VZCZCXYZ0005
RR RUEHWEB

DE RUEHSB #0907/01 2811137
ZNR UUUUU ZZH
R 071137Z OCT 08 ZDK
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC 3540
INFO RUEHSA/AMEMBASSY PRETORIA 5554

UNCLAS HARARE 000907 
 
SIPDIS 
AIDAC 
 
FFP/W for JBORNS, ASINK, LPETERSEN 
AFR for JHARMON, ELOKEN, LDOBBINS, KALMQUIST, FMOORE 
PRETORIA FOR HHALE, JWESSEL, PDISKIN, SMCNIVEN 
 
E.O. 12958: N/A 
TAGS: EAID EAGR PREL PHUM ZI
SUBJECT:  ZIMBABWE DONOR DIALOGUE - PLANNING FOR RE-ENGAGEMENT, 
STABILIZATION, AND RECOVERY 
 
REF:  HARARE 894 
 
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SUMMARY 
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¶1.  A number of donor meetings have taken place in the last two 
weeks to plan for re-engagement, stabilization, and recovery in 
Zimbabwe when political conditions permit.  On September 25, heads 
of assistance agencies met to discuss and come to agreement on a 
range of issues, including: the nature of a recovery program; 
practical application of the common set of principles and benchmarks 
drafted to determine when and to what extent it is appropriate to 
implement expanded assistance; issues of coordination; and bilateral 
programmatic interests and funding expectations.  A report of the 
discussion and key agreements will be discussed at the high-level 
donor meeting in Ottawa on October 30.  On September 26, Morgan 
Tsvangirai and members of his technical transition team and the 
Government Strategic Unit (GSU), which has been established as an 
advisory and operational arm of the Office of the Prime Minister 
(OPM), met with the Policy Committee of the World Bank Multi-Donor 
Trust Fund (MDTF).  Tsvangirai called the meeting to convey to 
donors the immediate priorities that will be taken up by the OPM and 
the Council of Ministers once a political agreement is reached, and 
to discuss issues of GOZ/donor coordination, as well as 
international plans for providing economic recovery assistance.  On 
October 1, the UNDP and the World Bank revived the Imba Matombo 
Consultative Forum, which is intended to facilitate convergence of 
multiple stakeholders on analysis, constraints, and policy options 
facing Zimbabwe.  At the half-day seminar, UNDP presented the 
"Comprehensive Economic Recovery in Zimbabwe - A Discussion 
Document," which lays forth a long-term economic recovery and 
development program. A summary of each of these three meetings is 
provided below. END SUMMARY. 
 
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DONOR RE-ENGAGEMENT: GETTING ON THE SAME SONG SHEET 
--------------------------------------------- ------ 
 
¶2.  Harare-based heads of assistance agencies met on September 25, 
regrouping after the summer holidays and assessing appropriate 
responses to political events in Harare.  The meeting also sought to 
follow up on the last donor conference in Stockholm and plan for the 
upcoming high-level donor meeting in Ottawa (now scheduled for 
October 30).  In addition, the all-day meeting provided an 
opportunity to clarify and consolidate thinking on what 
re-engagement with the Government of Zimbabwe (GOZ) will require 
should the recently signed power-sharing agreement bear fruit.  It 
was agreed that the outcome of the meeting should be a presentation 
for the Ottawa Donors' Conference. 
 
¶3.  The UK's representative for the Department for International 
Development (DFID) presented an outline of a recovery plan which put 
forward three scenarios.  The first was optimal - fully funded and 
fast-tracked with full cooperation and buy-in from the GOZ.  The 
second envisioned a slight lag in funding and more negotiation with 
the GOZ on reform, and the third was premised on partial reforms. 
The Mission will forward via e-mail the entire analysis.  While the 
first scenario was shown to have the quickest impact and best 
recovery potential, the price tag of USD 300 million in balance of 
payments support is ambitious, as is the projected overall 
assistance requirement estimate of USD 5.1 billion over 5 years. 
This scenario depicts key stabilization actions taking place during 
the first 12 months with balance of payments support, technical 
assistance, and support for demobilization which would parallel GOZ 
steps to reengage the international financial institutions, stand up 
functioning ministries, develop an approach to deal with arrears, 
and demobilize militias.  Clearly all of this depends upon the 
outcome of current negotiations, political will, and the ability of 
progressive forces to bring along the rest of the GOZ. The second 
scenario would be slower and socially more costly; donor response 
would also be slower.  The third could very well lose any impact 
during implementation and donors would likely limit their support to 
humanitarian assistance. 
 
¶4.  Participants also discussed the sequencing of arrears clearance, 
possible involvement of regional actors such as the African 
Development Bank and South Africa in the process, steps toward HIPC 
(Heavily Indebted Poor Country initiative) status, the need for 
parallel efforts in key development sectors, and financing.  Donors 
voiced concerns about the need for confidence building steps on the 
part of the GOZ prior to any major investment and harkened back to 
the donor principles agreed in previous donor meetings.  Managing 
expectations was seen as critical as was coping with the reality 
that while all parties may want to be in scenario 1, the more 
realistic likelihood would be scenario 2. 
 
