VZCZCXRO9102
RR RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHLG #0848/01 2681508
ZNR UUUUU ZZH
R 251508Z SEP 06
FM AMEMBASSY LILONGWE
TO RUEHC/SECSTATE WASHDC 3321
RUEHLMC/MILLENNIUM CHALLENGE CORPORATION WASHDC
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEATRS/DEPT OF TREASURY WASHDC 0466
RUEAWJA/DEPT OF JUSTICE WASHDC
RUEAIIA/CIA WASHDC

UNCLAS SECTION 01 OF 03 LILONGWE 000848 
 
SIPDIS 
 
STATE FOR AF/S 
STATE FOR EB/IFD/ODF, EB/IFD/OMA 
USAID FOR AFR/SA, ARF/DP, PPC/AA 
TREASURY FOR INTERNATIONAL AFFAIRS/AFRICA 
TREASURY FOR OTA - BOB WARFIELD 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EAID EFIN KMCA PGOV MI
SUBJECT: REFORMS MOVE AHEAD AS MCA THRESHOLD PROGRAM GETS UNDERWAY 
 
REF: Lilongwe 690 
 
LILONGWE 00000848  001.2 OF 003 
 
 
¶1. (U) Summary: Since the official launch of Millennium Challenge 
Threshold Program activities in April of this year, Malawi has made 
important gains in addressing corruption and improving public 
finance management, the two focus areas for the program.  The 
advances have included legislative action, regulatory reform and 
improvements in program administration.  Some of the reforms are 
directly attributable to the MCA program, while others are part of a 
general trend of small but steady positive reforms that we believe 
will continue for the foreseeable future.  End summary. 
 
MCA Threshold Up and Running 
---------------------------- 
 
¶2. (U) The Millennium Challenge Corporation granted Malawi $20.9 
million in September 2005 for Threshold Program assistance to 
improve the country's performance in controlling corruption and 
managing public finances.  In the six months following the grant 
signing, USAID worked with the GOM to finalize design of some 15 
specific program interventions and procure the services required to 
execute those programs.  In April 2006, the U.S. Mission convened 
the entire team of experts contracted to carry out the Threshold 
Program activities and launched the program. 
 
¶3. (U) Since April, the MCA partners and contractors have 
established operations and commenced their activities.  A GOM 
interagency MCA Task Force has met regularly to review the progress 
of activities, particularly the GOM's action items under the 
Threshold Plan.  At the same time, the GOM has carried out a number 
of reforms, and there are early signs of positive and steady 
progress on legislation, regulatory reform and improvements in 
program administration. 
 
Legislative Action 
------------------ 
 
¶4. (U) As reported in reftel, the Malawi Parliament passed new money 
laundering legislation in August that is generally in line with 
international standards.  MCA-funded advisors from the U.S. 
Departments of Treasury and Justice played a crucial role in the 
passage of the law, supporting Mission efforts to educate 
legislators and opinion makers about its importance for Malawi's 
reform process.  While the bill still requires some amendments and 
the GOM has yet to formally implement the law, its passage is a 
critical first step and an important performance benchmark for the 
MCA Threshold Country Program.  The passage has allowed our 
MCA-funded Treasury and Justice advisors to work with the GOM on 
planning specific steps for implementation of the law, which 
requires creation of a Financial Intelligence Unit, and to conduct a 
series of training courses for judges, police and judicial officers 
on how the law will work in practice. 
 
¶5. (U) In the same August session, Parliament passed an amendment to 
the Public Finance Management Act that restricts the discretionary 
authority of the Minister of Finance to waive taxes and duties, 
except in cases of national emergencies.  This closes a loophole 
that was badly abused during the Muluzi administration, particularly 
with regard to the waiver of import duties on motor vehicles and 
other capital equipment for friends of the regime.  Along with the 
new amendment, the GOM has revised customs and excise regulations to 
allow for expanded duty-free import of capital goods, thereby 
reducing government intervention and opportunities for corruption. 
 
Strengthening Parliament 
------------------------ 
 
¶6. (U) A key component of the Threshold Program is strengthening the 
oversight role of Parliament, which will contribute to both the 
goals of combating corruption and improving GOM fiscal management. 
In the new budget passed in August the GOM has, for the first time, 
provided full funding for the operation of parliamentary committees. 
 Previously, that funding had not been available, and only three of 
Parliament's committees had met since the election of May 2004. 
 
