VZCZCXRO5406
RR RUEHLMC
DE RUEHLG #0753/01 2761242
ZNR UUUUU ZZH
R 031242Z OCT 07
FM AMEMBASSY LILONGWE
TO RUEHC/SECSTATE WASHDC 4685
INFO RUEHLMC/MCC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC 0514

UNCLAS SECTION 01 OF 03 LILONGWE 000753 
 
SIPDIS 
 
SENSITIVE, SIPDIS 
 
MCC FOR MALIK CHAKA 
STATE FOR AF/S E PELLETREAU 
DEPT PASS TO USTR/F LIZER 
 
E.O. 12958: N/A 
TAGS: ECON EAID PGOV MI
 
SUBJECT: MALAWI: APPROACHING MCA ELIGIBILITY DECISION POINT 
 
 
¶1. (SBU) Summary:  Malawi is making strong progress on a number of 
fronts as the country approaches this year's MCA eligibility 
decision point, while continuing to struggle with some intractable 
political problems.  Rapid economic growth has continued over the 
past year, while inflation has fallen sharply to around seven 
percent.  There is also a consensus - even among many opposition 
politicians - that the GOM's economic policies and spending plans 
are pro-poor, pro-growth, well designed and working.  The GOM is 
cooperating effectively with donors to improve the reach and quality 
of health and education services, and to improve economic 
infrastructure.  On the political front, President Mutharika 
continues to confront determined foes in the opposition who appear 
bent on 1) impeaching the President if they can; 2) protecting 
themselves from corruption investigations; and 3) defeating the 
President in the 2009 elections.  This conflict largely explains 
Malawi's disappointing record this year in gaining Parliamentary 
approval for key appointees in the anti-corruption institutions.  On 
the whole, the U.S. Mission believes that Malawi is ready for 
compact negotiations and could put MCA funds to productive use 
toward the GOM's sound "Malawi Growth and Development Strategy." 
President Mutharika would likely push to negotiate and sign a 
compact prior to 2009 national elections, but the GOM might lack the 
planning/negotiating capacity to complete the talks on this 
ambitious timetable.  End Summary. 
 
¶2. (U) Malawi's Millennium Challenge Account (MCA) Threshold Program 
is approaching its conclusion in mid-2008.  The Millennium Challenge 
Corporation (MCC) board is expected to evaluate in late 2007 the 
country's eligibility for negotiations on an MCA compact.  This 
message provides the U.S. Mission's perspective on developments and 
trends that may be relevant to consideration of Malawi's eligibility 
for a compact. 
 
High Growth, Low Inflation 
-------------------------- 
 
¶3. (SBU) During 2007, the Malawian economy is projected to grow at 6 
percent, following on 8.5 percent growth in 2006.   Stronger 
agricultural production, particularly in maize, the staple crop, has 
meant that not only has Malawi achieved food self-sufficiency in 
this period, but has also had surplus maize to supply to the 
troubled Zimbabwean market.  This state of affairs constitutes a 
major shift from Malawi's prior need for significant emergency food 
assistance.  Some of Malawi's recent success can be chalked up to 
favorable weather, but improvements in the macroeconomic framework 
and concerted efforts to improve farm yields also played a part. 
Much remains to be done to reduce Malawi's vulnerability to drought 
permanently, of course, and President Mutharika recently underscored 
his commitment to increase land under irrigation as well as further 
diversify Malawi's economic base. 
 
¶4. (SBU) At the same time Malawi's pace of economic growth has 
increased, inflation has been brought under control.  Current annual 
inflation was running at 7.5 percent in mid-2007 (as compared to 
about 15% in mid-2006) and appears to be headed downward toward 5 
percent.  During the GOM's presentation of its budget to Parliament, 
a number of senior opposition figures, including former ministers of 
finance, offered grudging praise for current Finance Minister 
Goodall Gondwe's management of the economy, and for the soundness of 
the budget itself.  In spite of the political wrangling and 
confrontation that surrounded Parliament's consideration of the 
budget, the opposition asked for (and got) only minor changes to the 
budget itself.  This relative lack of controversy reflects the large 
measure of agreement on economic policy among country's major 
forces, as well as general recognition that things are going well. 
 
