In a classified cable titled IMF TEAM LEADER DECLARES ECONOMY DIRE; GONO “WORLD’S WORST CENTRAL BANKER — BY FAR”, IMF Article IV Mission Chief Sharmini Coorey told US Embassy Charge d’Affaires Eric Schultz that the government’s penchant to resort to printing to cover the financial deficit was fuelling inflation.
The two met on December 15 2006 where Coorey briefed the US Embassy on Zimbabwe’s economic collapse, which she described as the worst ever and one not caused by war or natural disaster. Coorey said the pressure on the Reserve Bank of Zimbabwe (RBZ) would be to print ever more currency to extract an inflation tax-seignorage from the ever smaller amount of the monetary base held in the formal sector.
“Because of this gross economic mismanagement, Coorey termed Gono the world’s worst central banker by far,” the cable said.
Coorey told Schultz, Gono was known in IMF circles as the only central banker in the world who liked to print money. “The IMF team had attempted to explain the risks of ballooning central bank debt to Gono, but Coorey said he appeared indifferent to the risks, much less the solutions,” the cable said. “She noted that Gono seemed to see his role as more of a development banker, who could fix problems piecemeal, garnering goodwill by handing out money at a whim to increase his personal standing.”
Gono has in the past defended his quasi-fiscal activities saying it was a response to an extraordinary situation.
The quasi-fiscal activities were only stopped in the amended RBZ legislation which removed a clause which directed the central bank to meet critical nation needs such as funding agriculture and financing elections.
In the old Act, the Ministry of Finance would write a letter to RBZ instructing the institutions to make funds available for national projects. In a comment following the meeting, Schultz wrote that “Coorey’s report to the board seems unlikely to pull any punches and should, as she suggested, strengthen our hand in arguing for conditions to be attached to restoration of voting rights.”
“It may only be symbolic, but symbols matter in this context, especially given Mugabe’s (President Robert Mugabe) apparent intention to extend his term in office and Gono’s rise to political prominence in his own right,” the cable said.