¶5.  The donors reaffirmed their commitment to the common principles 
and the need for a performance-based response.  However, they also 
agreed that it would not be a neat process.  All agreed that a clear 
commitment by the GOZ to put in place a number of immediate measures 
to build confidence and create the conditions for a just and 
transparent recovery process would be met with a process of donor 
re-engagement and program development consistent with the Paris 
Declaration on aid effectiveness.  The confidence-building measures 
include a sound and credible program of economic stabilization in a 
context of peace and security. Although little can be done until 
there is a credible government in place, donor representatives 
agreed that one of the first steps would be to engage the government 
to set clear benchmarks.  The ensuing process would combine helping 
the GOZ to meet the benchmarks and a clear response to achieving 
them.  Donors emphasized the need for clear and consistent 
communication during this process as well as the development of a 
communications strategy.  The group also proposed development of a 
transitional results matrix to enable joint monitoring of progress 
to ensure mutual accountability. 
 
¶6.  Immediate steps required for re-engagement were seen as: the 
complete re-opening of humanitarian space and assessment of needs; a 
firm commitment to the impartial distribution of humanitarian aid 
based on need; the immediate commencement of dialogue with regional 
and international financial institutions and major creditors, with a 
view to putting in place an internationally-approved economic 
stabilization process and an agreed course of action to tackle the 
country's arrears; an immediate end to political violence and 
intimidation, including the standing down and cessation of 
activities by militia groups and the release of all political 
prisoners; and, actions that will quickly establish the conditions 
for an open and accountable process of national reconciliation, 
including the lifting of all constraints on the media and an end to 
the harassment of civil society and human rights groups.  Early 
tests of intent include: a credible political settlement, a credible 
Minister of Finance and Governor of the Reserve Bank, a credible 
budget, and a credible commitment to an internationally-supported 
stabilization package engaging the International Monetary Fund, 
World Bank, and African Development Bank. 
 
¶7.  The final point of discussion was how to structure the 
"architecture" for donor coordination as we move forward.  All 
participants are signatories to the Paris Declaration on Aid 
Effectiveness which calls for coordination around a single, national 
plan for recovery and the establishment of lead donor arrangements. 
It was agreed that while we are committed to that direction, the way 
forward will not be entirely clear until we are engaged with the 
GOZ.  In summary, there is emerging clarity on how to go forward and 
continued consolidation around the donor principles.  There is a 
coherence of view and agreement that open and frank dialogue is 
needed to ensure solidarity of action.  DFID was tasked with 
consolidating the results of the discussions to present at the 
upcoming donor meeting in Ottawa. 
 
--------------------------------------------- 
TSVANGIRAI MEETS WITH HEADS OF DONOR AGENCIES 
--------------------------------------------- 
 
¶8.  On September 26, Morgan Tsvangirai and members of his technical 
transition team and Government Strategic Unit, which has been 
established as an advisory and operational arm of the Office of the 
Prime Minister (OPM), met with the Policy Committee of the World 
Bank Multi-Donor Trust Fund (MDTF).  The meeting was called by 
Tsvangirai to convey to donors the immediate priorities that will be 
taken up by the OPM and the Council of Ministers once a political 
agreement is reached and to discuss issues of GOZ/donor 
coordination, as well as international plans for providing economic 
recovery assistance. 
 
¶9.  Tsvangirai reiterated that his top priorities were to address 
the food crisis, stabilize the economy, and strengthen rule of law 
(with media reform, human rights, and governance sector reform at 
the top of the list).  In particular, Tsvangirai requested 
assistance from donors to address the humanitarian situation, to 
provide policy guidance with regard to macro-economic stabilization 
(e.g., advice as to whether a currency board is appropriate, when to 
lift price controls, etc.), to develop the 2009 national budget 
(which needs to be submitted to Parliament by the first week of 
December), to reform tax administration, to provide for the needs of 
people who will be adversely affected by an economic recovery 
program, and to take stock of local level needs, including 
rehabilitation of water infrastructure. 
 
¶10.  Tsvangirai asked donors for a notional idea of forthcoming 
assistance.  Donors responded that it was premature to discuss this 
information until an agreement is reached and benchmarks are met. 
The donor group presented the initial benchmarks that would need to 
 
be achieved before recovery assistance could be provided, including 
unimpeded humanitarian access, freedom of the press, disarming of 
militias, freeing of political prisoners, and the announcement of an 
electoral roadmap.  Donors noted, however, that they were in the 
process of increasing their humanitarian assistance to respond to 
the food crisis and non-food emergency needs.  Tsvangirai took away 
from the meeting a strong understanding that he needed to manage 
public expectations about forthcoming international assistance and 
how quickly it would come.  He also took away a greater 
understanding of the complexity, uniqueness, and time constraints of 
donor processes to approve assistance budgets and move money. 
 
