SOUTH AFRICA-ZIMBABWE: Bailout talks to resume soon

[ This report does not necessarily reflect the views of the United Nations]

JOHANNESBURG, 28 Sep 2005 (IRIN) - Zimbabwean and South African officials are to meet in the next two weeks for further talks on the possibility of loan assistance, a government spokesman confirmed on Wednesday.

"Talks have been continuing, but the two sides have not met recently," South African treasury spokesman Logan Wort told IRIN.

The countries have been negotiating an aid package worth almost US $500 million, including an outstanding payment of $175 million to the International Monetary Fund (IMF) to prevent Zimbabwe's expulsion from the international financial institution.

But talks had stalled over Zimbabwe's reluctance to enforce political and economic recovery plans - conditions set by the South Africans for providing the financial assistance. "The conditions still stand, whenever talks resume," said South African government sources.

In late August the IMF began procedures to strip Zimbabwe of its membership over arrears to the tune of $295 million and failure to rein in public spending. However, earlier this month Zimbabwe managed to make a payment of $131 million to the IMF, which granted the troubled southern African country a six-month reprieve.

Zimbabwe has promised to settle its arrears, currently totalling $175 million, by November 2006. It has also submitted an economic recovery plan to the IMF.

South African government sources described Zimbabwe's recovery programme as "unrealistic" and said the IMF was "unlikely" to accept it.

The IMF has already commented on some of the economic reform measures taken by the Zimbabwean government in recent months, such as liberalisation of the fuel and maize markets, saying they "fell well short of what is needed to address Zimbabwe's economic difficulties."

The Fund warned that "unless strong macroeconomic policies are undertaken without delay, economic and social conditions could deteriorate further". Unemployment is currently over 70 percent and inflation is more than 265 percent.

Meanwhile, controversy has erupted over the source of Zimbabwe's initial $131 million payment to the IMF. At a press conference on the regional outlook for sub-Saharan Africa last week in Washington, an IMF official said they had queried the source of the funding.

Reserve Bank of Zimbabwe Governor Gideon Gono revealed that the money paid to the IMF came from banks in New York and London, among others, and the funds had been sourced from export proceeds, free funds and foreign currency liquidations, according to the official newspaper, The Herald, on Tuesday.

Zimbabwe is going through a severe economic crisis, with serious food shortages due to recurring droughts and the government's fast-track land redistribution programme, which disrupted agricultural production and slashed export earnings.

The crisis has also seen a flood of Zimbabweans illegally crossing the border into South Africa. According to the Geneva-based International Organisation for Migration, at least 2,000 Zimbabweans are deported from South Africa via the border town of Beitbridge every week.

South African government sources confirmed that Zimbabwe was in urgent need of assistance, such as food and agricultural inputs. "We are extremely concerned about the food situation," said a government official.

A vulnerability assessment conducted by the Zimbabwean government and some NGOs earlier this year indicated that 2.9 million people - an estimated 36 percent of the rural population - would require food aid until the next harvest in April 2006. Aid agencies have planned for over four million in need.

Sources in South Africa's ruling African National Congress (ANC) party said talks with the neighbouring country had been disrupted by "political interference".

"While the Reserve Bank of Zimbabwe and other technocrats realise that our assistance is critical, the political leadership in Zimbabwe is suspicious of South Africa's intentions," commented a senior ANC official.

[ENDS]