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Gono raided FCAs to pay IMF

Central bank governor Gideon Gono raided the foreign currency accounts of several companies to pay US$120 million in arrears to the International Monetary Fund to save the country from being expelled from the organisation.

Masvingo legislator Walter Mzembi said Gono had taken the action in consultation with President Robert Mugabe, but no one else knew about the deal.

The IMF had said Gono consulted Mugabe on even some of the smallest issues.

 

Full cable:


Viewing cable 05HARARE1269, CENTRAL BANK SWEEPS FOREX ACCOUNTS TO PAY IMF

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Reference ID

Created

Released

Classification

Origin

05HARARE1269

2005-09-08 15:49

2011-08-30 01:44

CONFIDENTIAL

Embassy Harare

This record is a partial extract of the original cable. The full text of the original cable is not available.

C O N F I D E N T I A L SECTION 01 OF 03 HARARE 001269

 

SIPDIS

 

AF/S FOR B. NEULING

STATE PASS USAID FOR M COPSON

NSC FOR SENIOR AFRICA DIRECTOR C. COURVILLE

TREASURY FOR J. RALYEA AND B. CUSHMAN

USDOC FOR ROBERT TELCHIN

 

E.O. 12958: DECL: 09/09/2015

TAGS: ECON EFIN PGOV ZI

SUBJECT: CENTRAL BANK SWEEPS FOREX ACCOUNTS TO PAY IMF

 

REF: A. STATE 158016

B. HARARE 1239

 

Classified By: Classified By: A/DCM Paul Weisenfeld for reasons 1.4 (b)

and (d)

 

1. (C) Summary. In yet another blow to investor confidence,

and a reflection of the depth to which monetary probity has

sunk, the Reserve Bank of Zimbabwe (RBZ) appears to have

raided private foreign currency accounts to help finance its

unexpectedly large recent arrears payment to the IMF. The

resident business community related systematic incidences of

coerced exchange of foreign currency account balances into

local currency at the official (highly undervalued) exchange

rate, ever-increasing administrative delays in the

disbursement of forex, and the RBZ,s own active

participation in the parallel currency market to raise hard

currency at any cost. End Summary.

 

2. (C) RBZ Governor Gono told the press on August 31 that

the combined arrears payment of US$129 million to the IMF,

World Bank and Africa Development bank was sourced from

exporters and free funds holders. Gono told the recent IMF

mission that part of the payment was sourced from the return

of flight capital, which he described as a positive response

to his tightening of monetary policy (ref B). He praised the

patriotism of exporters in assisting the RBZ to make foreign

currency available for urgent national needs.

 

3. (C) ZANU-PF MP and Chairman of the Parliamentary

Committee on Lands, Land Reform, Agriculture, and

Resettlement Walter Mzembi told econoffs on September 7 that

RZB Governor Gono explained to his committee on September 6

that he had taken a cocktail of measures, including emptying

FCAs (foreign currency accounts), to fund the GOZ,s recent

US$120 million arrears payment to the IMF. Mzembi suggested

Gono had taken the action based on consultation with

President Mugabe alone, and not in broader discussion with

the Cabinet, as some members of the Cabinet had shown

surprise at the step. Mzembi characterized the action as a

&bad move8 that would not restore confidence in Zimbabwe,s

investment climate.

 

4. (C) Numerous members of the business community recounted

tales of the RBZ,s recent sweep of FCAs. The Divisional

Marketing Manager of Meikles Africa Hotels, confirmed to

econoff on September 7 that the RBZ had converted the entire

Meikles, FCA holdings (amount unstated) to Zim dollars at

the official exchange rate (the official rate on September 6

was 1:24,520; parallel rate 1:47,500). She recounted Meikles

Regional Commercial Director Glenn Stutchbury,s assessment

of the action: &daylight robbery8. The Director of Archer

Clothing Manufacturers in Bulawayo told econoff that the

Meikles account had held US$45 million; Archer’s company had

not been affected. He also said he had heard of a safari

company that had lost US$150,000 from its FCA.

