VZCZCXRO2671
PP RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHLG #0182/01 0711335
ZNR UUUUU ZZH
P 121335Z MAR 07
FM AMEMBASSY LILONGWE
TO RUEHC/SECSTATE WASHDC PRIORITY 3960
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY

UNCLAS SECTION 01 OF 02 LILONGWE 000182 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR AF/EPS - JANET POTASH, AF/S - KAMANA MATHUR 
 
E.O. 12958: N/A 
TAGS: ETRD ECON PHUM PGOV MI
SUBJECT: MALAWI INPUT FOR 2007 PRESIDENT'S REPORT ON AGOA 
 
REF: STATE 00223 
 
¶1. Following is Embassy's update for the annual President's 
Report on AGOA, in response to reftel request. 
Paragraphs/topics are organized according to the report 
template and instructions. 
 
¶2. Market Economy/Economic Reform: The government has 
generally made a commitment to a market-based economy. 
Domestic and foreign investment in most sectors of the 
economy is encouraged and is not significantly restricted; 
the main constraints on investment are features of a 
generally poor business environment.  Malawi's government 
has continued to make progress on its privatization 
program, under which it has sold off 66 of 110 companies 
since 1996.  Malawi's creditworthiness has improved 
dramatically since mid-2004, when the government instituted 
a program of fiscal discipline.  In mid-2005, the 
government completed an agreement with the IMF for a 
Poverty Reduction and Growth Facility (PRGF).  A new PRGF 
program was approved in August 2005.  Broad reform 
objectives include liberalization of trade and foreign 
exchange policy, rationalization of taxes, privatization of 
state-owned enterprises, and civil service reform.  Malawi 
reached the Completion Point under the Highly Indebted Poor 
Countries (HIPC) Initiative in August 2006, resulting in 
debt relief from multilateral and Paris club creditors, and 
simultaneously qualified for the Multilateral Debt Relief 
Initiative (MDRI), which cancelled all pre-2004 debt to the 
World Bank and the African Development Bank, and pre-2003 
debt to the IMF.  Over $2 billion debt has since been 
cancelled, enabling the government to reduce domestic 
borrowing and increase expenditures for development.  Fitch 
Ratings upgraded Ma|awi's long-term foreign currency issuer 
default rating (IDR) to B- with a stable outlook in March 
¶2007. 
 
¶3. Trade Liberalization: Malawi is a member of the WTO and 
two regional trading blocs, SADC and COMESA.  The 
Government of Malawi is working to reduce or eliminate 
various tariff and non-tariff barriers.  Malawi operates a 
liberal import and export licensing system with 
restrictions largely based on health, safety and national 
security reasons.  All Current Account transactions are 
fully liberalized; Capital Account transactions are still 
controlled.  Domestic protection through tariffs is 
gradually diminishing as the government continues to shift 
sources of revenue collection from customs duties to 
consumption and direct taxes.  Implementation of a SADC 
Free Trade Area took effect on January 1, 2001, when member 
states started a phased tariff-reduction program.  Malawi 
is, however, reported to be lagging behind on its tariff- 
reduction schedule. 
 
¶4. Rule of Law/Political Pluralism/ Anti-Corruption: Malawi 
held peaceful presidential and parliamentary elections in 
May 2004.  International observers considered the election 
to have been free but have criticized its fairness. 
Parliament, traditionally a weak institution in Malawi, has 
been the forum for increased political pluralism since the 
current minority government was elected.  Malawi has an 
independent but overburdened judiciary.  The government's 
Anti-Corruption Bureau has actively pursued public and 
private corruption since the new administration took office 
in May 2004.  A few major convictions of government 
officials have since been secured, despite capacity 
constraints within the Bureau. A number of cases are still 
pending.  Parliament passed anti-money laundering 
legislation in August 2006 that is generally in line with 
international standards.  A financial intelligence unit 
(FIU) has not yet been established. 
 
¶5. Poverty Reduction: Since 1981, Malawi has undertaken 
economic structural adjustment programs supported by the 
World Bank, IMF, and other donors.  Malawi met HIPC 
decision point criteria in December 2000 and has since 
developed its PRSP, which was launched in 2002.  Malawi 
continues to work with these institutions and to use the 
PRSP as the central planning document for government 
budgeting.  Previous macroeconomic instability, unstable 
weather conditions and a previous lack of fiscal discipline 
have contributed to weak growth and limited progress in 
reducing poverty.  However, recent debt relief has enabled 
the Reserve Bank of Malawi to ease monetary policy, which 
should in turn stimulate economic activity. 
 
¶6. Labor/Child Labor: Labor laws cover the majority of the 
ILO's core labor standards.  Workers have the right to 
associate freely and to bargain collectively.  The 
government has not been fully effective in thwarting anti- 
union discrimination by employers.  Unions must register 
 
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with the Ministry of Labor, but this is largely a 
formality.  The Malawi labor code also applies to export 
processing zones.  A lack of capacity in the government and 
the unions reduces the effectiveness of worker-rights 
protections.  On child labor, Malawi's constitution and 
employment laws comply with IMO Convention 182. 
Enforcement has increased significantly during the past two 
years, particularly in the area of forced child labor, 
though resource constraints continue to hamper enforcement. 
 
¶7. The incidence of child labor, particularly on tobacco 
farms, remains high.  The public-private Child Labor Task 
Force expanded its membership among labor, private sector, 
and NGO organizations.  In 2004, the task force developed 
and implemented a national Code of Conduct on Child Labor 
and placed child labor officers in each district of the 
country.  There are reports that Malawian children are 
trafficked to other southern African countries and to 
Europe for purposes of forced labor and commercial sexual 
exploitation. 
 
EASTHAM