Standard Chartered, found telling the statement's
attention to corruption and mismanagement of parastatals -
two issues that would break the budget. Watungwa gave Gono
credit for recognizing their importance but noted that in
fact Gono had very little control over them beyond moral
suasion. Special agricultural credit facilities, for
example, had long been lent at 20% interest with little
oversight and huge leakage into non-agricultural consumption.
He added that parastatals were proving to be a "bottomless

HARARE 00000096 002 OF 002


barrel;" requiring them to hold their Foreign Currency
Accounts at the RBZ would not rein them in, even if the RBZ
could dip into those accounts to address other priorities,
such as paying the IMF. Watungwa concluded that, in any
event, because corruption and parastatals implicated
influential elites, Gono would be unable to meaningfully
address either.


5. (C) Nonetheless, Watungwa expressed relief that the
statement wasn't harsher. He noted, for example, that the
banking community had feared it would lose its ability to
allocate forex. At the same time, the new forex mechanism
wiped out any prospect of convergence between official and
parallel rates, further fueling the impetus for black
markets.

--------------
Comment
--------------


6. (C) Gono's impromptu sharing of Chiwenga's comment marks
a rare public admission of official concern about civil
unrest. The intent behind the disclosure is unclear and Gono
may yet regret it, as media reaction no doubt will pique the
regime and offer fodder to his enemies. Whether the risk of
civil unrest is real or not, his comment is bound to provoke
further tension and insecurity within an increasingly uneasy
regime. Moreover, it is yet another overt indication to
domestic and regional audiences that the regime is not as
secure as it tries to project. Coupled with the public's
dismissal of Gono's economic prescriptions, attention to
Chiwenga' spotlighted comment underscores the extent to which
economic issues ) including food insecurity - may prove to
be the regime's Achilles heel.
DELL