US embassy cable - 04LILONGWE850

UNCLAS SECTION 01 OF 02 LILONGWE 000850 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR AF/S 
DEPT ALSO FOR INR/AA 
 
E.O. 12958: N/A 
TAGS: PGOV, PINR, ECON, EFIN, PREL, KCOR, MI, Development, Economic, Political 
SUBJECT: AFRICAN PEERS RATE MALAWI 
 
 
SUMMARY 
------- 
1. (SBU) In line with President Bingu wa Mutharika's 
commitment at the recent African Union Summit to have Malawi 
reviewed by the African Peer Review Mechanism (APRM), a 
preliminary report commissioned by the GOM finds "significant 
gaps" in economic management, a need for executive branch 
checks, prohibitively high costs for businesses, and a fiscal 
crisis starving social sector funding.  Also noted is a 
"major and growing problem" of corruption.  Aptly describing 
the challenges the Mutharika administration faces, the South 
African Institute of International Affairs (SAIIA) report 
rightly characterizes the GOM's focus (especially under 
Muluzi) on getting things right on paper, but missing the 
larger goals of implementation and genuine progress.  Looking 
to the future, while development initiatives in Malawi are 
still largely donor driven, holding the GOM to commitments 
and withholding aid when appropriate (as with the GOM's 
current IMF relationship) seem to be effective tools in 
shifting the GOM's focus from pro forma to performance.  END 
SUMMARY. 
 
2. (U) In keeping with the GOM's plan to accede to the 
African Peer Review Mechanism (APRM) as announced by 
President Bingu wa Mutharika at the recent African Union 
Summit in Addis Ababa, the Ministry of Economic Planning and 
Development commissioned the South African Institute of 
International Affairs (SAIIA) to prepare a preliminary 
assessment of the implications of peer review for Malawi and 
a list of recommendations.  The report, released on August 
15, is based on field work done earlier in the year. 
 
ECONOMIC MANAGEMENT AND GOVERNANCE 
---------------------------------- 
3. (U) The SAIIA report says Malawi "has significant gaps" in 
its economic management and governance.  The report indicates 
that the GOM "has been living well beyond its means for 
several years" and, as a result, there is "a crisis of debt 
and donor confidence."  The report says that Malawi has 
proper laws governing economic management, but that 
"disciplined implementation and leadership to command 
compliance with existing rules" are lacking.  The budget 
process is described as "fiction" that results in "budget 
plans prepared by government (that) bear little resemblance 
to actual spending."  The current cash management system, the 
report concludes, "is tantamount to a hidden second budget 
that is not accountable to Parliament and determined not by 
rational strategy but political influence behind the scenes." 
 Of the four factors considered during the APRM, Malawi "has 
by far the worst performance in fiscal and economic 
governance." 
 
DEMOCRACY AND GOOD POLITICAL GOVERNANCE 
--------------------------------------- 
4. (U) While noting significant improvements since the 1994 
advent of multi-party democracy, the SAIIA report terms 
Malawi as a democracy that allows "presidential rule by a 
minority," which will likely lead to a "greater reliance on 
ethnic and regional loyalties."  Tensions in the 2004 
electoral process were "compounded by credible complaints of 
unfair election management and diversion of government 
resources toward ruling party campaigns."  The report also 
notes that the rule of law and the Constitution have been 
eroded by "crucial aspects of the balance of powers (being) 
intentionally subverted" by the Muluzi administration. 
According to the report, key checks on the executive branch 
should be strengthened by parliamentary independence, 
electoral freedom, and fiscal oversight. 
 
CORPORATE GOVERNANCE AND CORRUPTION 
----------------------------------- 
5. (U) Observing weak laws governing money laundering, 
bankruptcy, commercial dispute settlement and shareholder 
rights, the SAIIA report suggests the GOM improve the 
business and investment climate by "improving regulation, 
responding more quickly to tariff and trade problems, and 
reducing the costs of doing business in the country." 
 
6. (U) The report also determines that "corruption is a major 
and growing problem in Malawi," which is a result of "lax 
management of government financial affairs." 
 
SOCIOECONOMIC GOVERNANCE 
------------------------ 
7. (U) In socioeconomic governance, the APRM report says 
Malawi initially had a good Poverty Reduction Strategy to 
meet the UN Millennium Development Goals, but that "fiscal 
crisis is increasingly starving social sectors of funding." 
The report suggests Malawi needs to "fundamentally re-think 
its strategy in many social sectors," concentrating on 
follow-through. 
 
COMMENT 
------- 
8. (SBU) We welcome Malawi's inclusion in the African Peer 
Review Process, as it is a step in the right direction to 
increasing the GOM's transparency.  This preliminary report 
rightly characterizes the GOM's focus (especially under 
Muluzi) on getting things right on paper, but missing the 
larger goals of implementation and genuine progress. 
Recognizing these shortcomings, the Mutharika administration 
appears to be focused on re-establishing the GOM's 
international credibility through keeping promises and 
implementing reforms. 
 
9. (SBU) COMMENT CONTINUED. Also of note in the report is the 
conclusion that in order for Malawi to receive continued 
support from the international community, the GOM needs to 
respond to donor nations' "shift in attitudes" to concentrate 
on well-performing governments that enthusiastically embrace 
good governance and combat corruption.  While development 
initiatives in Malawi are still largely donor-driven, holding 
the GOM to commitments and withholding aid when appropriate 
(as with the GOM's current IMF relationship) seem to be 
effective tools in making the GOM focus on a bottom line of 
performance.  END COMMENT. 
RASPOLIC