AN INSIDER'S TAKE ON RBZ GOVERNOR GONO

C O N F I D E N T I A L SECTION 01 OF 03 HARARE 000089 SIPDIS SIPDIS AF/S FOR S. HILL 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: 01/31/2018 TAGS: EFIN ECON PGOV ASEC ZI SUBJECT: AN INSIDER'S TAKE ON RBZ GOVERNOR GONO REF: A. HARARE 0088 ¶B. HARARE 0044 ¶C. 07 HARARE 0951 Classified By: Amb. James D. McGee for reason 1.4 (d) -------------- SUMMARY -------------- ¶1. (C) According to Reserve Bank of Zimbabwe (RBZ) division chief Simon Nyarota, RBZ Governor Gono no longer consults with staff when designing policy. Having isolated himself from the technocrats, he fails to grasp the extent of Zimbabwe's dire economic straits, including the current bank liquidity crisis. Under Gono's leadership, the RBZ colludes with other government institutions in hiding the real rate of inflation. Gono steadfastly resists devaluation of Zimbabwe's grossly overvalued currency as inflationary, despite advice to the contrary. His governorship is marked by fear and mistrust among a Bank staff that has been deeply infiltrated by Central Intelligence Organization (CIO) agents. Gono doles out benefits to himself, as well as to his cronies and Ministers to keep them beholden. We see him subsumed by politics and playing to the absolute whim of his political masters as the economy crumbles around him at a faster pace than ever. END SUMMARY. -------------- No Consultation With Technocrats -------------- ¶2. (C) In a wide-ranging after-hours meeting on January 24, Simon Nyarota, Head of Research at the RBZ, described to Embassy econ specialist (a former colleague) the RBZ's erratic decision-making, particularly in relation to the recent cash crisis (Ref B),as well as the chilling working environment at the Bank. Nyarota decried Gono's ongoing failure to seek input from any staff other than his Senior Advisor Munyaradzi Kereke in formulating policy. ¶3. (C) Looking further back to the November/December 2007 cash crisis, Nyarota said his staff had recommended, from the start, introducing higher denomination notes, but Gono clung to the view, which he reportedly conveyed to President Mugabe, that hoarding of the largest denomination note by "cash barons" was the root cause of the shortage, and withdrawing the Z$200,000 note from circulation would force cash back into the formal market. As the crisis worsened, however, Gono was forced to seek Mugabe's approval to print larger notes. ¶4. (C) Nyarota said that he and Norman Mataruka, Division Chief of Bank Licensing, Supervision and Surveillance, sought Gono out at his home on Christmas Day (without going through Kereke) to advise him not to withdraw the Z$200,000 note from the market because the supply of new notes was inadequate and incessant rains were hindering the distribution of cash in rural areas. They also advised Gono to reverse newly implemented restrictions on bank transfers; Nyarota said Gono took the advice after consulting with Mugabe. ¶5. (C) Nyarota also maintained, as a further example of the monetary authority,s tunnel vision, that Gono did not comprehend that his management of the current bank liquidity crisis (septel) was pushing banks to the brink of insolvency. HARARE 00000089 002 OF 003 -------------- Inflation Figures, Overvalued Currency -------------- ¶6. (C) Nyarota said that the RBZ's internal reckoning of inflation, which takes into account the sale price of goods rather than their controlled price, had been around 50,000 percent in October, 2007 and was projected at the time to rise to 150,000 percent by the end of 2007. The Central Statistical Office (CSO) continues to carry out studies of the monthly rate of inflation, but Finance Minister SAMUEL Mumbengegwi has prohibited publication of its findings. ¶7. (C) On the grossly overvalued official exchange rate, Nyarota said that Gono and Kereke were of the unswayable opinion that devaluation would be inflationary, notwithstanding, as Nyarota's staff had sought to explain to the Governor that domestic prices were already largely indexed to the parallel exchange rate. -------------- And More Snouts At The Trough -------------- ¶8. (C) Nyarota also harshly criticized the RBZ policy announced in October 2007 (Ref C) of paying farmers partly in foreign exchange for grain. He postulated that Gono and Kereke, both farmers, had designed the policy for their own personal benefit. On a related note, former Commercial Farmers' Union (CFU) President Doug Taylor-Freeme relayed to econoff that Kereke had acquired a large and productive commercial farm near Chinoyi in 2007 without the taint of "land seizure" in a special arrangement greased by Kereke's ready access to cheap foreign exchange. Kereke had paid the white commercial farmer enough local currency for him to purchase an equivalent-value residence in Harare, and had also provided the farmer with foreign currency at a highly subsidized exchange rate to enable him to open a new business importing inputs to the mining sector. -------------- Pervasive Fear At The Workplace -------------- ¶9. (C) Nyarota likened the RBZ to the Mafia, where everyone was afraid of everyone else and nothing progressive happened. He said the Bank was permeated with CIO agents; staff no longer dared speak freely at work. Together with three colleagues, Nyarota, in exasperation, had submitted his resignation last year only to be threatened with jail by Gono if any of them resigned before their tenure expired (in Nyarota,s case, one year from now). Gono allegedly ordered the arrest of some company directors on trumped up charges at one point last year just to cow them. Nyarota also maintained that Gono regularly bribed Ministers with cash handouts and cheap foreign exchange to keep them beholden to him. -------------- COMMENT -------------- ¶10. (C) Zimbabwe's economic distress has grown deeper than anything Gono might once have been able to manage, even if he had a free hand to formulate policy. While Nyarota finds Gono blind to the full extent of Zimbabwe's economic crisis and incapable of formulating prudent policy, we see him subsumed by politics (Ref A) and playing to the absolute whim HARARE 00000089 003 OF 003 of his political masters as the economy crumbles around him at a faster pace than ever. END COMMENT. MCGEE