¶11.  Donors used the meeting to make a number of key points. They 
urged Tsvangirai and his team to complete the 100 day plan as a 
matter of priority.  It would serve as a document against which to 
contemplate assistance once conditions are right and to more fully 
understand the priorities of government.  Furthermore, donors urged 
Tsvangirai to take a proactive lead with regard to donor 
coordination and to establish an office to oversee this 
responsibility.  In addition, donors emphasized that once an 
agreement is reached coordination would need to begin with the whole 
of government, including ZANU-PF elements, versus only the MDC. 
Tsvangirai responded positively to each of these requests, noting 
that the 100 day plan is one of his immediate priorities and that he 
intended to appoint a team to interface with donors until the 
Ministry of Finance could be strengthened to take on this role. 
 
¶12.  At the conclusion of the meeting, all parties spoke of the 
usefulness of the discussion and the need to continue dialogue. 
Tsvangirai closed the meeting by reiterating his main takeaway 
points:  1) that he needed to get government in place and initiate 
reforms before donors could engage in recovery dialogue; 2) that he 
needed to complete his 100 day plan immediately, and that individual 
ministries needed to develop their own 100 day plans as soon as 
possible to assist donor planning efforts; 3) that he needed to 
lower public expectations regarding the immediacy with which 
international assistance would be forthcoming; and 4) that he needed 
to work toward expanding donor dialogue to include relevant ZANU-PF 
individuals. 
 
-------------------------------------------- 
UNDP PRESENTS ITS LONG-TERM DEVELOPMENT PLAN 
-------------------------------------------- 
 
¶13.  On October 1, the UNDP and the World Bank revived the Imba 
Matombo Consultative Forum, which is intended to facilitate 
convergence of multiple stakeholders on analysis, constraints, and 
policy options facing Zimbabwe.  At the half-day seminar, UNDP 
presented the "Comprehensive Economic Recovery in Zimbabwe - A 
Discussion Document," which is the culmination of more than a year 
of research.  The document summarizes the current situation and 
outlines necessary actions to spur economic recovery in the areas of 
macro-economic stabilization, financial sector recovery, private 
sector development, agricultural reform, and labor and human capital 
development.  The research was facilitated by Dr. Mark Simpson, a 
UNDP consultant; Zimbabwean sectoral experts took the lead to draft 
the discussion document and define points of intervention. The 
forum, which was co-chaired by Dr. Agostinho Zacarias (UNDP Res Rep) 
and Dr. Mungai Lenneiye (Acting World Bank Country Manager), drew 
participants from the diplomatic corps, bilateral and multilateral 
donor agencies, the private sector, and the MDC. 
 
¶14.  The content of the document mirrors the points of sectoral 
intervention that have been discussed in other venues, including the 
MDTF and like-minded donor group. The recovery program outlined is 
intended to provide a long-term development plan whereas the World 
Bank's "Zimbabwe Economic Recovery Program" (ZERP) outlines an 
immediate emergency plan of action.  The World Bank plans to 
implement the ZERP through a programmatic MDTF and the MDC has 
provided input into the MDTF process.  It is anticipated that in 
time UNDP will request funding to pursue the programs highlighted in 
its report. 
 
¶15.  Highlights of the discussion include: 
 
--Macroeconomic stabilization:  The researchers underscored the need 
to remove price and exchange rate controls as well as capital 
controls on individuals, and to establish and publish money supply 
targets to reign in inflation.  Post-stabilization, the researchers 
underscored the need to carry out a public expenditure review, 
establish and publish fiscal rules, conduct budgetary reviews, 
strengthen public financial management, and establish inflation 
targeting. 
 
--Financial sector recovery:  The researchers identified the lack of 
financial intermediation by commercial banks and the role now being 
played by the central bank, as an impediment to growth.  Therefore, 
 
there is need to restore the central bank to its core mandate and 
constitutionally guarantee its autonomy.  In order to achieve 
pro-poor growth there is also a need to increase access to finance 
for the poor by removing constraints on the operations of 
micro-finance institutions. 
 
--Private sector development:  The researchers highlighted that 
private sector development is being stifled by lack of foreign 
currency to import raw materials, out-migration of skilled workers, 
massive disinvestment, and diminishing competitiveness due to 
hyperinflation and an overvalued exchange rate.  Therefore, it was 
suggested that attention be given to easing foreign currency 
constraints, improving the regulatory environment, rehabilitating 
and rebuilding productive infrastructure, workforce training, public 
private partnerships, and formulating a strategy for the private 
sector to participate in the global market place. It was noted that 
special attention should be given to the mining sector (which 
contributes 4 percent of GDP and 45 percent of exports) and to the 
tourism industry.  The researchers also stressed the need to 
restructure and reform public enterprises, which have poor pricing 
policies and conflicting policy goals. 
 
--Agricultural reform:  Reform of governmental institutions was 
noted as a short-term priority as well as the need to announce 
pre-planting prices.  The research team placed land tenure reform in 
the communal areas as a medium to long-term need that would not be 
achievable until approximately 2015. 
 
--Labor and human capital development:  The researchers emphasized 
the need for civil service reform, vocational education, and 
programs that would facilitate the return of skilled professionals. 
 
 
DHANANI