[stop-imf] IMF Turns Screws in Malawi

[Robert Weissman]

http://ipsnews.net
ECONOMY-MALAWI:
IMF Resumes Lending

Frank Phiri


BLANTYRE, Oct 21 (IPS) - Local economists have welcomed Monday's
decision by
the International Monetary Fund to resume aid to Malawi, but warned
government
to keep its promise of fiscal discipline through cutting
over-expenditure in
non-priority areas such as foreign travel.

=94We expect the government to treat the aid and its conditionalities with
kid
gloves to avoid angering the donors again,=94 said Perks Ligoya of the
Economics
Association of Malawi (ECAMA).

The International Monetary Fund (IMF) Monday approved a
9.2-million-U.S.-dollar aid disbursement to lift the lid on three years
of
lending sanctions on Malawi. The resumption of the aid has raised hopes
of an
economic recovery in the poor southern African country of more than 10
million
people.

The approval followed conclusion of the review of Malawi's economic
performance under a Poverty Reduction and Growth Facility (PRGF) by the
IMF
executive board in Washington on Monday, according to a statement by the
lender.

It said the IMF Board's decision would become effective upon a further
decision following World Bank's Executive Board review of the Malawi
Poverty
Reduction Strategy Paper (MPRSP) on Oct. 23.

IMF also said it has agreed to Malawi's request for resumption of
interim
assistance under the Heavily Indebted Poor Countries (HIPC) initiative
by
approving release of 6.6 million U.S. dollars =94to help Malawi meet its
debt
service payments to the IMF=94.

IMF Deputy Managing Director Shigemitsu Sugisaki said Malawi has made
satisfactory progress in restoring 'some' measure of fiscal discipline
and
targets during the first half of 2003, despite a prevailing severe
drought and
related food shortage.

=94Not withstanding these recent gains, Malawi continues to face daunting
economic and social challenges. Sustained political will, therefore,
continue
to be needed to reverse economic deterioration, ensure macroeconomic
stability, improve public service delivery and promote poverty
reduction,=94 he
said.

Local economists agree.

Ligoya warned the government against diverting donor resources for
election-related expenditure. General elections are due in Malawi in May 20=
04.

=94The problem is, when we get the money, government will get excited
thinking
they have triumphed,=94 said Collins Magalasi of the Malawi Economic
Justice
Network (MEJN).

He criticised the penchant for unnecessary foreign travels by senior
government officials.

Last month President Bakili Muluzi cancelled a trip to the UN General
Assembly
in New York following pressure from civil society that the visit would
waste
over K74 million (740,000 U.S. dollars) of taxpayer's money. Ironically,
Muluzi, with a bloated delegation, opted for a trip to Japan to attend
the
annual Japan-Africa Development summit.

IMF suspended aid to Malawi under PRGF -- its most concessional facility
for
low-income countries -- in 2001 following implementation slippages by
the
Lilongwe government. Malawi only managed to withdraw about 9.2 million
U.S.
dollars on Dec. 21, 2000, out of 64.5 million U.S. dollars of the PRGF
arrangement.

The IMF's suspension of aid signalled Malawi's other traditional
bilateral
donors in Europe to pull the aid plug. They froze 75 million U.S.
dollars
worth of balance of payments for Malawi, and demanded repayments of
misused
money in the interim.

But the three-year drought threw the Malawi economy in the deep end, and
government had to resort to heavy borrowing from the domestic market to
balance its budget.

The situation had a disastrous impact on private sector as it pushed up
interest rates at more than 45 percent, on the back of fast drying forex
reserves which resulted in rapid depreciation of the Malawi kwacha.

At least 30 companies closed shop since 1999 owing to the tough economic
conditions following aid suspension, according to studies by
Polytechnic, a
branch of the University of Malawi.

=94Doing business is like cycling to the top of a mountain,=94 said Mathews
Chikaonda of Press Corporation Limited (CPL), Malawi's largest
conglomerate
listed as a depository on the London Stock Exchange (LSE).

Responding to critics, finance minister Friday Jumbe vowed Tuesday to
take
unpopular decisions to ensure government stays on track with
conditionalities
accompanying the release of the aid.

He said expectations were that other donors withholding millions of
dollars in
form of balance of payments and budgetary support in Europe would thaw
their
aid. =94It's not an extra bonus to us because it was already factored in
the
budget but it would give us a foothold to start building our economy,=94
he
said.

But the Malawi Chambers of Commerce and Industry (MCCI) warned
government that
the aid resumption =94will not cure all the country's ills=94.

=94There's no need for overexcitement because this aid will not be enough
to
cater for everything,=94 said MCCI's Chancellor Kaferapanjira, referring
to
famine.

More than 400,000 people will need food aid from Jan. to Mar. next year,
according to last week's joint Food and Agricultural Organisation (FAO)
and
World Food Programme (WFP) Crop Supply Assessment Mission report
released in
the capital, Lilongwe.

The food shortage, which hit most of southern Africa last year, has
affected
implementation of Malawi's 2002/2003 budget, said Finance minister,
Jumbe.
(END/2003)