¶7. (U) Parliamentarians have taken up the new resources with great 
enthusiasm, and committees are meeting and conducting oversight 
hearings.  The Public Appointments, Public Accounts, and Legal 
Affairs committees have been particularly active.  The Appointments 
Committee has already approved and denied several presidential 
nominations for senior government positions and is playing a much 
more assertive role than in the past.  The Accounts Committee has 
called several senior civil servants to testify on their handling of 
 
LILONGWE 00000848  002.2 OF 003 
 
 
public finances, and has made many recommendations to government on 
how to improve operations.  The Legal Affairs Committee this week 
called on the Government to accelerate presentation of a draft 
freedom of information act, another MCA Threshold performance 
benchmark.  The committee meetings have garnered significant media 
coverage and have sparked a healthy and refreshing national debate 
on the role and practice of parliamentary committees in the 
oversight of government. 
 
¶8. (U) Since March an MCA-funded team from the State University of 
New York Center for International Development has set up operations 
and worked with Parliament to lay out an action plan of training and 
development activities that will take place over the life of the 
Threshold program. 
 
Regulatory and Administrative Reforms 
------------------------------------- 
 
¶9. (U) The Threshold Program has already provided targeted training 
to a range of professionals who are directly involved in 
anti-corruption efforts and public finance management.  MCA-funded 
Treasury and Justice experts have conducted a number of training 
courses for police, judges, prosecutors, and other legal 
professionals in money laundering, financial crimes, and 
investigative techniques.  MCA is funding three staff members from 
the Office of the Director of Public Procurement to earn masters 
degrees in the next year, and four Malawian legal professionals are 
attending an MCA-funded legislative drafting course in the UK. 
 
¶10. (U) At the urgent request of the Finance Minister, the 
MCA-funded U.S. Treasury debt advisor recently visited the country 
to help formulate a policy on securitizing the GOM's arrears that 
were accumulated during the period of extensive corruption of the 
previous Muluzi administration.  Thanks to flexible and responsive 
MCA assistance, the Ministry of Finance will soon roll out a plan to 
create a bond market for that debt and put it on a sustainable 
financial footing. 
 
¶11. (U) MCA funds have purchased Fitch Sovereign Credit Rating 
Service for Malawi, to provide a real-world measure of the country's 
progress in managing its finances.  U.S. Treasury advisors are 
working with the Reserve Bank of Malawi to get ready for the first 
credit rating visit with a series of training events in November. 
 
¶12. (U) MCA is providing critical support to a major overhaul of the 
GOM's accounting systems, by implementing a long-delayed Integrated 
Financial Management Information System (IFMIS).  MCA-supported 
experts have carried out comprehensive assessments of both the 
technological and accounting aspects of the system, and MCA funding 
is currently training 15 GOM auditors in Tanzania, which operates a 
similar system.  Implementation of the IFMIS is another major MCA 
Threshold performance benchmark, and will significantly improve 
accountability and transparency across the executive and the 
legislature. 
 
¶13. (U) Apart from the Threshold Program, the GOM has carried out 
numerous reforms in the areas of internal controls and financial 
management as part of the ongoing IMF review of Malawi's Poverty 
Reduction Growth Facility (PRGF).  Last month the IMF announced 
Malawi's satisfactory completion of the second review of the PRGF, 
and the Fund released the next disbursement of over $7 million of 
PRGF funds. 
 
¶14. (U) The GOM is also pursuing implementation of a national ID 
program, as well as mandatory birth and death registrations.  If 
successful, those reforms will improve accountability in the 
processing of government benefits and should reduce fraud and 
waste. 
 
Comment: Moving in the Right Direction 
-------------------------------------- 
 
¶15. (U) While MCA Threshold Program activities are still in the 
initial stages, the actions of government described above show that 
the atmosphere for reform is positive, and that Malawians are 
pushing ahead with constructive changes large and small.  This is 
precisely the kind of support for home-grown reform efforts that we 
envisioned when Malawi first became eligible for MCA Threshold 
assistance nearly two years ago.  We realize that not every 
intervention of the Threshold Plan will be equally successful, but 
we are optimistic that the progress shown thus far is the beginning 
of a steady incremental reform process that will continue for the 
foreseeable future. 
 
LILONGWE 00000848  003.2 OF 003 
 
 
EASTHAM