GOZ IN DOOMED BID TO END HYPERINFLATION BY FIAT

C O N F I D E N T I A L SECTION 01 OF 03 HARARE 000605

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E.O. 12958: DECL: 03/13/2017
TAGS: PGOV ECON PHUM ASEC ZI
SUBJECT: GOZ IN DOOMED BID TO END HYPERINFLATION BY FIAT


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Summary
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1. (SBU) On the heels of a sharp spike in inflation, the GOZ
on June 25 began a populist campaign to roll retail prices
back to their June 18 level. Using thuggery and
intimidation, "crack teams" under a newly established Cabinet
Task Force descended first on supermarkets then across the
retail sector and even to parastatals, forcing managers to
slash their prices by half or more. As a result, supermarket
shelves have been stripped of all staples in what one manager
called "controlled looting," and the supply chain has
collapsed. The business community is scaling back production
and trying to lie low until this doomed attempt to curb
hyperinflation passes. In the meantime, the already weak
economy is shrinking faster than ever, and even the least
educated Zimbabwean is tense with apprehension about what's
to come. End Summary.

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A Graveside Speech Becomes "Law"
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2. (C) Following three weeks of rampant inflation which saw
prices double, triple and even quadruple (Note: Annual
inflation in June reached 25,000 to 30,000 percent according
to PricewaterhouseCoopers. End Note),on June 25, a Cabinet
Task Force on Price Monitoring and Stabilization led by
Minister of Industry and International Trade Obert Mpofu,
announced a directive to retailers, wholesalers and
manufacturers to reduce prices of basic commodities by up to
50 percent. Three days later, in a graveside speech for a
brigadier general, President Mugabe announced that "the
nonsense of price escalation must come to an end
immediately." Mugabe accused businesses of profiteering and
raising prices to foment civil unrest in support of a Western
campaign to support regime change. In language eerily
reminiscent of his government's land seizure program, Mugabe
threatened to seize businesses and mines that did not comply
with the price rollbacks.


3. (SBU) Implementing government policy, police and ZANU-PF
youth, so-called "green bombers," descended on supermarkets,
demanding the rollback of first a few then all prices to the
June 18 level. From supermarkets, the teams moved across
most of the retail sector. The ensuing buying frenzy
stripped the stores of meat, maize meal, eggs, oil, soap and
other staples; it shut down most butcher shops and saw petrol
supplies vanish from the market; many commuter buses also
stopped servicing their routes under the new prices as the
chain of supply collapsed.


4. (C) Dave Mills, Meikles Africa Director of Retail, related
to econoff two incidents typical of government-directed
activity. Thugs descended on the Meikles-owned TM
supermarket in Ruwa, outside Harare, on June 29. They
assaulted and detained the store manager when he requested
their credentials, then they singled out items to slash in
price by half. The next day the same team fell upon the TM
supermarket in Harare's affluent Newlands neighborhood.
Fearing chaos, the manager reduced the price of all goods by
half and then witnessed "controlled looting." Not fitting
the normal shopper profile, Mills believed the looters were
actually profiteers and ZANU-PF loyalists traveling in the
officials' wake.

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Parastatals Unspared - Including "Air Quasi-Fiscal"
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5. (SBU) The Task Force also ordered the telecom and aviation
parastatals to roll their prices back to June 18 levels. Air
Zimbabwe, or "Air Quasi-Fiscal," as economic commentator Jono
Waters calls it in his Zfn electronic newsletter (Air
Zimbabwe consumes about 2/5 of the GOZ's off-budget subsidies
to parastatals) had more than tripled its fares in late June,
only to be forced to roll them all back on July 2. The round
trip economy class airfare to Beijing, for example, fell back
to Z$61 million from Z$195 million (at the parallel exchange
rate of Z$140,000:USD that's US$435 down from US$1392); its
round trip London airfare fell back to US$300. (Comment:
Needless to say, the flights are full ) at least outbound.
End Comment)

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Coping, Or Not, In The Business Community
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6. (C) The business community is scrambling to cope. Ian
MacKenzie, Managing Director of Olivine Industries, told
econoff that he had scaled back production sharply at his fat
and oils plant, but not shut down completely in order to
appear to abide by the directive and keep himself "out of
Chikurubi" - Harare's infamous maximum security prison.
Three dozen prominent senior managers and executives were
less fortunate. They were arrested this weekend for failing
to comply, or comply fast enough, with the directive,
according to press reports.


