Lima Plan under threat

Source: Lima Plan under threat – The Zimbabwe Independent August 19, 2016

GOVERNMENT’S much-hyped debt arrears clearance strategy, the Lima Plan, which seeks to settle US$1,8 billion arrears to preferred international financial institutions (IFIs) to allow Zimbabwe to access US$2 billion in new funding, has come under threat — with some lobbyists already pronouncing it dead in the water — as authorities fight a fierce battle with a strong lobby against it.

By Bernard Mpofu

Since launching the plan in Lima, Peru, in October last year, government has been hectically promoting the strategy with powerful IFIs and Western governments, especially London, to pay off the arrears as soon as possible and access African Development Bank (AfDB) funding before the end of 2016.

Time is, however, running out for the debt-ridden Harare government to settle its US$1,8 billion arrears to access AfDB bridge financing for distressed countries like Somalia, Sudan and Zimbabwe.

Since Lima, government has taken the plan to Zambia, Rwanda, London and Paris, among other places, in a bid to broaden its buy-in and support.

British ambassador to Zimbabwe Catriona Laing is said to be supporting the Lima Plan, despite her recent disapproving remarks, warning if the current political unrest and crackdown continue the expected new money would not be coming.

IFI executives and diplomats familiar with the developments told the Zimbabwe Independent this week that while government was frantically pushing its strategy with the support from the International Monetary Fund (IMF), World Bank and AfDB as well as the British government, a strong lobby has been resisting the plan, fiercely campaigning against it behind-the-scenes.

The lobby, it has been established, includes influential diplomats, politicians, civic society leaders and thinkers, who argue funding President Robert Mugabe’s regime at such a critical moment when it is facing unsustainable fiscal pressure, coupled with rising social discontent and unrest, while almost on its knees, would be a great betrayal of the broad pro-democracy movement and those fighting for change in Zimbabwe to end a 15-year political stalemate and attendant economic ravages.

The lobbyists — led by former Finance minister Tendai Biti, who is opposing his successor Patrick Chinamasa and Reserve Bank governor John Mangudya’s plans — say they remain gravely concerned about the economic and political situation in Zimbabwe, including human rights issues, and consequently there should be no policy shift towards Harare from the international community.

They say financial restrictions and other measures imposed on Zimbabwe due to diplomatic and policy clashes as well as repeated elections theft and human rights abuses must remain for now to pressure Harare to reform.

The lobbyists also say it would be counterproductive for IFIs and the outside world to subsidise and revive Mugabe’s crumbling authoritarian rule at a time when the country is sliding back to brutal repression and economic chaos.

“The Zimbabwe government, after completing IMF reforms under the Third Review of the Staff-Monitored Programme (SMP), wants to settle its arrears and get new funding to revive the economy, particularly ahead of the 2018 elections. That will help Mugabe and the ruling party. Of course, people will benefit in the process, but the idea is to help out Mugabe so that he can win elections and possibly leave on a high,” a seasoned Western diplomat based in Harare told the Independent.

“Some Western governments, especially in Britain, and IFIs want to help Zimbabwe to get out of the woods as the IMF has been doing so that it can recover and pay its debts.

“The process does not start and end with the settlement of the US$1,8 billion arrears, but take into account the US$10,8 billion debt, investment and other opportunities for Zimbabweans and investors. Those who support it see political and/or economic benefits, depending on where one stands.”

However, the anti-Lima Plan lobby group is ferociously opposing the strategy to pour money into Zimbabwe without comprehensive political, economic and institutional reforms.

“The lobbyists are saying Mugabe maintains his hold on power, as a result of the flawed 2013 elections. The economy is failing, driven down not by mismanagement, bad policies and a serious liquidity crunch or cash crisis as well as massive company closures and job losses,” the diplomat said.

“Zimbabwe is now repeatedly facing major food security challenges, while civil and political liberties remain curtailed. Repression and outright violence have declined compared to previous years, but resurfaced recently during social protests with intense police brutality

“For instance, Pastor Evan Mawarire has been driven into exile, while the forced disappearance of journalist-cum-activist Itai Dzamara remains an issue.

