This record is a partial extract of the original cable. The full text of the original cable is not available.
191217Z Feb 04
UNCLAS HARARE 000296
SIPDIS
STATE FOR AF/S AND AF/EX
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER
USDOC FOR AMANDA HILLIGAS
TREASURY FOR OREN WYCHE-SHAW
PASS USTR FLORIZELLE LISER
STATE PASS USAID FOR MARJORIE COPSON
E. O. 12958: N/A
TAGS: ECON EINV ETRD ELAB PGOV ZI
SUBJECT: Inflationary Pressures Not Abating
1. Summary: Zimbabwe's year-to-year inflation rate has
reached 623 percent. Higher duty on many imports and a
weakening zimdollar ensure that inflation will remain
high. End Summary.
Higher duties
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2. The GOZ has raised duty on many imports, in particular
on cars. Customs officials now appraise imports by
converting at the Reserve Bank of Zimbabwe's (RBZ)
auction rate (currently about Z$4,000:US$) rather than
the official rate (Z$824:US$). However, the GOZ has
attempted to soften the blow on transport by reducing
duty collected from 40 to under 5 percent. Due to
confusion over the new duty, fuel temporarily disappeared
from the stations over the past few days.
Auction, street rates heading up
---------------------------------
3. At the same time, importers will have to pay more for
forex. Both auction and parallel rates seem to be
devaluing by about 10 percent/week. The RBZ appears to
have resigned itself to fact that the zimdollar will
steadily lose value while inflation remains high. Yet
the RBZ's auction system has drawn increasing criticism
from businesses. One inflamed importer told us the RBZ
has repeatedly rejected his firm's bids for large amounts
of forex, even when he was within the band for that day.
The company's bids often never show up in the official
stats.
Comment
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4. The GOZ is still acting too furtively and timidly to
boost exports, the only path to better economic
performance. By maintaining an artificially strong
zimdollar and exchanging one-quarter of export revenue at
the official rate, most exporters are not internationally
competitive enough to raise output. The RBZ will not
divulge its forex reserves, but it may soon no longer be
able to offer US$16 million/week at the auctions. If it
reduces the forex supply at twice-weekly auctions, the
zimdollar's value will collapse - very rapidly, in our
view.
5. Yet the GOZ continues to dig for that elusive forex
pony. It plays up the illegality of parallel market
dealing in the official press each day, hoping to scare
forex dealers into the auction system. It has erected a
new committee to coax Zimbabweans abroad to use the
auction system for their transfers to relatives.
However, the GOZ still does not appreciate that it
matters little whether forex makes its way into Zimbabwe
through official or unofficial channels: Zimbabweans
will find forex scarcer (in nominal terms) so long as the
country exports less (and attracts fewer tourists).
Sullivan