 
Increasing Investments in People 
-------------------------------- 
 
¶5. (U) While Malawi is one of the world's poorest countries, the GOM 
has registered some notable successes in improving the quality of 
life of rural and urban Malawians.  Examples from the health and 
education sectors demonstrate this positive trend. 
 
Health:  An estimated fourteen percent HIV/AIDS prevalence rate 
manifests itself in a life expectancy rate of 37 years, with 80,000 
victims dying annually and a roughly equivalent number of new 
infections.  There are also over six million cases of malaria per 
year, accounting for forty percent of all outpatient visits to GOM 
health centers.  The GOM has responded by carefully coordinating 
targeted interventions with the donor community that are starting to 
show results.  For example, child (under five) mortality has dropped 
29%, and Malawi is gaining global recognition for its rapid roll-out 
of HIV/AIDS testing and treatment campaigns (over 110,000 people 
started on ARVs in a three year period).   The HIV prevalence rate 
for 15-24 year old pregnant women has reduced from 24.1% in 1998 to 
 
LILONGWE 00000753  002 OF 003 
 
 
fourteen percent in 2006. 
 
Education:  Malawi's adult literacy rate is 61%.  Over 3.2 million 
children are enrolled in primary school, but met with insufficient 
classrooms, teachers or learning materials, many do not finish the 
primary cycle.  Girls' participation has improved in primary school, 
but more boys complete primary and move on to secondary school than 
girls.  The GOM is responding by building more schools, reforming 
its curriculum and providing more and better trained teachers, 
moving towards a Sector-Wide Approach.  Examples of progress are: 
the number of qualified secondary school teachers has increased from 
1,250 in 1994 to 2,411 in 2006 and estimated pupil primary 
completion rates are on the rise, from 46% in 2004 to 53% in 2006. 
 
 
Corruption Waning Despite Stalled Appointments 
--------------------------------------------- - 
 
¶6. (SBU) One of the reasons President Mutharika cited in breaking 
with the previous ruling party (the United Democratic Front) and his 
predecessor, Bakili Muluzi, was Mutharika's desire to end the 
chronic corruption that he said had characterized the Muluzi 
government.  There is a widespread perception among the 
international community that after a splashy beginning, the current 
GOM's fight against corruption has since stalled.  It is certainly 
true that the GOM has encountered serious obstacles in confirming 
its nominees for key positions such as the Director of the Financial 
Intelligence Unit (FIU), Auditor General, the Chief Justice of the 
Supreme Court and the Head of the Anti-Corruption Bureau (ACB). 
Regarding the FIU, however, the GOM has demonstrated its commitment 
to setting up this independent body despite the absence of a 
Director.  There are now four staff members working for the FIU in a 
newly provided secure space, and the recently passed budget provides 
for basic operating expenses. 
 
¶7. (SBU) The GOM's record in prosecuting past corruption in the 
courts has not been impressive, but there is another side to this 
story.  First, the primary reason for stalled anti-corruption 
appointments is not lack of commitment or focus on the part of the 
GOM, but rather determined resistance from opposition parties whose 
leaders are personally threatened by the prospect of effective 
prosecution of corruption.  Opposition parties have used their 
superior numbers and Parliamentary procedures to block qualified and 
reasonable nominees. 
 
¶8.  (SBU) While efforts to punish previous corruption have been 
slow, the Mission has heard consistent feedback from non-partisan 
business leaders in Malawi and international bank representatives 
that official corruption has declined noticeably under the Mutharika 
administration, while transparency has increased.  As an example, 
when questions were raised about a tourism project tender overseen 
by Minister of Information (and formerly of Tourism) Patricia 
Kaliati, a prominent member of the GOM, the tender was put out 
immediately for re-bid, the Minister was divested of the tourism 
portfolio,  and President Mutharika announced that an investigation 
would commence against the Minister.  Progress has not been 
reflected in recent surveys by Transparency International, but 
nonetheless there appears to be a consensus among those who 
regularly interact with GOM officials in order to do business that 
things are better. 
 
