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FM AMEMBASSY HARARE
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INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHUJA/AMEMBASSY ABUJA 2056
RUEHAR/AMEMBASSY ACCRA 2259
RUEHDS/AMEMBASSY ADDIS ABABA 2379
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RUEHDK/AMEMBASSY DAKAR 2012
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RUEHNR/AMEMBASSY NAIROBI 4865
RUEAIIA/CIA WASHDC
RUEHGV/USMISSION GENEVA 1528
RHEHAAA/NSC WASHDC
RHMFISS/JOINT STAFF WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEFDIA/DIA WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RUZEHAA/CDR USEUCOM INTEL VAIHINGEN GE

UNCLAS SECTION 01 OF 04 HARARE 000777 
 
SENSITIVE 
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 
AFR/AA FOR KATE ALMQUIST AND FRANKLIN MOORE 
AFR/SA FOR ELOKEN, JHARMON AND LDOBBINS 
AFR/SD FOR DATWOOD AND HSUKIN 
EGAT FOR DDODD, KBAUM, WCHANNELL, PSTEFFEN AND AMOUSHEY 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV ZI
SUBJECT: WORLD BANK MISSION EMPHASIZES COMMITMENT TO POLICY 
 
REFORM 
 
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SUMMARY 
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¶1. (SBU) During the week of August 18 three World Bank 
officials visited Harare to brief donors on developments 
related to the Multi-Donor Trust Fund (MDTF), hear donors 
concerns about its implementation, discuss conceptualization 
of a programmatic MDTF, and take the pulse of the economy. 
Maputo-based country director Michael Baxter told the 
Ambassador that the World Bank had been prepared to re-engage 
with Zimbabwe but he felt that the chances of the Bank moving 
forward had begun to recede in light of the political 
stalemate.  World Bank senior economist John Panzer met with 
a broad spectrum of business leaders and was the key note 
speaker on the subject of Zimbabwe's road to economic 
recovery at a major forum organized by the American Business 
Association of Zimbabwe in Harare.  He emphasized that the 
success of economic stabilization and the speed of recovery 
would depend on Zimbabwe's commitment to policy reform and 
the consistency of reform implementation.  END SUMMARY. 
 
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Country Director on Multi-Donor Trust Fund 
------------------------------------------ 
 
¶2. (SBU) During the week of August 18 three World Bank 
officials visited Harare: Maputo-based Country Director 
Michael Baxter, Laura Bailey of the World Bank's Fragile 
States Office in Washington, and senior economist John 
Panzer. Baxter and Panzer briefed donors on developments 
related to the Multi-Donor Trust Fund (MDTF) and listened to 
donor concerns about its implementation. The donors strongly 
impressed upon Baxter that the MDTF was moving much slower 
than desired and asked for greater participation by Bank 
staff in the technical working groups. The donors noted a 
lack of information sharing between Poverty Reduction and 
Economic Management (PREM) office staff in Washington, the 
economic working group of the MDTF, and the policy committee. 
 
 
¶3. (SBU) Baxter told the MDTF meeting on August 18 that the 
World Bank planned to augment its staff in Harare to help 
manage the MDTF and advance planning efforts.  It was hiring 
a local economist and, once significant reforms had begun, 
would also contract a senior economist with experience in its 
PREM office to enhance MDTF work on macroeconomic 
stabilization for 6-9 months in Harare.  Panzer later told 
econoff that the Bank had developed an arrears-clearing plan 
for Zimbabwe and would consider sending a member of its 
pre-arrears clearance team to Harare to jump start the 
process.  He was cautious about getting the timing of the 
visit right so as not to send wrong signals about the World 
Bank's readiness to assist. He added that the World Bank was 
well prepared for re-engagement and had done its homework, 
but awaited approval of major donors before moving forward. 
 
¶4. (SBU) On August 19 Baxter briefed Ambassador on his visit. 
He said colleagues Panzer and Bailey were working with the 
 
HARARE 00000777  002 OF 004 
 
 
World Bank re-engagement strategy team in Washington to 
strengthen donor support on the humanitarian front and 
improve technical support.  The World Bank had been "geared 
up" to re-engage with Zimbabwe but he felt that the chances 
of the Bank moving forward had begun to recede. He said he 
had come to Zimbabwe with a plan for upgrading the Bank's 
local operations, but had put the plan "in his pocket" for 
now; World Bank president Robert Zoellick had advised him not 
to "jump in" injudiciously.  Baxter reiterated that Zimbabwe 
had to clear its arrears to the World Bank and establish a 
strong track record (8-9 months) of reform before the Bank 
would consider lending again. 
 
