VZCZCXRO2289
PP RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSB #0886/01 3111228
ZNR UUUUU ZZH
P 071228Z NOV 09
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC PRIORITY 5118
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHAR/AMEMBASSY ACCRA 3160
RUEHDS/AMEMBASSY ADDIS ABABA 3272
RUEHBY/AMEMBASSY CANBERRA 2533
RUEHDK/AMEMBASSY DAKAR 2902
RUEHKM/AMEMBASSY KAMPALA 3320
RUEHNR/AMEMBASSY NAIROBI 5768
RUEHRL/AMEMBASSY BERLIN 1699
RUEHGV/USMISSION GENEVA 2452
RUEAIIA/CIA WASHDC
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RHMFISS/EUCOM POLAD VAIHINGEN GE
RHEFDIA/DIA WASHDC
RHEHAAA/NSC WASHDC

UNCLAS SECTION 01 OF 02 HARARE 000886 
 
SENSITIVE 
SIPDIS 
 
AF/S FOR B.WALCH 
DRL FOR N.WILETT 
ADDIS ABABA FOR USAU 
ADDIS ABABA FOR ACSS 
STATE PASS TO USAID FOR J.HARMON AND L.DOBBINS 
STATE PASS TO NSC FOR SENIOR AFRICA DIRECTOR M.GAVIN 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ZI
SUBJECT: ZIMBABWE BANKS WHISTLE PAST THE GRAVEYARD 
 
Ref: Harare 863 
 
¶1. (SBU) SUMMARY: Bankers in Harare seem not to have noticed that 
the Reserve Bank of Zimbabwe (RBZ) has robbed them of US$39 million. 
 Local papers reported details of the RBZ's latest malfeasance just 
days after IMF officials gave details to the GOZ and diplomats 
(reftel).  The banks have ample reserves beyond what the RBZ has 
diverted, and steady growth in deposits helps the banking system 
remain stable.  Even in the best case, this incident will increase 
tension between Finance Minister Tendai Biti and RBZ Governor Gideon 
Gono.  And when the full story finally registers with the public, 
Zimbabwe will look like an even riskier place to do business.  END 
SUMMARY. 
 
¶2. (SBU) IMF officials recently told diplomats in Harare that the 
RBZ had undermined the stability of the banking system by spending 
banks' reserve deposits.  Within two days of the IMF briefing, local 
papers had reported this tale of the ultimate in insider bank 
heists, along with direct quotes from the IMF's report to the GOZ. 
But the press reports did not create queues of nervous bank 
depositors rushing to withdraw money, and none of the banks have 
complained in public.  Even our own discreet enquiries revealed no 
alarm among the banks. 
 
 
¶3. (SBU) One reason Harare bankers remain calm is that past 
experience of RBZ recklessness has taught them to take precautions. 
Beyond the minimum reserves required by RBZ rules (10 percent of 
deposits), the banks maintain excess reserves equivalent to at least 
5 percent of deposits.  And the banks remain cautious about lending. 
 The volume of bank credit is still less than half of deposits.  In 
1999, by contrast, banks' loans to the private sector exceeded 90 
percent of deposits. 
 
¶4. (SBU) Like other victims of Ponzi schemes, the banks also have 
empirical reasons to hope for the best.  There has been rapid growth 
in deposits since February, so the RBZ has seen a steady increase in 
banks' required reserves.  As a consequence, when a given bank 
experiences a decline in deposits and requires a refund of required 
reserves, the RBZ has always been able to fund that obligation 
through the increase in other banks' reserve deposits.  This is a 
risky game for a central bank to play, but the RBZ can get away with 
it as long as the level of deposits is rising.  So far, according to 
our banking contacts, the RBZ has never failed to refund reserves to 
a bank when necessary. 
 
¶5. (SBU) It is also possible that the banks may not yet be aware of 
the scale of the RBZ's latest malfeasance.  While at least one 
independent newspaper has the full story as set out in the IMF's 
report, the reporting so far has not been entirely coherent.  The 
main point may have escaped the notice of even financially astute 
readers.  One bank director told us it was bad for the RBZ to spend 
bank's reserves, but the practice could be tolerated as long as most 
of the reserves were left in place and the RBZ did not use the 
Qof the reserves were left in place and the RBZ did not use the 
banks' money to fund its operations.  In fact, as of the end of 
August the RBZ had diverted over 80 percent of banks' required 
reserve balances to fund salaries, pay off debts, and even subsidize 
the national airline. 
 
 
¶6. (SBU) COMMENT: This incident is sure to escalate the friction 
between Biti and Gono.  Biti and his party, the MDC, have been 
trying to remove Gono from his position since the formation of the 
transitional government in February.  They will cite the reserves 
fiasco as further evidence of Gono's incompetence.  When the story 
broke, Gono publicly stated that the Ministry of Finance was to 
blame because it had not given the RBZ sufficient funding.  Whether 
they are still in the dark or just pretending to be, the banks will 
inevitably find it necessary to protect their interests.  Once the 
penny drops, so to speak, they could confront the RBZ and insist on 
 
HARARE 00000886  002 OF 002 
 
 
having the missing funds restored (as the IMF has already done). 
Additionally, they can scale back lending to improve their reserve 
positions.  In any event, the full story will eventually emerge and 
do further damage to Zimbabwe's battered business climate.  END 
COMMENT. 
 
RAY