Movement for Democratic Change economic spokesman Tapiwa Mashakada trashed central bank governor Gideon Gono’s currency conversion which he had dubbed “Zeros to Heroes” saying that President Robert Mugabe was the only zero that had to go.
Gono had given the country 21 days to get rid of all the old bearer’s cheques in a move that was aimed at curbing rampant speculative behaviour because there was too much cash in the open market.
Business condemned the move, which was viewed as a sign of desperation, as it had thrown confusion into the market resulting in some companies stopping trading all together.
Full cable:
Viewing cable 06HARARE1010, CURRENCY CHANGEOVER SPARKS CONFUSION
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Reference ID |
Created |
Released |
Classification |
Origin |
VZCZCXRO7996
RR RUEHMR RUEHRN
DE RUEHSB #1010/01 2231313
ZNY CCCCC ZZH
R 111313Z AUG 06
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC 0479
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHUJA/AMEMBASSY ABUJA 1297
RUEHAR/AMEMBASSY ACCRA 1145
RUEHDS/AMEMBASSY ADDIS ABABA 1301
RUEHRL/AMEMBASSY BERLIN 0062
RUEHBY/AMEMBASSY CANBERRA 0562
RUEHDK/AMEMBASSY DAKAR 0927
RUEHKM/AMEMBASSY KAMPALA 1355
RUEHNR/AMEMBASSY NAIROBI 3729
RUEHFR/AMEMBASSY PARIS 1124
RUEHRO/AMEMBASSY ROME 1766
RUEKJCS/JOINT STAFF WASHDC
RUFGNOA/HQ USEUCOM VAIHINGEN GE
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK
RUEKDIA/DIA WASHDC
RHEHNSC/NSC WASHDC
RUEHBS/USEU BRUSSELS
RUCNDT/USMISSION USUN NEW YORK 1512
C O N F I D E N T I A L SECTION 01 OF 04 HARARE 001010
SIPDIS
SIPDIS
AF/S FOR H.SERVIN-BAEZ
SENIOR AFRICA DIRECTOR C. COURVILLE
STATE PASS TO USAID FOR M. COPSON AND E.LOKEN
TREASURY FOR J. RALYEA AND B. CUSHMAN
COMMERCE FOR B. ERKUL
E.O. 12958: DECL: 08/11/2015
TAGS: ASEC ECON PGOV PHUM PREL ZI
SUBJECT: CURRENCY CHANGEOVER SPARKS CONFUSION
REF: REFTEL: HARARE 970
Classified By: Ambassador Christopher Dell for reasons 1.5 b/d
——-
Summary
——-
¶1. (C) With five business days remaining until the currency
conversion deadline of August 21, business contacts tell us
the country is woefully unprepared for the expiration of the
old bearer checks. Most businesses have suspended or
significantly reduced sales, chiefly of imports, rather than
deal with the confusion of operating in two currency schemes.
The new checks are increasingly common in Harare, but
transactions in the old checks still dominate and the
dissemination of information regarding the redenomination to
the rural areas appears weak. Meanwhile, the police and
youth militias continue to seize large sums of cash at border
point and roadblock, although several contacts say the number
is probably exaggerated for political reasons. Against this
massive confusion, those with cash have stocked up on basic
necessities and flocked to secure assets, such as the stock
market, hard currency, and durable goods. The political
opposition has voiced concerns over the conversion, but has
otherwise not tapped into the conversion as issue to attack
the GOZ on. Anger is building as people realize that their
cash holdings are soon to be worthless, but the heavy police
and youth militia presence nationwide suggests that GOZ
remains ready to clamp down at the first signs of unrest.
End Summary.
—————————————
Redenomination Leaves Business Whizzing
—————————————
¶2. (SBU) Zimbabwean businesses have done little to prepare
for the bearer check switch announced by Reserve Bank
Governor Gono on July 31 (reftel), according to Olivine
managing director Ian MacKenzie. For example, insurance
broker Grant Gore told poloff on August 10 that his company
had yet to pay the US$2,000 necessary to purchase and install
new accounting software to manage the transition. For its
part, MacKenzie told econoff on August 3 that Olivine
suspended all sales for about five days immediately after the
July 31 statement to convert its bookkeeping system. Meikles
Africa director of retail Dave Mills told econoff on August
11 that the retail association had appealed to the Reserve
Bank to extend the conversion period.
