US embassy cable - 05LILONGWE128

UNCLAS LILONGWE 000128 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR AF/S ADRIENNE GALANEK 
STATE FOR EB/IFD/OMA FRANCES CHISHOLM 
STATE FOR EB/IFD/ODF LINDA SPECHT 
TREASURY FOR INTERNATIONAL AFFAIRS/AFRICA/LUKAS KOHLER 
JOHANNESBURG FOR FCS 
 
E.O. 12958: N/A 
TAGS: EAID, EFIN, EINV, PREL, KMCA, MI, Economic 
SUBJECT: MALAWI CONSIDERS NEW DEVELOPMENT AGENDA 
 
REF: LILONGWE 107 
 
This message is sensitive but unclassified--not for Internet 
distribution. 
 
1. (SBU) As Malawi's Poverty Reduction Strategy Paper (PRSP) 
reaches the end of its three-year life, the GOM has floated 
the idea of taking a new tack as it develops its next PRSP. 
The proposed new agenda would be based on the Malawi Economic 
Growth Strategy, essentially a plan for removing constraints 
for new private sector investment.  This plan would direct 
Malawi's development efforts more toward economic growth than 
does the current PRSP, which emphasized pro-poor social 
spending. 
 
2. (SBU) The idea was originally presented in December to a 
select few donors as a crash plan to be developed over a 
short time, with a completion date in March 2005.  The donor 
community raised several disparate concerns: a fear that the 
new agenda would not be carefully enough thought out by the 
self-imposed deadline, that a new agenda would represent a 
base-level restart on the current Malawi Economic Growth 
Strategy (MEGS), that the plan would redirect social spending 
to pro-growth spending, and that a "public investment" 
component of the plan might include heavy spending on new 
state enterprises.  Since December, we have heard an 
additional concern: that the MEGS is incomplete, in effect 
addressing investment constraints but ignoring other aspects 
necessary to a national economic plan.  As well, some donors 
considered that a sharp turn away from the approved PRSP 
could endanger Malawi's Highly Indebted Poor Country (HIPC) 
status.  In the end, several bilateral donors have urged a 
go-slow approach to adoption of any changes to the current 
PRSP. 
 
3. (SBU) While concerns about the quality of the economic 
growth strategy are well-founded, so too are concerns that 
the administration needs to show rapid progress in order to 
maintain public support.  In any case, the GOM's growth 
strategy, however imperfect, should be reflected in its PRSP. 
 As for Malawi's HIPC status, the International Monetary 
Fund's Resident Representative and the World Bank Country 
Director have told us that the proposed new agenda poses no 
danger, partly because the new growth component is to be 
financed separately from currently defined PRSP spending. 
The GOM envisions financing the growth agenda with the 
savings from restructured debt and more efficient revenue 
collection. 
 
4. (SBU) COMMENT: Embassy is concerned that the negative 
reaction to what was perhaps an over-hasty plan may be 
misinterpreted as a signal to back away from an economic 
growth agenda altogether.  Indeed, there is reason to believe 
that at least some donors are not inclined to favor any 
developmental approach other than social spending.  We have 
encouraged the GOM to move forward with the proposed 
inclusion of the growth strategy into the PRSP, making 
improvements to the growth strategy as needed.  After 
President Mutharika's recent show of support for 
privatization, we now consider a state-centric approach 
unlikely (reftel).  President Mutharika is currently enjoying 
good political support for a reform agenda, but that support 
cannot last forever.  We believe Malawi will be best served 
by early adoption of a PRSP that reflects its new priorities, 
rather than spending the next year to arrive at the perfect 
plan. 
 
GILMOUR