7. (C) Jyots Laxmidas, an apparel manufacturer and footwear
retailer in Zimbabwe's second city Bulawayo, told econoff on
July 5 that he had closed all seven of his shoe outlets the
previous day when told that his prices would have to come
down sharply. He planned to comply with the directive and
re-open later in the week, but with far fewer products. He
added that not a single petrol station was operating in the
city that day. At the same time Bulawayo was awash with
black marketeers. Hawkers on street corners were selling, at
the old price, bars of soap and other items they had grabbed
during the initial price drop. We have seen the same in
Harare.


8. (C) Glenn Stutchbury, Regional Commercial Director of
Meikles Africa Hotels, told us that although the 5-star
Meikles Hotel had complied, it would eventually start such
sleights of hand as gradually introducing food items that
weren't on the menu on June 18, and doing away with Meikles'
"standard" category of hotel rooms. Other businessmen were
moving stocks of goods out of warehouses in a cat-and-mouse
game with inspectors, or simply shutting down temporarily.

9 (C) Mills added that the TM chain of 56 supermarkets and
4,500 employees had begun to send workers on leave and
terminate contracts. He also noted that shoppers close to
the border had taken advantage of the arbitrage opportunity;
all the liquor on sale at TM's Kariba outlet, for example,
had found its way across Lake Kariba to Zambia. On July 9,
Temba Banda, an accountant at Meikles Africa, told econoff
that the GOZ had instructed the company to slash all prices,
including clothing and appliances. Meikles had immediately
banned all purchases on credit, in a weak defense.

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The Law Be Damned
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10. (U) After two weeks of enforced price controls and
numerous arrests apparently based on verbal orders of cabinet
ministers and the president, Industry and International Trade
Minister Mpofu issued a statutory instrument formally
ordering the price rollbacks. Lawyers have announced plans
to challenge arrests taking place before the issuance of the
instrument and also the legality of the order itself.

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Hope for A Political Solution Within ZANU-PF?
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11. (SBU) Numerous ZANU-PF heavyweights are involved in
industry and retailing, and they are bound to be affected by
low prices and ultimately by the unavailability of goods.
Business contacts have commented to us that their
vulnerability may be an impetus for them to urge the
government to reverse course. At the same time, Mugabe has
renewed his attacks on "profiteers." Speaking to his base
(war veterans, women, and other party stalwarts) at ZANU-PF
headquarters on July 6, Mugabe again threatened to confiscate
non-complying businesses and blasted those who have
challenged the legality of the government's actions.

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Comment
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12. (C) The GOZ's latest doomed bid to control hyperinflation
and appeal for popular support in anticipation of next year's
scheduled election is certain to quicken the pace of economic
contraction as retailers and manufacturers shut down, formal
employment shrinks further, and, in lockstep, the GOZ's tax
revenue evaporates. The price slashing has populist appeal
only in the very shortest term ) until the staples disappear
from the shelves, which has already happened. Even the least
educated Zimbabwean is tense with apprehension about what's
next. Inflation can only spiral to new heights as
demand-driven price increases for basics joins the RBZ's use
of the printing press, running at full speed, to pay for all
the unbudgeted subsidies needed to "keep the lights on."
With hardly a face-saving option available to Mugabe, he has
backed himself well into a corner with this attack on "the
forces of regime change." Mugabe appears to be reacting to
the threat of hyperinflation in typical style ) lash out and
try to radicalize the situation. Unfortunately for him, the
laws of economics are not subject to change by government
fiat.
DELL