¶3. (SBU) Those businesses that have remained open have
significantly reduced sales of imported goods, according to
several contacts and observations from Embassy staff around
Harare. Commercial Farmers’ Union President Doug
Taylor-Freeme told econoff on August 10 that businesses had
cut back on sales of high-value items, like generators,
especially because the replacement costs were too high in
this time of currency uncertainty. Mills said that its TM
supermarket chain, while adhering to the GOZ,s price freeze,
had taken imported food and beverages off the shelf rather
than face the run on these products. Fuel also has become
especially scarce as traders withhold stock in anticipation
of a massive depreciation of the currency on the parallel
market. Mills predicted that inflation will shoot up on
August 22 as merchants return goods to the shelves and the
Reserve Bank’s price freeze ends.
HARARE 00001010 002 OF 004
—————————-
Spread of New Checks Limited
—————————-
¶4. (SBU) The revalued bearer checks have become increasingly
common in Harare over the past few days, but payment in the
old checks is still the norm and most of the city’s ATMs
still disburse the old money. Nonetheless, the Embassy’s
economic assistant visited several banks in downtown Harare
on August 10, where bank managers said they had sufficient
stocks of the new checks. Meikles retail director Dave Mills
told econoff on August 11 that his stores were seeing only 13
percent of sales in the new currency. MacKenzie said that he
anticipated chaos at 4pm on August 21 when the banks close to
the public. Mills also predicted &agitation,8 particularly
at the interface of banks and supermarkets with the public.
¶5. (SBU) Economic analyst John Robertson on August 10 told
econoff that Zimbabwe’s rural areas would be hardest hit by
the conversion. The rural areas hold a large proportion of
the country’s cash as farmers attempt to smooth out revenue
earned from crop sales over an entire year’s worth of
purchases. Particularly at this time of year, the
cotton-growing communal areas are awash in cash, according to
Mills. Moreover, most rural households are located too far
from banks to make the conversion feasible. Suggesting that
massive sums of cash could be wiped out overnight in the
rural areas, Roberston said that this could be the worst own
goal ever scored by ZANU-PF. Elaborating on this point,
economic professor Tony Hawkins told econoff on August 8 that
Gono, his former student, “had gone crazy”.
——————
A License To Steal
——————
¶6. (SBU) Police, the revenue authority, and the youth
militia have stepped up the number of roadblocks and border
checks following Gono’s statement and continue to seize cash
holdings arbitrarily deemed to be “excessive.” Contacts tell
us that police often do not issue receipts, leading many to
believe that they are pocketing the funds. Zimbabwe Lawyers
for Human Rights (ZLHR) has publicly condemned the seizures
as an illegal operation designed only to loot money from
unsuspecting travelers. The lawyers noted the use of ruling
party youth militias at the roadblocks represented serious
human rights abuses, such as forcing women to strip naked and
be subjected to indecent searches.
—————————
Hyping for Political Points
—————————
¶7. (SBU) Business contacts tell us, however, that the number
of arrests and money seizures is probably far less than the
figure trumpeted in the official press. The state-controlled
Herald on August 9 reported that some 3,199 individuals had
been arrested for contravening monetary regulations, netting
a total of Z$10.6 trillion (or US$42 million at the new
devalued official rate). Old Mutual managing director
Zomunoda Chizura told econoff on August 10 that the official
confiscation figure was impossible due to the sheer volume of
currency supposedly involved. Noting that few business
contacts had first hand knowledge of such arrests or
seizures, financial consultant Emma Fundira on August 8 told
poloff that the Reserve Bank was likely inflating the numbers
to demonstrate that its otherwise inept policy was working.
HARARE 00001010 003 OF 004
¶8. (SBU) There is also widespread speculation in Harare that
Reserve Bank Governor Gono is manipulating media coverage of
the conversion to enlarge his public role. Days after he
issued the monetary statement, state-controlled media gave
front-page coverage to his tour of downtown businesses to
explain the conversion. Meanwhile, rumors are circulating
that a fire at one of Gono’s maize farms on August 4 might
have been intentionally set to garner public sympathy for the
Reserve Bank Governor. Possibly adding credence to these
rumors, Taylor-Freeme tells us that fire in a maize field at
this time of year is not a problem as the husk protects the
cob; he even noted that some farmers intentionally burn the
field to ease harvesting.
———————
Fleeing to Safe Haven
———————
¶9. (SBU) Uncertainty over the issuance of new bearer checks
has prompted a rush to perceived saf investments, such as
consumable goods, durable oods that can be resold, and
stocks. Meikles, Mils noted that its supermarket sales
were &phenomnal, unprecedented,8 as consumers spent excess
csh. Visits to Harare stores, especially the week of the
statement, showed that consumers were buying an exceptionally
large amount of goods, presumably preferring to spend their
old money rather than convert it. Meanwhile, individuals
with cash holdings in excess of the proscribed deposit limits
appear to be purchasing luxury goods that will retain their
value once the conversion is complete. For instance, we have
heard from numerous contacts that one person recently
purchased ten luxury cars in cash.
