GIDEON GONO REINVENTS GIDEON GONO

C O N F I D E N T I A L SECTION 01 OF 03 HARARE 000076

SIPDIS

SENSITIVE
SIPDIS

AF/S FOR S. HILL
NSC FOR SENIOR AFRICA DIRECTOR B. PITTMAN
STATE PASS TO USAID FOR M. COPSON AND E.LOKEN
TREASURY FOR J. RALYEA AND T.RAND
COMMERCE FOR BECKY ERKUL
ADDIS ABABA FOR USAU
ADDIS ABABA FOR ACSS

E.O. 12958: DECL: 01/12/2016
TAGS: EFIN PGOV ZI
SUBJECT: GIDEON GONO REINVENTS GIDEON GONO

REF: HARARE 01361

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

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Summary
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1. (C) In a January 29 meeting with the Ambassador, Reserve
Bank of Zimbabwe (RBZ) Governor Gideon Gono said that January
31's Monetary Policy Statement (MPS) would be "totally
different" from previous statements. Gono said he would
confront the governance problems that were the root cause of
the country's economic decline and call on Zimbabwe to "bite
the bullet" and embrace market reforms. The Ambassador
responded that the U.S. and the international community would
welcome a genuine reform package. Gono added that it was not
necessary to devalue the currency, as has been widely
assumed, as it would accomplish little by itself. Gono added
that he felt increasingly under threat and expected the
pressure to increase following the MPS. End Summary

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Governance Is The Issue
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2. (C) Governor Gono told the Ambassador at a January 29
meeting at the Reserve Bank that he would deliver his long
awaited ) and several times delayed -- Monetary Policy
Statement (MPS) on January 31. Gono said this MPS would be
"totally different." He would go beyond monetary policy and
address the governance issues that were at the root of
Zimbabwe's economic problems. It was time to acknowledge
past mistakes, begin "true reform," promote national unity
and engage the international community "East, West, North and
South," as well as the IMF.


3. (C) Gono said the key to success would be stakeholder
buy-in to the implementation of a "holistic package" of
complementary reforms. In that regard, Gono claimed to have
consulted widely in the government and the business
community, showing the Ambassador a series of written
summaries of the consultations. Gono claimed he had not
briefed the Cabinet on his approach to the MPS to prevent
them from taking a defensive position in the market.
However, in response to a direct question from the Ambassador
as to whether he had briefed the MPS to President Mugabe, who
had been out of the country, Gono avoided a direct response.

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A Call for Market Reforms
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4. (C) Gono said Zimbabwe had to "bite the bullet" and
embrace market reforms. He said he would call for market
determined prices, convergence of foreign exchange rates and
interest rates, privatization of parastatals, the honoring of
Bilateral Investment Protection and Promotion Agreements, and
an end to farm disruptions. With respect to the latter, Gono
said Zimbabwe couldn't continue chasing away Zimbabweans who

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could contribute to the turnaround. The RBZ head said he
intended to zero in on governance issues and hold ministers
accountable for their portfolios. Zimbabwe was making a
mockery of its assets, and the damage was being perpetrated
by ZANU-PF brass. If market policies and reforms were not
adopted, Gono claimed he was prepared to resign.


5. (C) Echoing remarks he made to the Ambassador in
November (reftel),Gono admitted that the GOZ had overplayed
sanctions as the root of all of Zimbabwe's woes. He added
that no economic turnaround in history had succeeded without
a "thumbs up" from the U.S. In that regard, the Ambassador
noted for the record that contrary to recent reports in the
Zimbabwean press, the USG did not tell American companies
where to invest, but if Zimbabwe implemented the right
reforms, the U.S. would be at its side. Gono conceded the
point and said that government control of the media was a
"soft" issue on which the GOZ should be prepared to give
ground.


6. (C) The Ambassador said many donors were willing to
support a genuine reform program but that Zimbabwe would have
to take the first steps and that reforms would have to be
political as well as economic. Gono replied that he had
approached Mugabe about the "tension in the country" and said
Mugabe was "aware" of the futility of trying to turn around
the economy in the present political climate.

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Devaluation Is Not the Issue
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7. (C) Asked by the Ambassador whether a significant
devaluation was in the cards (N.B. the currency has swooned
recently to Z$5,000:US$ on the street, against an official
rate of Z$250:US$ - unchanged since July 31, 2006 despite
quadruple-digit inflation),Gono replied that it was not
necessary, and devaluation was "not the issue." He pointed
out that none of the eight devaluations he had announced in
his three-year tenure as Governor had stabilized the economy,
and no devaluation could cure Zimbabwe's economic crisis
until the GOZ got pricing right. In that regard, he recited
a litany of price distortions that, he said, continued to
compel him to print money, including among others the
electric power company's tariff structure, which was so
skewed that a household paid less for a month's power than
for candles or firewood to cover one evening's power outage.

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Heaping Scorn on Finance Minister Murerwa
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8. (C) Gono heaped scorn on Finance Minister Murerwa for
failing to define a "holistic package" of reforms and for
failing to address price distortions in his 2007 budget. He
mocked him for having expected a complementary monetary
policy statement from Gono within a week of the budget
release in November. Waving Murerwa's March 2006 letter to
the IMF in the air, and pointing to the promises he had made,
Gono said Zimbabwe's credibility was running out fast.

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Unless there was buy-in to his MPS and real progress to point
to, he would not attend the February IMF Board meeting on
Zimbabwe.

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"Scary Times" For Gono Personally
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9. (C) Gono said his enemies were sharpening their knives
for him, and that infighting now extended as far as the state
security forces. With suspicion rife, these were "scary
times" for Gono personally. He feared for his personal
safety, and had begun to use decoy automobiles and move to
different houses at night.

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Ring Fencing Quasi-Fiscal Spending
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10. (C) In a hasty aside, as he walked the Ambassador to
the elevator, Gono let slip, without further explanation,
that he had "ring fenced" the RBZ's quasi-fiscal activity
into a separate company "so the spending would not interfere
with the monetary anchor."

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Comment
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11. (C) Gono was as usual short on specifics and long on
words. However, this was a different Gono, more agitated and
more accommodating than any time in the previous year. In
fact, there was an echo of the Gideon of two years ago, the
Gono in whom the business and international community had
seen a potential market reformer. He is right, of course,
that governance, or rather mis-governance, is at the heart of
Zimbabwe,s economic collapse and he is right that
fundamental reforms are needed.


12. (C) That said, we are skeptical that Gono is sincere in
his call for bold reforms. In fact, his comment at the end,
about fencing off quasi-fiscal activities, would seem to
indicate that he has no intention of pursuing genuine reform.
Instead, we suspect that this may be a clever ploy to blame
the country's economic ills on ZANU-PF insiders, many with a
grudge against Gono, rehabilitate his reputation as a
reformer and, perhaps most importantly, at the same time
avoid a "useless" devaluation that might harm those like
himself and President Mugabe who are profiting massively from
Zimbabwe's multiple exchange rates.
DELL