US embassy cable - 04LILONGWE540

UNCLAS LILONGWE 000540 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EFIN, ECON, PGOV, MI, Economic 
SUBJECT: NEW FINANCE MINISTER BRIEFS DONORS ON PLANS TO GET 
MALAWI BACK ON TRACK 
 
REF: LILONGWE 503 
 
1. (SBU) Summary.  Two days after being sworn in, new finance 
minister Goodall Gondwe briefed donor heads of mission of his 
plans to get Malawi back on track with the international 
financial institutions; indicated that Malawi is entering 
into an IMF staff-monitored program; made a pitch for early 
disbursements by the World Bank and other donors; discussed 
plans for the new budget; and promised greater transparency 
and regular communication with donors.  End summary. 
 
2.  (SBU) At a two-hour meeting in Lilongwe on June 18, 
Finance Minister Goodall Gondwe spelled out his immediate 
plans to extricate Malawi from its dire economic situation. 
He promised to hold regular meetings with donors, as often as 
on a monthly basis.  He asked that his discussions with 
donors be confidential and that information shared 
(including, he hopes, expenditure data on 
ministry-by-ministry basis) be considered privileged.  He 
specifically asked that information not be shared with the 
press. 
 
3.  (SBU) Per reftel, the IMF has agreed to a fast-track 
staff-monitored program with Malawi.  Gondwe said the program 
will run through the end of September, and that it will not 
call for resources from the Fund.  June benchmarks have been 
agreed upon, and Gondwe indicated they focus on wages, other 
recurrent transactions, total expenditures, domestic 
commercial borrowing, and net domestic assets in the Reserve 
Bank.  He added that the Fund would also like to see how the 
new administration's move of government functions from 
Blantyre to Lilongwe is being conducted.  Gondwe said that 
"unlike in the past," the GOM had taken a substantial part in 
determining targets.  "We think the targets are fair and 
attainable;  if we don't attain them, there's something very 
wrong." 
 
4.  (SBU) Gondwe said there would be a Fund mission in the 
first or second week of July with three objectives:  to 
determine how the GOM has fared on the June benchmarks; to 
conduct Article Four consultations; and to discuss a 
staff-monitored program of 3-4 months duration. 
 
5.  (SBU) If Malawi performs "robustly well" on the June 
targets, Gondwe hopes that a Letter of Assessment from the 
Fund will enable the World Bank ("and others, I suppose") to 
decide whether or not to disburse.  The Bank's Country 
Manager said the Bank will "look at its position in late 
July."  He later added that he hopes for support from the USG. 
 
6.  (SBU) Gondwe's principal secretary at the Ministry said 
that in lieu of a new budget, the GOM will use Provisional 
Warrants from the beginning of the new fiscal year in July 
for a period of three to four months.  Ministries will be 
advised of ceilings on their spending, and will then be asked 
to submit their prioritized spending plans.  Gondwe admitted 
that the next budget will be "very difficult."  He mentioned 
problem areas including interest payments on treasury bills; 
the need to reform the civil service wage structure (which 
could lead to an incremental increase); and how to implement 
presidential initiatives (such as fertilizer subsidies). 
 
7.  (SBU) During the briefing, Gondwe twice referred to his 
recent meeting in Washington at Treasury with U/S Taylor.  He 
advised that there was a perception at Treasury that the Fund 
had too often changed targets for Malawi.  He also said that 
U/S Taylor had indicated USG support of World Bank 
disbursement of its Structural Agreement Credit so long as 
the IMF is satisfied with GOM performance. 
 
8.  (SBU)  Comment:  Gondwe started off on the right foot, 
but clearly realizes the daunting challenge ahead of him. 
His recovery scenario definitely includes early World Bank 
disbursements.  (Though he would also like to see early 
direct budgetary support from bilateral donors, he was 
advised that such support will not be considered for several 
months.)  Without Bank disbursements soon, he is 
(understandably) concerned there could be a rapid fall in the 
kwacha.  He knows the GOM must perform now if it wants to get 
back on track.  The question is whether he and President 
Mutharika can first dig Malawi out of the hole dug by the 
previous government, and then impose fiscal discipline on a 
bureaucracy which historically has resisted it.  End summary. 
DOUGHERTY