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Gono was central banker, Finance, and Trade Minister melded in one

New central bank governor Gideon Gono was to become central banker, Finance, and Trade minister melded in one after Finance Minister Herbert Murerwa surrendered all the power to him, according to United States ambassador to Zimbabwe Joseph Sullivan.

Sullivan was analysing Murerwa’s 2004 budget.

He said the “milk-toast” budget suggested that the Ministry of Finance was no longer a player in economic policymaking, “quite a tumble for a ministry once commandeered by forceful figures like Bernard Chidzero and Simba Makoni”.

He said the budget which projected an economic decline of 13.2 percent ensured that Zimbabwe remained the planet’s worst performing peacetime economy.

“The heat of battle has proven more than Herbert Murerwa, Zimbabwe’s timid finance minister, could bear. He gleefully ceded policymaking authority to incoming Reserve Bank Governor Gideon Gono, the economy’s new point man.”

 

Full cable:


Viewing cable 03HARARE2284, 2004 budget was nonevent

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Reference ID

Created

Released

Classification

Origin

03HARARE2284

2003-11-24 11:56

2011-08-30 01:44

UNCLASSIFIED

Embassy Harare

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

 

241156Z Nov 03

UNCLAS HARARE 002284

 

SIPDIS

 

STATE FOR AF/S

NSC FOR SENIOR AFRICA DIRECTOR JFRAZER

USDOC FOR 2037 DIEMOND

TREASURY FOR OREN WYCHE-SHAW

PASS USTR FLORIZELLE LISER

STATE PASS USAID FOR MARJORIE COPSON

 

E. O. 12958: N/A

TAGS: ECON EFIN EINV PGOV ZI

SUBJECT: 2004 budget was nonevent

 

 

1. Summary: Consider two dissonant facets of last

Thursday’s budget announcement-

 

a) The Robert Mugabe government projected this year’s

economic growth at minus-13.2 percent, ensuring Zimbabwe

remains the planet’s worst performing peacetime economy.

 

b) It proposed no significant new initiatives or policy

changes.

 

The budget, descriptive rather than prescriptive, wears

the insignia of entrenched bureaucratic paralysis.

Neither moderates nor hardliners were able to impose

their will on the process. The heat of battle has proven

more than Herbert Murerwa, Zimbabwe’s timid finance

minister, could bear. He gleefully ceded policymaking

authority to incoming Reserve Bank Governor Gideon Gono,

the economy’s new point man. End Summary.

 

Issues Skirted

————–

2. Most of the speech is too mundane to cite (even in an

economic reporting cable). The GOZ mostly adjusted

revenue for inflation, raising the tax brackets and most

smaller taxes about 10-fold, as well as converting a

sales to value-added tax. It might be more instructive

to look instead at the main issues the budget skirted:

 

– Devaluation. A low official currency rate, coupled

with mandatory exchange requirements, has crippled

Zimbabwe’s export sector. Moderates pressed

unsuccessfully for devaluation, or a reduction from 50

percent of earnings in the exchange requirement. The

budget did not mention devaluation and, worse still,

suggested the GOZ may introduce exchange controls in

export processing zones, a remaining bastion of

commercial vitality.

 

– Parallel Market Trading. Hardliners sought a more

aggressive clampdown on parallel market trading;

moderates wanted official approval for these

transactions. Official policy is contradictory. For

instance, the GOZ has agreed that oil companies can sell

fuel at an international market price, but may not

replenish stocks by converting earnings into forex. The

budget also insisted that energy, telecom, grain and

transport parastatals should charge “break-even prices”

for goods and services, but the only means for cost-

recovery would be parallel market pricing.   Although the

budget was otherwise silent on parallel market trading,

last Friday’s Herald – a hardliner mouthpiece – kept the

pressure up by arguing “when a nation starts pricing its

products and services on parallel market rates, that in

itself is a signal for disaster.”

 

– Land Reform. Hardliners wanted the GOZ to spend

heavily on resettled farms. The budget allocated only

Z$25 billion (US$4 million) toward inputs for small-scale

farmers, triggering a sharp denunciation from the same

Herald editorial.

 

– Interest Rates. Probably no other GOZ policy is more

responsible for runaway inflation than artificially low

lending rates, currently 400-percent negative.

Hardliners are adamant about keeping them down as a means

to spur productivity. Moderates argue that negative

rates have caused capital flight, speculative borrowing

and, most importantly, GOZ overspending.

 

Comment

——-

3. The milk-toast budget suggests the Finance Ministry is

no longer a player in GOZ economic policymaking, quite a

tumble for a ministry once commandeered by forceful

figures like Bernard Chidzero and Simba Makoni.

Regardless of official title, Gideon Gono is about to

become Central Banker, Finance and Trade Ministers melded

into one.

 

Sullivan

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