VZCZCXRO9855
OO RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSB #0820/01 2871328
ZNR UUUUU ZZH
O 141328Z OCT 09
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5014
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHAR/AMEMBASSY ACCRA 3084
RUEHDS/AMEMBASSY ADDIS ABABA 3196
RUEHRL/AMEMBASSY BERLIN 1625
RUEHBY/AMEMBASSY CANBERRA 2459
RUEHDK/AMEMBASSY DAKAR 2828
RUEHKM/AMEMBASSY KAMPALA 3244
RUEHNR/AMEMBASSY NAIROBI 5691
RUEAIIA/CIA WASHDC
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RHMFISS/EUCOM POLAD VAIHINGEN GE
RHEFDIA/DIA WASHDC
RUEHGV/USMISSION GENEVA 2378
RHEHAAA/NSC WASHDC

UNCLAS SECTION 01 OF 03 HARARE 000820 
 
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 
NSC FOR MICHELLE GAVIN 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV EAID ZI
SUBJECT: IMF REPORTS PROGRESS AND PROBLEMS FOR ZIM 
MACROECONOMY 
 
¶1. (SBU) SUMMARY: During an October 13 briefing for OECD 
Ambassadors in Harare, IMF Mission Chief Vitaly Kramenko 
reported that progress in budgetary execution was 
encouraging, but that problems remained, including concerns 
about the Reserve Bank of Zimbabwe (RBZ), wages and rule of 
law.  He said the IMF would not pursue a staff monitored 
program unless donors were committed to providing a debt 
treatment for Zimbabwe.  The EU reported its dialog with the 
GOZ was stalled and the World Bank had no progress to report 
on the programmatic Multi Donor Trust Fund (MDTF).  Apart 
from the Ministry of Finance, there are few bright spots on 
the economic horizon.  END SUMMARY. 
 
----------------- 
IMF SEES PROGRESS 
----------------- 
 
¶2. (SBU) An IMF team led by Vitaly Kramenko provided an 
in-brief to OECD Heads of Mission on October 13; the team 
expressed willingness to provide an outbrief on October 26, 
perhaps to include a teleconference with the like-minded 
donor meeting in Berlin.  They reported that the Finance 
Ministry had maintained close contact with the IMF since the 
team's last Mission in March, and they thought they had a 
solid understanding of fiscal developments.  On that basis, 
they believed that Zimbabwe had made significant progress. 
The multi-currency system was generally working, and the IMF 
stood ready to provide advice on how the GOZ might adapt it 
upon selecting an anchor currency.  Cash budgeting was 
successful, and the Zimbabwe Revenue Authority (ZIMRA) was 
doing well, following implementation in the revised budget of 
IMF recommendations on tax policy.  Service delivery, though 
still far from optimal, had improved, with schools and 
hospitals open. 
 
----------------------- 
BUT ALSO MAJOR CONCERNS 
----------------------- 
 
¶3. (SBU) Despite this progress, the IMF saw three major 
problems threatening economic recovery in Zimbabwe.  First, 
Kramenko said that the IMF had received no data since March 
from the RBZ, and had concerns relating to the Bank.  There 
was no solid foundation for improved RBZ governance; the 
Reserve Bank Act did not follow the IMF's recommendations, 
and the IMF believed that Biti had been forced to make 
significant concessions as the Act progressed through the 
Cabinet.  As it stands, the Act does not establish an 
institutional setting with appropriate checks and balances, 
but instead relies on personalities.  Kramenko said the 
payment system was just starting to operate in the 
multicurrency environment, and lack of confidence in Governor 
Gono created vulnerabilities.  A rumor recently circulated 
among members of the donor community that Gono had 
misappropriated commercial banks' statutory reserves lodged 
at the RBZ.  Kramenko noted that the IMF had no evidence that 
the RBZ was holding counterpart funds and thus the rumor 
could be true.  If reserves proved unavailable when required, 
confidence would be destroyed and economic recovery would 
Qsuffer a severe setback.  (NOTE: Local bankers, who have a 
strong vested interest in the matter, have told Econoff they 
are confident the RBZ has not misused their reserves.  END 
NOTE.) 
 
