INDEPENDENT NEWS

Cablegate: A New Official Exchange Rate?

Published: Mon 27 Jan 2003 02:49 PM
This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS HARARE 000179
SIPDIS
SENSITIVE
STATE FOR AF/S AND AF/EX
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER
USDOC FOR 2037 DIEMOND
PASS USTR ROSA WHITAKER
TREASURY FOR ED BARBER AND C WILKINSON
USAID FOR MARJORIE COPSON
E. O. 12958: N/A
TAGS: ETRD EFIN ECON ZI
SUBJECT: A new official exchange rate?
1. (U) Summary: Several industry contacts tell us they
believe the Government might adopt a Z$750-800:US$1
exchange rate for exporters and perhaps others. Such a
move would slow but not arrest Zimbabwe's economic
decline. End Summary.
2. (SBU) The most authoritative word comes from Chamber
of Mines CEO David Murangari, who has led several mining
negotiations with Finance Minister Herbert Murerwa. The
Finance Minister has apparently assured besieged miners
that their message has gotten through to President
Mugabe. Mining companies say they can only stay in
operation if allowed to retain more foreign exchange
earnings. Under current regulations, they turn over most
export revenue to the GOZ for exchange at the official
rate of Z$ 55:US$1, netting only about 3 percent in
market terms. Murangari believes the GOZ will grant
exporters a new Z$750-800:US$1 exchange rate (they've
been lobbying for Z$1300:US$1), enough for them to
continue producing. This is a blend rate that
approximates the GOZ's policy of exchanging half of
revenue at the official rate and half at the parallel
rate, currently about Z$1500:US$1. The GOZ has made it
difficult for companies to access the second 50 percent,
so the new arrangement would afford a more predictable
process.
Comment
-------
3. (SBU) This is potentially welcome news, especially if
the devaluation also applies to importers, since it may
signal that the GOZ is getting over its ideological
squeamishness over devaluation. However, we fear that
Finance Minister Murerwa speaks with little real
authority on these matters; other advisers, distrustful
of private sector motives or profiting from their own
rent-seeking schemes, will vet the proposal as well.
Second, it will only slow the decline of Zimbabwe's
mining sector if the parallel rate remains out of sync
with the official rate. Consider the country's gold
production:
1999 - 28 tons
2000 - 22
2001 - 18
2002 - 15
In that period, Zimbabwe slipped from third to sixth in
Sub-Saharan rankings, behind even Burkina Faso. This is
especially unfortunate for a country in a forex crunch,
with a highly developed infrastructure and easily capable
of 40 tons/year. If the parallel rate remains
Z$1500:US$1 and Zimbabwean miners operate at ZS750:$1,
they earn less than their counterparts in other
countries, a huge production disincentive. If the
exchange rate worsens to Z$2000-2500:US$1, the artificial
rate of Z$750:US$1 provides scant relief. Only by
recognizing and exploiting the market rate of Z$1500:US$1
can the GOZ guarantee a boost in exports and forex
inflows.
Sullivan
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