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Fragile States Staffer on Conceptualization of MDTF 
--------------------------------------------- ------ 
 
¶5. (SBU) Bailey, also, met with donors and discussed 
conceptualization of a programmatic MDTF.  It could be 
implemented with donor financing to: deliver basic services; 
support economic recovery and development work; build 
capacity and revitalize institutions with a focus on 
re-building an accountable, effective, and transparent state; 
finance recurrent costs of a new or transitional government 
in the form of budget support; and assist with debt 
management, when conditions permit.  She highlighted 
networking by the Bank team across its regional offices and 
outside to provide lessons on the key aspects of a 
programmatic MDTF that are relevant to Zimbabwe.  These 
lessons will be shared with donors to obtain their input and 
agreement on the structure and operational aspects of a 
programmatic MDTF.  MDTF technical working groups are 
currently producing draft policy briefs that will constitute 
a proposed Zimbabwe Emergency Economic Recovery Program 
(ZEERP) while the Government re-formulates and finalizes a 
medium-term development strategy.  The proposed emergency 
program would be implemented once Government has produced a 
credible stabilization strategy and once a reform-minded 
government has demonstrated sufficient progress on meeting 
international principles for re-engagement. 
 
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Bank Economist Describes Way Forward to Business Forum 
--------------------------------------------- --------- 
 
¶6.  (SBU) The purpose of Panzer's visit from August 17-23 was 
to learn about the state of the economy and take the pulse of 
Zimbabwe's business community.  Embassy facilitated meetings 
for him with private sector representatives of the 
agriculture, mining, tourism, manufacturing, banking and 
other service industries.  Panzer's mission was not official 
and he did not seek meetings with GOZ officials. 
 
¶7.  (U) On August 22, Panzer addressed 250 delegates to the 
annual economic forum of the American Business Association of 
Zimbabwe (ABAZ) on "The Road to Economic Recovery in 
Zimbabwe." He outlined Zimbabwe's current economic situation: 
declining GDP since 1999, investment below replacement level, 
agricultural production in disarray, hyperinflation that 
 
HARARE 00000777  003 OF 004 
 
 
reflected the financing of large public sector deficits by 
monetization, price distortions, worsening social conditions 
and, on the political front, the lack of a shared vision 
about the way forward.  To contrast, he pointed out the 
increased openness of Zimbabwe's neighbors to the rest of the 
world and the rates of foreign direct investment to those 
countries.  Excluding Angola and Zimbabwe, he noted that 
exports from Southern Africa had more than doubled between 
1997 and 2007 while Zimbabwe's share of the larger trade pie 
had fallen from 6 percent to 2 percent in the same period. 
 
¶8. (U) Successful stabilization required the restoration of 
fiscal discipline and the return of the central bank to its 
core function of maintaining price stability, Panzer 
cautioned.  He advised drastically limiting the role and 
objectives of the Reserve Bank of Zimbabwe and strengthening 
the Ministry of Finance.  Many countries had rebounded from 
high inflation and declining income; the harder part was 
sustaining growth.  It demanded deep, consistent economic 
reform and clear signals from the government about its vision 
based on the rule of law. Addressing institutional and policy 
reforms needed in Zimbabwe's context, he said objectives in 
land reform had to be articulated along with the means to 
achieve them; parastatals as drivers of hyperinflation needed 
review in conjunction with defining the role of the public 
and private sectors; the indigenization law had to be 
revisited, price controls removed, and multiple exchange 
rates eliminated.  The role of government, and whether it 
would let the private sector lead, was a fundamental issue to 
address. 
 
¶9. (U) Panzer stressed to the business community that the 
world had changed since Zimbabwe enjoyed the status of a 
self-sufficient economy known in the region for producing 
high-quality products.  Tariff barriers had fallen, 
competition was greater, and the push to be efficient was 
intense. South Africa was a major player and the other 
neighbors had elevated their game and benefited from the SADC 
free-trade agreement. Zimbabwe's business community would 
have to learn to compete in a different world than 15 years 
ago. 
 
¶10. (U) Touching on issues of political economy, Panzer 
warned that beneficiaries of the highly distorted economic 
policy environment that generated huge rents and wealth 
opportunities would want to defend their gains, and Zimbabwe 
would have to find a way to deal with the groups that stood 
to lose under economic reform. 
 
¶11. (U) Moving on to re-engagement with the international 
financial institutions, Panzer argued that Zimbabwe needed to 
demonstrate its readiness to work with the World Bank.  He 
cautioned government officials against seeking to use 
international support as a way to postpone reform.  He 
outlined the sequence of steps that the international 
financial institutions would take, in coordination with other 
donors, once Zimbabwe signaled its seriousness about reform. 
He stressed that donor support would not be automatic; the 
donors would proceed cautiously, insisting on good economic 
 
HARARE 00000777  004 OF 004 
 
 
and political programs.  He also emphasized the key role for 
the IMF in endorsing Zimbabwe's stabilization program. 
Panzer suggested that Zimbabwe would need about US$ 2 billion 
in assistance within the first 18-24 months of recovery but 
he also pointed out the intense global competition for donor 
money.  The international community could help Zimbabwe, but 
in a supporting, not leading, role.  The success of 
stabilization and the speed of recovery would depend on 
Zimbabwe's commitment to policy reform and the consistency of 
its implementation. 
 
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Comment 
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¶12. (SBU)  Panzer's presentation at the business forum 
received wide and positive coverage, surprisingly, even in 
the government's mouthpiece The Herald.  The benefits of 
pursuing a reform path have never been more clearly 
articulated in a public forum of this scale and with press 
coverage as broad and evenhanded as in this case. With the 
path well defined and the challenges undisguised, it is up to 
the GOZ to commit to reform or face more years of decline. 
 
 
MCGEE