IMF provides $510m loan for Zimbabwe amid worries that Mugabe party will grab funds
• Move is another step in country's rehabilitation• MDC fears cash may be diverted to Zanu-PF
Zimbabwe's crippled economy received a boost when the IMF sanctioned a $510m (£311m) loan, its first to the country in a decade.
But the move stirred conflict between the partners in Zimbabwe's unity government amid fears it would used to shore up President Robert Mugabe's regime.
Gideon Gono, Zimbabwe's reserve bank governor, said the IMF had paid it $400m via a fund for developing countries hit by the global recession, with a further $110m to follow next week.
"I can confirm that the Reserve Bank of Zimbabwe did receive the funds," Gono told the state-owned Herald newspaper, adding that he and the finance minister, Tendai Biti, would discuss how to deploy the funds.
The money will be used to replenish Zimbabwe's dwindling foreign currency reserves and has been released on condition it is not diverted to other projects.
Political leaders hailed the decision as a sign that Zimbabwe's unity government is ending the country's spell in the international wilderness.
The IMF wound down its programme there 10 years ago and formally withdrew in 2002, adopting a "declaration of noncooperation" with Mugabe's government.
Eddie Cross, an economist and policy co-ordinator for the Movement for Democratic Change (MDC), said: "This is the first significant IMF involvement with Zimbabwe for more than a decade.
"The magnitude is very substantial, about half our total budget this year. It's a very large contribution."
But the MDC opposed Gono's appointment at the reserve bank and will be anxious to ensure he does not control the funds in case they are directed to the coffers of Mugabe's Zanu-PF party instead of the impoverished population.
"Gono is part of the reactionary elements fighting the unity government," said Cross. "He's been the principal culprit for the meltdown of the economy. We've been successful in … circumventing him and that's what we'll do with this money.
"It will be controlled very carefully, otherwise it will be used and abused and find its way to all sorts of nefarious activities and corrupt institutions."
Another MDC source added: "Gono has tried to take the money but Biti is trying to take charge." The source added that Zimbabwe may be unable to draw down the funds until it has shown it can repay a debt of $5.7bn to various creditors. "The funds will come but it will be in the context of Zimbabwe having committed to clearing these debts," he said.
The IMF told Zimbabwe two weeks ago, in a letter obtained by Reuters, that it would not receive the $510m until it repaid arrears of $142.2m. In a letter to Biti, the IMF's acting director for the African Department, Mark Plant, said countries with arrears would not receive aid until they had cleared them.
"Thus, although Zimbabwe is eligible to receive the SDR (Special Drawing Rights) under the general allocation, it will not receive its share under the special allocation ... until its arrears have been cleared."
G20 leaders agreed in April to treble to $750bn the IMF's capacity to help struggling economies. According to the IMF's website, all 186 members were eligible to receive the money from 28 August in proportion to their existing quotas with the fund.
Zimbabwe has suffered a decade of economic meltdown and record hyperinflation, worsened by the withdrawal of western aid over policy differences with Mugabe's previous administration, before he formed the unity government this year with rival Morgan Tsvangirai.
Western donors have demanded broad political and economic reforms before giving direct aid to the government. Donors currently provide only humanitarian aid. Dominique Davoux, the EU's head of economic co-operation and food security in Zimbabwe, told a business conference in Harare this week that efforts to restore ties were being made.
"Zimbabwe's international relations are on the mend, with bilateral and multilateral re-engagement efforts taking centre stage, starting with the prime minister's visit to Brussels in June," Davoux said. "It's moving very slowly and we want it speeded up to deal with areas of concern on both sides."
Davoux said any possible financial assistance to the unity government -which says it requires about $10bn to rebuild the economy – depended on successful negotiations.