ZIMBABWE STILL SEEKING PAPER SUPPLIER, AS CASH

C O N F I D E N T I A L HARARE 000865 SIPDIS AF/S FOR G. GARLAND AF/EPS FOR ANN BREITER NSC FOR SENIOR AFRICA DIRECTOR B. PITTMAN STATE PASS TO USAID FOR L.DOBBINS 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: 09/22/2018 TAGS: ECON EFIN PGOV ASEC AR RS ZI SUBJECT: ZIMBABWE STILL SEEKING PAPER SUPPLIER, AS CASH CRUNCH WORSENS REF: HARARE 0760 Classified By: Charge d'Affaires Katherine Dhanani for reason 1.4 (d). ¶1. (C) Banker James Mushore told econoff on September 19 that the Argentine company bidding to provide banknote paper to the Reserve Bank of Zimbabwe (RBZ) (reftel) was Ciccone Calcografica S.A. He said the bid had come in especially high because it included a large cut for Reserve Bank Governor Gono. In the meantime, local paper producer Kadoma Paper Mills had begun to produce banknote paper with Russian technical assistance, according to Mushore,s contacts, but moisture in the paper was causing a 50 percent spoilage rate. He added that the RBZ was in discussions with a Russian company (unnamed) to provide secure ink. ¶2. (C) Mushore said plans were in place for the RBZ to issue a Z$10,000 note within two weeks, and that a Z$100,000 note was under design. (NOTE: The RBZ issued a Z$1,000 note last week; it is worth about US$1.50 on the street today. END NOTE.) Mushore also said that the German banknote printer Giesecke & Devrient had reached out to Fidelity Printers after the signing of the government's power-sharing agreement on September 15 to explore the possibility of restarting its supply of banknote paper to Zimbabwe. -------------- Meanwhile, Cash Crisis Deepens -------------- ¶3. (SBU) The RBZ is failing to meet banks' cash requirements. John Mushayavanhu, Managing Director of FBC Bank, and ZB Bank branch manager Nicholas Chirimuta told us today that a bank was lucky these days to get Z$100 billion for every Z$500 billion it requested from the RBZ. They attributed the shortage to Giesecke & Devrient's pullout from Zimbabwe. Mushayavanhu dismissed the claim of some financial journalists that banks did not have enough security to lodge with the RBZ to get the needed cash. He said most banks had sufficient balances at the RBZ over and above statutory reserve requirements to easily buy more cash, if it were available. Both bankers attributed the long lines for cash to a combination of the physical shortage and the very low daily cash withdrawal limit of Z$1,000. Mushayavanhu, who is also President of the Bankers Association of Zimbabwe (BAZ), said that when the BAZ appealed to the RBZ to release more cash, Governor Gono told the bankers to manage the situation themselves. -------------- COMMENT -------------- ¶4. (C) With no indication of a slowdown in the rate of inflation, pressure is on the GOZ to either locate an alternate secure paper supplier or make the home-grown production work. In the meantime, he cash shortage can only worsen. In the short erm, we expect to see the bank transfer exchangerate depreciate sharply in reaction. END COMMET. DHANANI