“The civil service wage bill alone still consumes up an unsustainable over 80% of total expenditures, leaving very little in the budget to run government operations, fund capital expenditure or support investment in the country’s degraded infrastructure.

“The lobbyists are also saying the formal economy has shrunk to a small fraction of Zimbabwe’s citizens: unemployment estimates range as high as 90% or even higher.”

Another senior diplomat, who met the lobbyists, say despite Zimbabwe meeting reform commitments under the SMP, its economic crisis is deepening.

“The economy remains in trouble, with inadequate external inflows, lower commodity prices, struggling to be competitive with the US dollar appreciation, and the El-Niño-induced drought wreaking havoc.

“While authorities have committed to rationalise civil service, amending the Public Financial Management and Procurement Acts for Parliament and Cabinet approvals, respectively, and ridding the financial sector of problem banks and reduced non-performing loans, in the process garnering broad support for their reengagement strategy from creditors and development partners, in particular their plans to clear arrears to the IFIs, on the ground things are getting worse.”

The lobbyists also say Zimbabwe’s political and economic crisis is far deeper and grave to be resolved by merely throwing money at it. They say while money is needed to stimulate economic recovery and growth, giving new funding to a wasteful and corrupt government desperately looking for budgetary support instead of funds for capital projects would be like throwing money into a bottomless pit.

In October last year, the virtually broke Harare government approved an ambitious external arrears clearance strategy to pay off US$1,8 billion overdue to multilateral creditors by June 2016 – which it failed to do – in a bid to break its debt vicious cycle and secure at least US$2 billion in new funding to rescue a crumbling economy ravaged by recession, a liquidity crunch and deflation, among a plethora of other chronic problems.

To get new funding from the AfDB, Zimbabwe – classified as one of the vulnerable economies on the continent together with Sudan and Somalia— needs to clear its arrears first before the end of 2016 when the funds are still available.

Zimbabwe will also need US$896 million to repay arrears to a World Bank associate, the International Bank for Reconstruction and Development (IBRD).

In July Chinamasa was in London where he met British government officials and investors in a bid to promote the Lima Plan.

While Chinamasa was there, anti-Lima lobbyists escalated their campaign protesting the British government, IFIs and private financiers were colluding to revive Mugabe’s regime.

More protests over the issue will be held in London today.

This brought into the picture Lazard International which government has turned to for the US$896 million bridging loan to pay IBRD after Algeria, which had initially promised to give the amount, reneged under heavy diplomatic and markets pressure.

While Zimbabwe seems to have found an alternative in Lazard, the lobbyists have been manoeuvring to outflank the government. They have been pressurising Lazard chair Peter Mandelson, who secretly visited Harare and met Chinamasa in February, to stop funding Zimbabwe. Lazard has been working with Afreximbank to structure a funding deal for Zimbabwe.

It is said Biti and his lobby team has been to North America, Western Europe and Scandinavian countries to robustly engage on the issue. Biti’s recent trips to Washington, London and Oslo seem to have thrown the Lima Plan into disarray, threatening its survival.

British MP Kate Hoey is pushing to block Zimbabwe from accessing new funds without reforms. In a recent op-ed carried by online publications, the Vauxhall MP criticised her government for working with Mandelson in re-engaging with Harare.

“In February this year, he (Mandelson) popped into Zimbabwe and, with the help of our ambassador, Laing, held an unreported meeting with Mr Chinamasa. A few months later Mr Chinamasa was engaged in intense negotiations on a bailout with Lazard,” Hoey said.

“I wonder also why the Foreign and Commonwealth Office thought there was any value to Britain in Mandelson’s mission. He has no previous relationship with Zimbabwe that I can discover. Certainly he has never attended one meeting of the All-Party Parliamentary Group on Zimbabwe which I chair and in which has many members from the House of Lords.”

Laing could not be reached for comment.

Questions sent to the IMF resident representative were not replied to at the time of going to print. Biti could also not be reached for comment.