US embassy cable - 04LILONGWE800

UNCLAS SECTION 01 OF 02 LILONGWE 000800 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR AF/S T. CRAIG 
TREASURY FOR INTERNATIONAL AFFAIRS / AFRICA / LUKAS KOHLER 
 
E.O. 12958: N/A 
TAGS: ECON, EINV, PGOV, PREL, KCOR, MI, Political, Economic 
SUBJECT: MALAWI'S PRIVATE SECTOR OPTIMISTIC ABOUT MUTHARIKA 
 
REF: A. LILONGWE 768 
 
     B. LILONGWE 728 
 
This message is sensitive but unclassified--not for Internet 
distribution. 
 
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SUMMARY 
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1. (U) A recent visit to Malawi's business capital, Blantyre, 
showed the private sector to be generally optimistic about 
the new administration's economic direction.  The consensus 
is that President Mutharika seems to be serious about cutting 
corruption and winning donor support through fiscal 
discipline.  While business leaders are reserving some 
measure of scepticism, they say sticking to modest reforms 
will drive economic growth. End summary. 
 
 
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SURPRISING OPTIMISM 
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2. (U) In the course of routine calls on a variety of private 
sector contacts in Blantyre, the financial and industrial 
center of Malawi, Econoffs heard a surprising level of 
optimism about the prospects of the new government led by 
President Bingu wa Mutharika.  Leaders from the finance, 
construction, agriculture, trade, transportation, and 
manufacturing sectors expressed approval of the 
administration's early moves against corruption and efforts 
to bring government spending under control.  Several of our 
interlocutors said that if Mutharika accomplishes nothing 
other than these two objectives, he would breathe new life 
into the Malawian economy. 
 
3. (SBU) The economic context of this optimism is decidedly 
grim in most respects: representatives from one sector after 
another told us that their part of the economy is stagnant at 
best, with steady shrinkage the norm.  A fund for small to 
medium-sized enterprises told us that high interest rates 
resulting from a decade of irresponsible government spending 
have made new investment all but impossible.  Whatever demand 
has survived in this contracting economy is being crowded out 
by an insatiable demand for public debt.  The largest 
commercial bank freely admits that two-thirds of its money is 
in government paper instead of loans.  Exporters and 
construction industry leaders described a crippling drain of 
skilled workers, deteriorated agricultural productivity, and 
a tarnished reputation in the international investment 
community. 
 
 
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SOLID SIGNS OF CREDIBILITY 
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4. (SBU) Still, the prevailing sentiment agrees with the IMF 
Article IV team's report: that confidence in the economy is 
high enough to drive growth the instant interest rates come 
down (see ref A).  Mutharika's quick establishment of a 
government austerity program, his campaign to build public 
support for corruption prosecutions, and his apparent bid to 
establish a government independent from the ruling party (ref 
B), are evidently a sharp enough departure to cause hope. 
The chairman of the Malawi Stock Exchange and the managing 
director at a discount house told us money is beginning to 
show early signs of exiting the money market in favor of 
equities.  This is seen as a good sign that the financial 
community is beginning to believe the government's promises 
to bring spending under control.  Foreign exchange pressure, 
which could drive a devaluation and a round of inflation, is 
mercifully low, thanks to a weak dollar and the central 
bank's successful efforts to control the exchange rate (to be 
reported via septel). 
 
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COMMENT: NEW GOVERNMENT, NEW ECONOMY 
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5. (SBU) While this sampling of private-sector opinion is 
hardly scientific, it does point to a clear common 
understanding of the economic situation in Malawi: that the 
main problem with the economy has been the government.  Only 
slightly less clear is the level of confidence in the 
Mutharika government's determination and ability to effect 
change.  The political will seems to be there, in our 
interlocutors' view, but it seems too good to be true.  There 
is still some concern that Mutharika will be co-opted or 
out-maneuvered by more experienced politicians, or simply 
fall into the African corruption trap on his own.  The level 
of expectation for the government is modest (control spending 
and corruption, never mind other new initiatives), but the 
appraisal of Malawi's economic resilience is bright, provided 
the government can deliver on those modest expectations. 
 
RASPOLIC