¶10. (SBU) Stock trader Ndodana Mguquka on August 10 told
poloff that the Zimbabwe Stock Exchange (ZSE) had skyrocketed
since the statement, in part due to individuals looking to
reduce their cash holdings. Mguquka noted that the bull
market actually started a week before the statement and
suggested that it might have been caused by Gono’s associates
who had been tipped off. Meanwhile, Old Mutual’s Chizura
told econoff on August 10 that his company’s stock had surged
140 percent this month. Old Mutual stock, which is traded
both on the local and British markets, was especially
attractive to investors who can buy the stock in Zimbabwean
dollars and sell it, albeit with considerable administrative
hurdles, for hard currency on the London exchange. Chizura
calculated that the relative prices of the stock on both
markets implied an exchange rate of Z$1.33 million to the US$
(old denomination).
¶11. (SBU) The parallel exchange rate has also spiked due to
the uncertainty, however a police crackdown on forex
merchants and an apparent lack of cash has worked to arrest
the appreciation. The rate is roughly Z$650,000 to the US
dollar ) more or less in line with the price of one liter of
fuel. We have also heard from some sources that the new
bearer checks are trading at a slightly higher premium
against the US$.
————————–
Limited Political Response
————————–
¶12. (SBU) Both factions of the opposition MDC have publicly
condemned the bearer check conversion as a half-measure that
does not address the country’s fundamental political and
economic crisis. Spinning Gono’s “zeros to heros” rhetoric,
HARARE 00001010 004 OF 004
anti-Senate MDC economic spokesperson Tapiwa Mashakada issued
a statement on August 1 that Mugabe was the only zero that
had to go. There has yet to be any indication, however, that
the political opposition plans to seize on the conversion’s
potential to wipe out massive sums of wealth as a political
lever against the government.
——-
Comment
——-
¶13. (C) Large traders are probably moving deftly to protect
themselves, buying goods and stocks, and where need be
bribing RBZ officials. Business will almost certainly
survive the bearer check conversion, albeit at significant
expense and much headache. We would be quite surprised if
“special arrangements were not put in place to ensure that
the political elite were insulated from the fallout. Unhappy
with the lack of prior notice, many ZANU-PF insiders have
blamed Gono and the threats against him were growing in
volume until Mugabe himself spoke in the governor’s defense.
Coming against the background of already high tensions over
the Mugabe succession, and growing speculation about Gono’s
political ambitions, the currency conversion has the
potential to spark a rebellion within government ranks.
Mugabe and Gono are likely to anticipate this and conclude
that it is wiser to let party elites preserve their financial
assets then risk a real crisis. Should the intra-party
pressure become too much, Gono maintains the ability to
announce an extension of the conversion deadline, a move that
would no doubt be spun as a magnanimous move to help rural
farmers.
¶14. (C) Of greater concern, however, is the large number of
people who operate outside the formal banking sector. This
includes not only those in the rural areas ) the ruling
party’s heartland ) but also a significant share of the
urban population who have resorted to informal trading to
survive. This program, launched without prior consultation
and with insufficient time, will almost certainly erase a
significant amount of wealth from the country’s most
vulnerable. The political consequences are, however,
uncertain and will depend on how the opposition responds.
Much like last year’s Operation Restore Order, the opposition
has an opportunity to galvanize popular sentiment against
GOZ’s corrupt policies, but so far has failed to capitalize
on the opportunity. We agree with Robertson that this could
be the greatest own goal scored by ZANU-PF, but the
opposition must act first. The GOZ appears to be putting a
two-fold strategy in place in anticipation of a popular
reaction. First, it has launched a major, and so far
successful, propaganda campaign to convince ordinary
Zimbabweans that “zeros to heroes” has begun to lower prices
and squelch inflation. It may be some time before the less
sophisticated public sees through the government’s claims and
realizes that inflation continues to soar. Second, the GOZ
appears to have its security forces on high alert in order to
stamp out any signs of protest. Given the lack of a clear
lead from the political opposition and the known passivity of
the populace, there is a very good chance Gono will win his
gamble, at least in the near-term. Over the longer-term,
however, this could well prove to have been yet another
milestone in Zimbabwe’s economic collapse and the eventual
political fallout from it.
DELL
(23 VIEWS)
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