By Jason Szep

BOSTON, Sept 25 (Reuters) -South African Nobel peace laureate Desmond Tutu said on Tuesday he was "devastated" by the human rights abuses of President Robert Mugabe's government in Zimbabwe, where the economy has virtually collapsed.

But Tutu, who has criticized South African President Thabo Mbeki for his policy of "quiet diplomacy" toward the Zimbabwean leader, said he was growing more confident in Mbeki's efforts to coax it's southern African neighbor toward political reform.

"I have in the past lambasted the softly, softly approach. But I have to admit I have been very surprised," Tutu said in an interview with Reuters.

He cited signs that Zimbabwe's ruling ZANU-PF party and its political opposition, had moved toward a compromise that could lead to elections next year.

Tutu said he struggles to understand how Mugabe, denounced as "tyrannical" by U.S. President George W. Bush at the U.N. General Assembly in New York, changed so drastically after steering the former British colony to independence in 1980.

Under Mugabe's 27-year rule Zimbabwe has plunged from prosperity -- it was once called the "bread basket" of southern Africa -- to penury.

"I'm just devastated by what I can't explain, by what seems to be an aberration, this sudden change in character," said the 75-year-old former archbishop of Cape Town.

"But it does not in any way remove that he did do very well. Zimbabwe was for a very long time a showcase country."

Mugabe, a former Marxist guerrilla, is accused of engineering the country's chaotic descent with controversial policies, like the seizure of white-owned commercial farms, many of which were handed to cronies or inexperienced blacks.

Zimbabwe is now wracked by severe shortages of food, fuel and foreign currency. It has the world's highest inflation rate of more than 7,000 percent, it's mines and industries are crumbling and the unemployment rate is estimated at around 80 percent.

An estimated two to three million Zimbabweans have fled to South Africa. Mugabe's government has widely condemned for rigging elections, beating opposition leaders, crushing street protests and intimidating the press.

Tutu, who took on South Africa's apartheid government as the country's first black bishop and won the 1984 Nobel Peace Prize, said Mbeki's policy toward Mugabe's government now appears to be working better than expected.

He said he was encouraged by constitutional changes that could bring presidential and parliamentary elections to Zimbabwe next year, citing recent talks between the opposition and the ruling Zimbabwe African National Union-Patriotic Front that could "pave the way for possibilities of change."

"And that has been exclusively due to the SADC (Southern African Development Community) initiative where President Mbeki has played a critical role and I am ready to commend them and to say let us give them a little more time and see whether something substantial actually does emerge," he said.

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