Identifier
Created
Classification
Origin
04LILONGWE401
2004-05-13 14:34:00
CONFIDENTIAL
Embassy Lilongwe
Cable title:  

KWACHA SET TO TUMBLE AFTER ELECTIONS

Tags:  EFIN ECON PGOV MI 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
C O N F I D E N T I A L LILONGWE 000401 

SIPDIS

E.O. 12958: DECL: 05/13/2014
TAGS: EFIN ECON PGOV MI
SUBJECT: KWACHA SET TO TUMBLE AFTER ELECTIONS


Classified By: Pol/Econoff Marc Dillard for reasons 1.5 b/d.

C O N F I D E N T I A L LILONGWE 000401

SIPDIS

E.O. 12958: DECL: 05/13/2014
TAGS: EFIN ECON PGOV MI
SUBJECT: KWACHA SET TO TUMBLE AFTER ELECTIONS


Classified By: Pol/Econoff Marc Dillard for reasons 1.5 b/d.


1. (C) Currently trading around 109 to the dollar, Malawi's
kwacha is set to tumble after next week's elections, Reserve
Bank of Malawi (RBM) Governor Elias Ngalande told
Pol/Econoff. Ngalande speculated that the kwacha will
quickly depreciate to the range of 120-125.


2. (C) The RBM, which officially lets the kwacha float, is
believed to have set an unofficial ceiling of 110 kwacha to
the dollar in the run-up to the elections. Smaller, more
market-oriented foreign exchange bureaus have already
signaled a depreciation, and there are credible reports that
major banks are publishing a 108-109 rate in the newspapers
but executing transactions above the 110 mark.


3. (C) Ngalande told Pol/Econoff and the British High
Commissioner that he preferred to manage a gradual
depreciation after the elections, and to that end, he pitched
a plan in which the RBM would "borrow" from the High
Commission's local pound account to push up published reserve
holdings and (he argued) ward off speculators. The High
Commissioner, while sympathetic to the RBM's predicament and
sensitive to a depreciation's effect on the poor, noted that
the High Commission's local holdings are "small beer" in
relation to national foreign exchange needs.

Comment
--------------

4. (C) Ngalande's request to the British underscores the
precariousness of Malawi's foreign exchange situation, as
well as the political sensitivity of the dollar-kwacha
exchange rate. With Malawi's IMF program currently on hold,
it also adds to the list of challenges the new government
will face.

BROWNING