NEW FINANCE MINISTER BRIEFS DONORS ON PLANS TO GET

UNCLAS LILONGWE 000540 SIPDIS SENSITIVE E.O. 12958: N/A TAGS: EFIN ECON PGOV MI SUBJECT: NEW FINANCE MINISTER BRIEFS DONORS ON PLANS TO GET MALAWI BACK ON TRACK REF: LILONGWE 503 ¶1. (SBU) Summary. Two days after being sworn in, new finance minister Goodall Gondwe briefed donor heads of mission of his plans to get Malawi back on track with the international financial institutions; indicated that Malawi is entering into an IMF staff-monitored program; made a pitch for early disbursements by the World Bank and other donors; discussed plans for the new budget; and promised greater transparency and regular communication with donors. End summary. ¶2. (SBU) At a two-hour meeting in Lilongwe on June 18, Finance Minister Goodall Gondwe spelled out his immediate plans to extricate Malawi from its dire economic situation. He promised to hold regular meetings with donors, as often as on a monthly basis. He asked that his discussions with donors be confidential and that information shared (including, he hopes, expenditure data on ministry-by-ministry basis) be considered privileged. He specifically asked that information not be shared with the press. ¶3. (SBU) Per reftel, the IMF has agreed to a fast-track staff-monitored program with Malawi. Gondwe said the program will run through the end of September, and that it will not call for resources from the Fund. June benchmarks have been agreed upon, and Gondwe indicated they focus on wages, other recurrent transactions, total expenditures, domestic commercial borrowing, and net domestic assets in the Reserve Bank. He added that the Fund would also like to see how the new administration's move of government functions from Blantyre to Lilongwe is being conducted. Gondwe said that "unlike in the past," the GOM had taken a substantial part in determining targets. "We think the targets are fair and attainable; if we don't attain them, there's something very wrong." ¶4. (SBU) Gondwe said there would be a Fund mission in the first or second week of July with three objectives: to determine how the GOM has fared on the June benchmarks; to conduct Article Four consultations; and to discuss a staff-monitored program of 3-4 months duration. ¶5. (SBU) If Malawi performs "robustly well" on the June targets, Gondwe hopes that a Letter of Assessment from the Fund will enable the World Bank ("and others, I suppose") to decide whether or not to disburse. The Bank's Country Manager said the Bank will "look at its position in late July." He later added that he hopes for support from the USG. ¶6. (SBU) Gondwe's principal secretary at the Ministry said that in lieu of a new budget, the GOM will use Provisional Warrants from the beginning of the new fiscal year in July for a period of three to four months. Ministries will be advised of ceilings on their spending, and will then be asked to submit their prioritized spending plans. Gondwe admitted that the next budget will be "very difficult." He mentioned problem areas including interest payments on treasury bills; the need to reform the civil service wage structure (which could lead to an incremental increase); and how to implement presidential initiatives (such as fertilizer subsidies). ¶7. (SBU) During the briefing, Gondwe twice referred to his recent meeting in Washington at Treasury with U/S Taylor. He advised that there was a perception at Treasury that the Fund had too often changed targets for Malawi. He also said that U/S Taylor had indicated USG support of World Bank disbursement of its Structural Agreement Credit so long as the IMF is satisfied with GOM performance. ¶8. (SBU) Comment: Gondwe started off on the right foot, but clearly realizes the daunting challenge ahead of him. His recovery scenario definitely includes early World Bank disbursements. (Though he would also like to see early direct budgetary support from bilateral donors, he was advised that such support will not be considered for several months.) Without Bank disbursements soon, he is (understandably) concerned there could be a rapid fall in the kwacha. He knows the GOM must perform now if it wants to get back on track. The question is whether he and President Mutharika can first dig Malawi out of the hole dug by the previous government, and then impose fiscal discipline on a bureaucracy which historically has resisted it. End summary. DOUGHERTY