 

5 (C) The CEO of ZimPlats related to Econoff that Vice

President Mujuru had gathered heads of major mining companies

in mid-August to request foreign currency donations to fund

food purchases. Soon after, the GOZ had also approached

ZimPlats privately to seek a donation. ZimPlats did not

provide any funds, but, according to Sebborn, the RBZ

liquidated Rio Tinto,s FCA to the point that its operations

in Zimbabwe could come to a standstill. Sebborn believed the

GOZ was seeking funds from the mining companies to repay the

IMF.

 

6. (C) The Australian Embassy could not confirm the alleged

raid on Rio Tinto,s FCA, but was aware that the RBZ had

recently exchanged the US$2.5 million foreign currency

account balance of Zimpharm, a Harare-based manufacturer of

cosmetics, pharmaceuticals and personal-hygiene products, for

Zimbabwean currency at the official exchange rate. An

Australian diplomat recounted that the RBZ had provided his

embassy a Zimbabwean currency &bonus8 (amount unstated) to

top up the official exchange rate as an incentive to transfer

a large sum of hard currency as construction of a new embassy

begins.

 

————————

And in our Own Backyard(

————————

 

7 (C) Founder Jakachira, the financial officer of SafeGuard,

which provides security to all Embassy Harare buildings and

residences, related to Econoff that the RBZ withdrew

US$38,000 (nearly half the balance) from Safeguard,s FCA on

August 11, converted it at 19,000:1, and deposited it back

into a non-FCA account. SafeGuard has sought to access the

remaining foreign currency balance, but the RBZ has

repeatedly rejected the requests based on minor

administrative technicalities. Jakachira believed the RBZ

was waiting for the 21 day forex holding period to pass, when

it would simply confiscate the balance, alleging that the

company had not complied with regulations.

 

————————————

Working the Lag/Calling in the Forex

————————————

 

8. (C) An executive of the mining sector company GAT

Investments, was one of several businessmen who complained to

Embassy staff that the RBZ was failing to disburse funds

allocated at the twice-weekly auction. His company has not

yet received foreign currency allocated to it at the August 9

auction. (N.B. The auctions allocate Z$12.5 million twice a

week, of which Z$3-4 million go to the private sector while

the rest flows back to the Reserve Bank for urgent food and

fuel purchases, according local economist John Robertson.)

Embassy contacts also commented that the recently implemented

reduction in companies, holding period for foreign currency

from 30 to 21 days had generated a one-time peak in forex

inflow.

 

———————————

The RBZ Pumps the Parallel Market

———————————

 

9. (C) A Sales Executive at Western Union Money Transfer,

maintained to embassy staff that the RBZ had recently built

up foreign reserves by using agents abroad to buy forex

overseas at the parallel market rate from diaspora

Zimbabweans, who could use the favorably purchased local

currency to finance purchase or construction of property in

Zimbabwe.

 

10. (U) Finally, the Financial Gazette estimated in an

article today that USD-denominated gas sales were a way for

the RBZ to raise forex on the cheap.

 

——-

Comment

——-

 

(C) As noted in ref A, the source of Zimbabwe’s recent IMF

repayment does matter. Indeed, built on an unconsented sweep

of FCAs, the payment delivered a severe blow to the integrity

of Zimbabwe,s tenuous banking system. Made ostensibly to

impress the investor community, the payment to the IMF

ironically has shattered any semblance of investor confidence

left in the economy, and paralyzes the operations of the very

companies that have the potential to earn foreign currency.

It further represents an enormous opportunity cost in terms

of foregone imports of desperately needed food, fuel, and

inputs. Indeed, it remains to be fully understood why

Zimbabwe ever made such a large payment under these

circumstances when a much smaller payment would probably have

sufficed to stave off expulsion. What is clear is that this

government’s ruinous policies continue to dig the economy

into a deeper hole and fully support a recommendation of

expulsion from the IMF.

DELL

(19 VIEWS)

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