US embassy cable - 04LILONGWE614

C O N F I D E N T I A L SECTION 01 OF 02 LILONGWE 000614 
 
SIPDIS 
 
DEPT FOR INR/B 
TREASURY FOR LKOHLER 
 
E.O. 12958: DECL: 07/02/2014 
TAGS: ECON, EFIN, EAID, PINR, MI, Development, Economic 
SUBJECT: FINANCE MINISTER SEEKS USG SUPPORT FOR WORLD BANK 
DISBURSEMENT 
 
 
Classified By: Pol/Econ Officer Peter W. Lord, reasons 1.5 (b/d). 
 
SUMMARY 
------- 
1. (C) Minister of Finance Goodall Gondwe, in an introductory 
call with the Charge on July 2, made a direct request for the 
USG to support disbursement of Malawi's World Bank Structural 
Adjustment Credit (SAC) and for an expert economist to be 
imbedded into the Ministry of Finance.  Gondwe argued that 
the USD 25 million in SAC support in and of itself was not as 
important as debt re-payment, reduction of interest rates, 
and mopping up of excess liquidity that would result from the 
disbursement.  Regarding Malawi's economy, Gondwe remains 
optimistic because he "knows where (the GOM) went wrong," and 
he plans to bring the new administration "back to the basics 
of expenditure control."  New to his position, Gondwe is an 
experienced economist who knows how the international 
financial institutions (and their constituent governments) 
operate.  (Biographical information on Gondwe begins in 
paragraph 8.)  END SUMMARY. 
 
WHERE WE WENT WRONG 
------------------- 
2. (C) Newly appointed Minister of Finance Goodall Gondwe 
told the Charge and DCM at a July 2 introductory call that he 
knows his job is not "impossible" because he knows "where 
(the GOM) went wrong."  Conceding that former President 
Muluzi's administration had "ignored the rules of the game 
and cut corners," Gondwe said he plans to bring the GOM "back 
to the basics on expenditure control."  At the Charge's 
prompting, Gondwe explained that one good example is the 
reduction of Malawi's National Day celebration budget from 
USD 650,000 (MK 70 million) to USD 140,000 (MK 15 million), 
which Gondwe suggested to the President.  Gondwe also said he 
dealt with the recent demand by parliamentarians for a 
three-fold salary and benefits increase by suggesting a 
survey of parliamentary salaries in countries with similar 
GDPs, knowing that legislators in such countries are paid 
much less than the proposed amount. 
 
AN UNVEILED REQUEST FOR USG SUPPORT 
----------------------------------- 
3. (C) Gondwe told the Charge that, while he was not trying 
"to flatter the USG," the USG's support in favor of 
disbursing Malawi's World Bank Structural Adjustment Credit 
(SAC) is crucial.  Without a disbursement soon, he said, 
interest rates would not go down and the GOM would not be 
able to do what it needs to do to set Malawi's economy back 
on the right course.  Gondwe explained that the financial 
support of USD 25 million in and of itself was not as 
significant as a start on debt re-payment, the reduction in 
interest rates, and the mopping up of excess liquidity that 
would occur as a result of the disbursement. 
 
4. (C) "As a former IMF employee," Gondwe conceded he 
"understood Malawi's track record was not long enough" to 
ordinarily merit disbursement.  He hoped, however, that the 
Embassy would weigh in on the discussion and communicate the 
"time bomb" there currently is with Malawi's economy, as it 
could "get much worse soon." 
 
ONE ADDITIONAL REQUEST 
---------------------- 
5. (C) At a time when the Ministry needs to be at its best, 
Gondwe noted that its effectiveness is lagging because staff 
morale is so low.  In an effort to revive "sound management 
and discipline," Gondwe said he was looking for a long-term 
expert economist to "work on the line" as a deputy in 
Economic Affairs.  Gondwe requested the USG consider filling 
such a position in the Ministry. 
 
COMMENT 
------- 
6. (C) Gondwe knows that the fastest way to get the SAC 
disbursement is to work the issue from both the economic and 
political angles, and he is good at both.  We are encouraged 
by the Minister's initial steps to set the economy back on 
track, but tangible evidence of those steps will not come 
until the IMF team makes its mid-July visit and assessment. 
In the meantime, Gondwe is likely to make his best efforts to 
control the GOM's expenditure and fight the pressure excess 
liquidity is putting on the exchange rate and inflation. 
 
7. (C) COMMENT CONTINUED: Gondwe's suggestion to imbed an 
expert economist in the Ministry is a good one, and we think 
both the Ministry and the USG would benefit from such an 
arrangement.  We intend to explore avenues of making it 
happen.  END COMMENT. 
 
BIOGRAPHICAL INFORMATION: DR. GOODALL GONDWE 
-------------------------------------------- 
8. (C) Urbane and sophisticated, Gondwe has spent much of his 
life outside of Malawi as an international civil servant.  He 
returned to Malawi in September 2002 to take over a new 
position advising President Muluzi on economic matters, 
particularly programs related to the World Bank and IMF.  A 
longtime friend of President Mutharika's, Gondwe became 
Minister of Finance in Mutharika's new government on June 16. 
 
9. (C) Gondwe rose rapidly in his early career in Malawi and 
was appointed General Manager of the Reserve Bank in 1970, at 
age 31, only to see his appointment vetoed by President 
Banda.  He made a fresh start at the Ministry of Finance. 
His time there, however, was limited, and he was demoted to a 
position in the Transport Ministry in 1973 when, caught in a 
bureaucratic intrigue, he took the blame for an incident in 
which President Banda apparently did not feel that he had 
been adequately informed of developments in the Finance 
Ministry.  With Banda's blessing, Gondwe moved on to a 
position outside Malawi at the African Development Bank. 
10. (C) Gondwe's 2002 return to Malawi coincided with a GOM 
push to get back on track with its IMF program.  Several IMF 
team members expressed the opinion that Gondwe was taken on 
with the express purpose of managing the Fund.  Under 
Gondwe's influence, relations between the Ministry of Finance 
(in the former Muluzi administration) and visiting IMF 
missions soured somewhat, but contact with the Fund's senior 
management has increased. 
 
11. (C) Gondwe is a Northerner, is good-humored, and is both 
an economic and political pragmatist.  He is the younger 
brother of Vincent Gondwe, former Malawi Ambassador to Ghana 
and the U.S. 
 
12. (U) Gondwe is married and has three children. 
RASPOLIC