US embassy cable - 05LILONGWE198

C O N F I D E N T I A L LILONGWE 000198 
 
SIPDIS 
 
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 
MAPUTO PLEASE PASS TO A/S NEWMAN 
 
E.O. 12958: DECL: 03/02/2015 
TAGS: ECON, EFIN, EAID, PREL, MI, BUD FIN, Economic 
SUBJECT: IMF ON MALAWI: GOOD PERFORMANCE, BUT NO FUNDING YET 
 
REF: A. 2004 LILONGWE 1067 
     B. LILONGWE 143 
 
Classified By: Econoff W. Taliaferro, for reasons 1.5 b and d 
 
1. (SBU) In a mid-mission briefing earlier this week, an 
International Monetary Fund (IMF) team said Malawi has 
performed strongly since its November review (ref A) and has 
good prospects of continued good performance through the end 
of its fiscal year (end June).  The mission was examining 
fiscal data through the end of December 2004.  Team leader 
John Green characterized the performance as a "remarkable 
achievement," particularly in view of the heavy burden of 
domestic debt the current administration inherited as it took 
office last May.  Finance Minister Goodall Gondwe added that 
the GOM would probably not have to go to Parliament with a 
supplementary budget, a first in recent years. 
 
2. (SBU) The downside of the briefing was the news that 
negotiation for a new Poverty Relief and Growth Facility 
(PRGF) would not go forward for another six to eight weeks. 
IMF plans to send another team in April to examine fiscal 
data through March, and it expects to conclude negotiations 
at that time.  At issue is the GOM's as-yet undefined plans 
to respond to a food crisis developing as a result of an 
extended January/February dry spell (ref B).  The GOM hopes 
to quantify the extent of the coming food shortage after its 
second-round crop estimate in March; it also hopes to have 
quantified the cost of the intervention and the level of 
donor assistance.  Any food program could drive domestic debt 
higher than projected by the end of the fiscal year. 
 
3. (SBU) A series of meetings between GOM officials and 
donors over the past week has made it clear that the GOM 
perceives the crisis to be more severe than the donors do. 
Using mostly anecdotal evidence of crop failures, the GOM 
appears to be preparing for a massive government-funded 
importation program.  Remembering the catastrophic effects of 
past interventions in the maize market, donors are 
encouraging the GOM to focus on quantifying the need for 
humanitarian assistance and leaving commercial importation to 
the private sector.  But GOM officials see their first duty 
as ensuring that no one starves and thus are likely to 
over-respond.  Apart from this, hunger is a potent political 
weapon, and palliative measures are not strictly driven by 
the realities on the ground. 
 
4. (C) COMMENT: In a separate conversation with Green, 
Econoff learned that the IMF team was well aware of the lack 
of consensus about the crisis and the appropriate response. 
This appears to be one of the reasons for delaying closure on 
a PRGF.  In effect, the IMF's delay is pressuring the GOM to 
coordinate its response with donors.  This pressure, even if 
unintended, is welcome, and it could prove useful in 
achieving a rational and affordable response to the crisis. 
This, in turn, should help the GOM stay on track with the IMF 
and continue on its path of fiscal responsibility. 
GILMOUR