 
Political Wrangling Likely to Continue 
-------------------------------------- 
 
¶9. (SBU) President Mutharika has been widely criticized by both 
international and domestic political observers - with some 
justification -- for his "authoritarian" tactics, such as dismissing 
Parliament as soon as his budget was approved, and before the 
Speaker of Parliament could implement Section 65 of the 
Constitution.  This provision could require bi-elections to replace 
30-40 Members of Parliament who crossed the aisle to join the 
Democratic People's Party (DPP), the President's new political 
organization.   Mutharika's tough tactics are, from his standpoint, 
the only way for him to head off further attempts to impeach him, 
and try to govern his way into majority status through national 
elections in 2009.  Opposition leaders, including former President 
Muluzi and MCP chief John Tembo, are equally committed to preventing 
Mutharika from governing successfully, fearing that time will be on 
the President's side as he consolidates power.  This deep-seated 
conflict - fueled by Muluzi's perceptions of betrayal by his 
anointed successor and Tembo's sense that it was he who really won 
the 2004 elections - probably cannot be resolved through 
negotiations and concessions.  Though disappointing at some levels, 
the President's stubbornly pursued and often high-handed tactics 
have worked, providing more or less coherent governance in the short 
term.  And with no grassroots organization or prior political base, 
 
LILONGWE 00000753  003 OF 003 
 
 
Mutharika's only real chance to remain in power beyond 2009 is 
through clearly demonstrating to voters that their lives are 
improving under his rule. 
 
Judicial Institutions Display Independence 
------------------------------------------ 
 
¶10. (SBU) Despite GOM frustrations over the protracted budget 
impasse, and political disagreements over the interpretation of 
Section 65 (which has the potential to decrease the number of DPP 
MPs in Parliament), the judiciary has operated freely and 
independently, with both sides of the political divide respecting 
(but not always agreeing with) judicial decisions that have 
political implications.  The durability of the judiciary during 
these politically turbulent times demonstrates a fundamental respect 
for the rule of law across the political spectrum. 
 
 
Malawi Prepared to Put MCC Funds to Good Use 
-------------------------------------------- 
 
¶11. (SBU) Malawi has by no means overcome the main challenges it 
faces in consolidating democracy or guaranteeing long-term food 
security, but the country is making real progress in attacking 
poverty, improving social services and strengthening the rule of 
law. 
 
¶12. (SBU) The GOM's "Malawi Growth and Development Strategy" (MGDS) 
emphasizes transforming Malawi's economy from dependence on imports 
for local consumption into a more diverse, manufacturing and 
export-led growth economy.  The MGDS focuses on achieving strong and 
sustainable economic growth, building a healthy and educated human 
resource base, and protecting and empowering the most vulnerable. 
While the GOM has made substantial progress in mobilizing resources 
to fund the MGDS, MCC Compact funds could be put to good use by 
building on the solid MGDS framework. 
 
¶13. (SBU) Implementation of the MCC Threshold Country Plan has been 
largely successful, with a number of its goals already met: the 
passage of anti-money laundering legislation; the re-establishment 
of an independent Media Council; the regular provision of funds for 
the operation of the National Assembly; and capacity building across 
the GOM through training programs designed to combat corruption. 
There is also notable progress toward achieving other results 
(positive movement in Fitch ratings from CCC+ to B- and the 
establishment of FIU offices). 
 
¶14. (SBU) Political battles will go on, but national leaders would 
likely be able to muster a rough consensus on how to use additional 
MCA funds effectively to increase food security, improve the 
country's competitiveness and address deficits in essential public 
services.  President Mutharika in particular would have a strong 
incentive to push potential compact negotiations to a successful 
conclusion prior to elections in 2009, though limited negotiating 
capacity might hamper rapid agreement on a compact.