HARARE, (Reuters) – Zimbabwe is talking to the  United States and European Union about a possible repeal of  sanctions, according to an economic policy document, the first  sign the new government may be gaining the confidence of  Western powers.

But Washington rejected President Robert Mugabe’s call to  ease sanctions on the impoverished African country, saying the  government had “a long way to go” before this could happen, and  denied direct contacts with Zimbabwe about the matter.

The document released yesterday by the unity government  said political reforms demanded by Western donors were a  crucial part of an emergency recovery plan to ease  hyper-inflation and widespread shortages of food and fuel.

At the launch of the government’s Short-term Emergency  Recovery Program, Mugabe called for international help for the  plan and reiterated a call for sanctions to be lifted.

Washington said it needed to see clear signs of reform.

“We have not yet seen sufficient evidence from the  government of Zimbabwe that they are firmly and irrevocably on  a path to inclusive and effective governance as well as respect  for human rights and the rule of law,” U.S. State Department  spokesman Robert Wood told reporters.

“That government has a long way to go before we will  consider easing sanctions,” Wood added. “We are not in any kind  of discussion with the goverment of Zimbabwe on removing our  targetted sactions.”

The document released by the government forecast inflation  would fall to 10 percent by the end of 2009 — from over 230  million percent at last count — due to the use of foreign  currencies to replace the almost worthless Zimbabwe dollar.

The document said Zimbabwe has started talking to the U.S.,  EU, IMF and World Bank over the removal of sanctions.

“In this regard, discussions have already started with the  EU, European Commission, World Bank, IMF, and the (African  Development Bank) AfDB with the objective of removing the above  sanctions and measures … ,” the document said.

A U.S. official, who spoke on condition he not be named,  said the United States was in talks with “members of the  international community” about how it might help if Zimbabwe  made the necessary reforms but not with the government itself.

The government of Mugabe and Prime Minister Morgan  Tsvangirai faces the daunting task of rebuilding Zimbabwe’s  shattered economy after years of hyperinflation and decline.

While Western powers would prefer that Mugabe step down,  they have indicated they can help the country recover as long  as a democratic government is in place.

Western donors and foreign investors crucial to rebuilding  Zimbabwe want political and economic reforms, such as reversing  nationalization plans, before they will pour in cash.

“The key priority areas are … political and governance  issues, namely the constitution and the constitution-making  processes, the media and media reforms, legislation reforms  intended at strengthening governance and accountability and  (the) rule of law …,” said the document.

Much will depend on whether old foes Mugabe and Tsvangirai  can work together and persuade sceptical Western countries they  can manage the recovery.

“This is a welcome program but it would require the  government to religiously stick to the key principles of  respecting the rule of law, upholding the sanctity of property  rights and democratic reforms,” said John Robertson, a Harare  economic consultant, who met an IMF and World Bank delegation  that is visiting the country.

“This will be the major challenge because only then can we  be able to convince the international community to release  badly needed financial aid.”

The recovery plan will require funding in excess of $5  billion, mostly from donors.

The policy document warned against continued invasion and  takeovers of mainly white-owned farms, saying offenders could  be arrested.

Thousands of white farmers have fled Zimbabwe since land  seizures began in 2000, a policy Mugabe critics say helped  destroy the economy. The country’s farmers’ union said some  white farmers were still being forced off their land or being  prosecuted for refusing to leave.

The document said the government wanted to promote  confidence in farming and investment in the sector. “The  inclusive government will uphold the rule of law as well as  enforce law,” it said.