Identifier
Created
Classification
Origin
04LILONGWE503
2004-06-08 14:45:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Lilongwe
Cable title:  

IMF: TEAM LOOKS FOR FRESH START

Tags:  EFIN ECON PGOV MI 
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UNCLAS SECTION 01 OF 02 LILONGWE 000503 

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: EFIN ECON PGOV MI
SUBJECT: IMF: TEAM LOOKS FOR FRESH START


Summary
-------
UNCLAS SECTION 01 OF 02 LILONGWE 000503

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: EFIN ECON PGOV MI
SUBJECT: IMF: TEAM LOOKS FOR FRESH START


Summary
--------------

1. (SBU) Visiting IMF officials told donors that poor
fiscal and monetary performance had caused the Fund's
Executive Board not to consider Malawi's case in April.
Given the country's poor performance, the current facility
(which was to have run through December) has been abandoned.
Having lost confidence in the GOM's ability to perform, IMF
officials returned to Malawi not to negotiate but to explore
alternative ways forward with the new government. One
possibility would be a fast-tracked informal program
designed to give Malawi the chance to rapidly demonstrate
commitment to targets and to create a positive track record
of performance. We support giving the new government the
opportunity to prove itself, because Malawi ultimately
requires both fiscal discipline and external aid to address
its poverty. End summary.

IMF Team Back in Lilongwe
--------------

2. (U) IMF Mission Chief for Malawi John Green and Africa
Department Senior Advisor Michael Nowak visited Malawi (on
slightly different schedules) between June 1 and June 5.
Green met with the Charge, AID Director, and Econoff on June
1, and Nowak and Green briefed donors on their visit on June

3. Nowak and Green met President Mutharika on June 4.


3. (SBU) In line with what the IMF has been saying in
Washington, Nowak and Green described the Fund's experience
with Malawi as "uneven," with a poor track record by
international standards. They stated that the Fund's
reputation and credibility had been undermined by events in
Malawi and that Fund management's "time and patience were
running out." The goal of their visit, said Nowak, was not
to negotiate on the current program, but to "explore ways
forward."


4. (SBU) Nowak suggested that a short-duration informal
program (staff-monitored from Washington) to establish a
track record would be one possible option. Such a program
would be built around two pillars: 1) a set of required
fiscal policy actions; and 2) quantitative targets on key
macroeconomic indicators. Noting that a "lack of commitment
and intent at the highest levels," as well as some capacity
restraints, had characterized Malawi's program under former
President Muluzi, Nowak offered that a new program could
come with some technical assistance, but he kept the need
for Malawi to demonstrate performance as a key theme.


5. (SBU) In response to questions from some skeptical
donors, Green elaborated on the reasons the IMF did not go
forward with an Executive Board meeting about Malawi in
April. Green stated that the GOM overspent significantly in
March and April, and that it had engaged in some dodgy
financing as well. Nowak said he was confident the Fund had
made the right decision by not going forward. An IMF
staffer added that the overspending had been significant
enough that GOM domestic debt has increased by approximately
5.7 billion kwacha (c. 52 million USD) since March.


6. (SBU) The election of President Mutharika on May 20
created the opportunity for a new beginning, stated Nowak,
but Malawi needs to convince the Board and the Fund staff
that it can meet realistic and agreed-upon targets. If
Malawi can do so, Nowak outlined a best-case scenario in
which the Fund could perhaps begin disbursements as early as
October through a staff-monitored program.


7. (SBU) Several donors expressed their short-term concerns
about the state of Malawi's economy between now and the time
Fund disbursements could take place, and there was some
discussion of the feasibility of donors de-linking their
direct budgetary support programs from the IMF and
disbursing now.


8. (SBU) Similarly, others wanted to know if a Letter of
Assessment from the Fund would be sufficiently strong to
enable the World Bank to go forward with its Structural
Adjustment Credit before the Fund itself makes
disbursements. The Fund, Nowak stressed, has to provide
honest assessments of a country's performance, despite what
implications those assessments may have. Expressing some
discomfort with the way other donors piggy-back on the Fund,
Nowak pointed out that "we are not a credit rating agency."

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

9. (SBU) The IMF has had a rough ride with Malawi over the
past year, but we think they have struck the right balance
with the current approach. Malawi needs aid, and
Mutharika's government represents a new chance to get the
IMF program on track without compromising the program's
integrity. Given Malawi's poor past performance, however,
disbursements cannot follow mere promises. Whatever program
form it takes, we (along with other donors) would like to
see the Mutharika government be given a chance to quickly
show its commitment (or lack thereof) to reform and to
fiscal discipline, because aid, and growth, will only be
able to follow where the government's performance leads.

DOUGHERTY