¶4. (SBU) Kramenko also expressed concern about civil service 
wage increases.  He said they threatened the economic 
recovery in two respects.  First, they undermined private 
sector competitiveness.  Without a national currency, 
devaluation to restore competitiveness is not an option, so 
 
HARARE 00000820  002 OF 003 
 
 
this effect will endure.  Second, they eliminated fiscal 
space for infrastructure investment.  This ultimately 
undermines both service delivery and competitiveness. 
 
¶5. (SBU) The IMF's third issue of concern was rule of law and 
property rights.  Kramenko noted that continuing farm 
invasions had a clear effect on investment climate, 
especially for agriculture.  In addition, uncertainty about 
implementation of indigenization requirements affected other 
sectors, including the mining sector. 
 
--------------------------- 
NEXT STEP DEPENDS ON DONORS 
--------------------------- 
 
¶6. (SBU) Kramenko told the Heads of Mission that the IMF 
would not move forward to establish a staff monitored program 
(SMP) for Zimbabwe in the absence of donor commitment to 
support a debt treatment.  While there was no guarantee an 
SMP would succeeed in any case, there was no point in 
implementing one without an incentive for good performance. 
 
------------------------------------- 
EU, WORLD BANK REPORT ON DEVELOPMENTS 
------------------------------------- 
 
¶7. (SBU) The Swedish Ambassador told the group that the GOZ - 
EU dialog (which has the potential to restore GOZ access to 
direct EU financial support) is languishing.  The GOZ has 
assigned negotiating responsibility to a team of six 
permanent secretaries.  The permanent secretaries are long 
time functionaries with reactionary habits and likely ZANU-PF 
sympathies.  They appear to have neither the inclination nor 
the authority to engage in serious discussions about rule of 
law and protection of property rights.  The EU has told Prime 
Minister Tsvangirai and MDC-M Minister of Regional 
Integration and International Cooperation 
Misihairabwi-Mushonga that the effort is stalled, and is 
waiting to see if they do something about it. 
 
¶8. (SBU) World Bank representative Mungai Lenneiye reported 
on the programmatic MDTF.  (NOTE: The analytical MDTF, to 
which the USG provided a contribution, is operational.  END 
NOTE.)  He said the Bank board had approved the MDTF and 
authorized $1 million, but donors had not yet contributed 
because they remained concerned about the administrative 
rules for operation of the MDTF.  The Bank thought that the 
MDTF Operational Manual should include the possibility of 
direct funding to government in the future, even though for 
the time being concerns about public sector financial 
management precluded budget support.  Donors disagreed.  A 
visiting World Bank infrastructure expert from Mozambique 
chimed in to lecture donors about the wisdom of following the 
World Bank lead on such matters, noting that the Bank had the 
highest fiduciary standards and would never make a misstep 
since it had to answer to its Board. 
 
¶9. (SBU) Donors also briefed the IMF team on the pending 
civil service and land audits.  The civil service audit was 
stalled because the GOZ refused to include the security 
services.  The land audit was similarly stalled because of 
Qservices.  The land audit was similarly stalled because of 
GOZ restrictions on scope.  In both cases, funding was 
available. 
 
¶10. (SBU) COMMENT: Biti's relative success at the Ministry of 
Finance remains an isolated, if important, development. 
Zimbabwe's economic stabilization is laudable, but progress 
from stabilization to recovery will remain glacial until 
decision-makers exercise the political will to move forward 
 
HARARE 00000820  003 OF 003 
 
 
on rule of law and protection of property rights.  It remains 
evident that RBZ Governor Gono has the ability to undermine 
confidence singlehandedly, and his further marginalization, 
if not removal, is much to be desired.  END COMMENT. 
 
PETTERSON