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Cablegate: Finance Minister Wants Slow Exchange Adjustment

Published: Wed 7 Apr 2004 01:34 PM
This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 02 HARARE 000600
SIPDIS
SENSITIVE
STATE FOR AF/S
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 EAID BTIO EINV PGOV ZI
SUBJECT: Finance Minister Wants Slow Exchange Adjustment
1. (SBU) Summary: Finance Minister Chris Kuruneri
expressed satisfaction with recent International Monetary
Fund (IMF) Article IV consultations. However, he said
the GOZ prefers a more gradual approach for rationalizing
its overvalued currency and phasing out its hefty tax on
exporters than the IMF delegation prescribed. Kuruneri
also acknowledged a grain deficit larger than 100,000
metric tons and promised to stop the revenue authority
from trying to tax expatriates at U.S. NGOs. End
summary.
2. (SBU) Ambassador Sullivan, accompanied by the USAID
mission director and econoff, paid an April 7 courtesy
call on the newly appointed finance minister. Kuruneri
said he welcomed the visit and wanted better relations
with the U.S. He thanked the Ambassador for food and HIV
assistance, and hailed traditional U.S. support for
agriculture through, for example, the Wisconsin Land
Tenure Center.
Kuruneri characterizes IMF concerns
-----------------------------------
3. (SBU) Openly apprehensive about a pending IMF verdict
in July, the Finance Minister cited numerous issues
arising from consultations:
- Market-Driven Exchange Rates. Kuruneri said he accepted
the IMF prescription for converging auction and parallel
rates, but wanted to move more gradually than the IMF
suggested. He considers the effect on exporters of the
official Z$824:US$ rate less severe than the IMF.
However, he reiterated that Reserve Bank (RBZ) Governor
Gideon Gono will address exchange rate concerns in a
follow-up policy statement, now postponed until late
April.
- Arrears Payments. Kuruneri restated the GOZ's intent
to remit US$1.5 million per quarter toward its IMF
arrears (currently US$290 million). The GOZ has
restarted, then curtailed, these payments several times
since 2001.
- Sub-market Lending Rates. He agreed with the IMF that
a sub-market 30 percent lending rate for the productive
sector (heavily negative in real terms) was fueling
speculation. Kuruneri stressed that the GOZ will soon
cap the loan facility, turning it into a revolving fund.
Rates will eventually move toward the market.
- Parastatal Support. Acknowledging that the Grain
Marketing Board (GMB), National Oil Company of Zimbabwe
(NOCZIM) and other parastatals are major budget drains,
the Finance Minister concurred with the IMF
recommendation that State-owned firms rationalize pricing
as soon as possible. The 2004 budget called for similar
measures.
Land Reform, Taxation of NGO Expats
-----------------------------------
4. (SBU) In addition, Kuruneri admitted:
- The GOZ made mistakes in redistributing land. Himself
a land-reform beneficiary, Kuruneri predicted
optimistically that 2004/05 yields could equal those of
the late-1990s.
- The country's food deficit will exceed those of recent
GOZ estimates. He said he would urge the Ministers of
Agriculture and Labor/Social Welfare to speed up an
appeal to the donor community.
- The revenue authority (ZimRA) had no right to tax
expatriates working for U.S. NGOs. He promised to speak
with ZimRA officials.
Comment
-------
5. (SBU) Despite ongoing embezzlement accusations against
Kuruneri, the new minister clearly comes down on the
moderate side of the GOZ. He is more outspoken than his
predecessor, Herbert Murerwa, but remains overshadowed by
flamboyant RBZ Governor Gono. At the same time, Kuruneri
shares the same logic-chopping biases of other ZANU-PF
stalwarts. He understates the devastating effect on
exporters of the overvalued zimdollar and overstates the
potential for a near-term agricultural rebound. On the
whole, however, he is probably among the more reasonable
cabinet ministers.
Sullivan
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