FINANCE MINISTER SEEKS USG SUPPORT FOR WORLD BANK

C O N F I D E N T I A L SECTION 01 OF 02 LILONGWE 000614

SIPDIS

DEPT FOR INR/B
TREASURY FOR LKOHLER

E.O. 12958: DECL: 07/02/2014
TAGS: ECON EFIN EAID PINR MI
SUBJECT: FINANCE MINISTER SEEKS USG SUPPORT FOR WORLD BANK
DISBURSEMENT


Classified By: Pol/Econ Officer Peter W. Lord, reasons 1.5 (b/d).

SUMMARY
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1. (C) Minister of Finance Goodall Gondwe, in an introductory
call with the Charge on July 2, made a direct request for the
USG to support disbursement of Malawi's World Bank Structural
Adjustment Credit (SAC) and for an expert economist to be
imbedded into the Ministry of Finance. Gondwe argued that
the USD 25 million in SAC support in and of itself was not as
important as debt re-payment, reduction of interest rates,
and mopping up of excess liquidity that would result from the
disbursement. Regarding Malawi's economy, Gondwe remains
optimistic because he "knows where (the GOM) went wrong," and
he plans to bring the new administration "back to the basics
of expenditure control." New to his position, Gondwe is an
experienced economist who knows how the international
financial institutions (and their constituent governments)
operate. (Biographical information on Gondwe begins in
paragraph 8.) END SUMMARY.

WHERE WE WENT WRONG
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2. (C) Newly appointed Minister of Finance Goodall Gondwe
told the Charge and DCM at a July 2 introductory call that he
knows his job is not "impossible" because he knows "where
(the GOM) went wrong." Conceding that former President
Muluzi's administration had "ignored the rules of the game
and cut corners," Gondwe said he plans to bring the GOM "back
to the basics on expenditure control." At the Charge's
prompting, Gondwe explained that one good example is the
reduction of Malawi's National Day celebration budget from
USD 650,000 (MK 70 million) to USD 140,000 (MK 15 million),
which Gondwe suggested to the President. Gondwe also said he
dealt with the recent demand by parliamentarians for a
three-fold salary and benefits increase by suggesting a
survey of parliamentary salaries in countries with similar
GDPs, knowing that legislators in such countries are paid
much less than the proposed amount.

AN UNVEILED REQUEST FOR USG SUPPORT
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3. (C) Gondwe told the Charge that, while he was not trying
"to flatter the USG," the USG's support in favor of
disbursing Malawi's World Bank Structural Adjustment Credit
(SAC) is crucial. Without a disbursement soon, he said,
interest rates would not go down and the GOM would not be
able to do what it needs to do to set Malawi's economy back
on the right course. Gondwe explained that the financial
support of USD 25 million in and of itself was not as
significant as a start on debt re-payment, the reduction in
interest rates, and the mopping up of excess liquidity that
would occur as a result of the disbursement.


4. (C) "As a former IMF employee," Gondwe conceded he
"understood Malawi's track record was not long enough" to
ordinarily merit disbursement. He hoped, however, that the
Embassy would weigh in on the discussion and communicate the
"time bomb" there currently is with Malawi's economy, as it
could "get much worse soon."

ONE ADDITIONAL REQUEST
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5. (C) At a time when the Ministry needs to be at its best,
Gondwe noted that its effectiveness is lagging because staff
morale is so low. In an effort to revive "sound management
and discipline," Gondwe said he was looking for a long-term
expert economist to "work on the line" as a deputy in
Economic Affairs. Gondwe requested the USG consider filling
such a position in the Ministry.

COMMENT
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6. (C) Gondwe knows that the fastest way to get the SAC
disbursement is to work the issue from both the economic and
political angles, and he is good at both. We are encouraged
by the Minister's initial steps to set the economy back on
track, but tangible evidence of those steps will not come
until the IMF team makes its mid-July visit and assessment.
In the meantime, Gondwe is likely to make his best efforts to
control the GOM's expenditure and fight the pressure excess
liquidity is putting on the exchange rate and inflation.


7. (C) COMMENT CONTINUED: Gondwe's suggestion to imbed an
expert economist in the Ministry is a good one, and we think
both the Ministry and the USG would benefit from such an
arrangement. We intend to explore avenues of making it
happen. END COMMENT.

BIOGRAPHICAL INFORMATION: DR. GOODALL GONDWE
--------------

8. (C) Urbane and sophisticated, Gondwe has spent much of his
life outside of Malawi as an international civil servant. He
returned to Malawi in September 2002 to take over a new
position advising President Muluzi on economic matters,
particularly programs related to the World Bank and IMF. A
longtime friend of President Mutharika's, Gondwe became
Minister of Finance in Mutharika's new government on June 16.


9. (C) Gondwe rose rapidly in his early career in Malawi and
was appointed General Manager of the Reserve Bank in 1970, at
age 31, only to see his appointment vetoed by President
Banda. He made a fresh start at the Ministry of Finance.
His time there, however, was limited, and he was demoted to a
position in the Transport Ministry in 1973 when, caught in a
bureaucratic intrigue, he took the blame for an incident in
which President Banda apparently did not feel that he had
been adequately informed of developments in the Finance
Ministry. With Banda's blessing, Gondwe moved on to a
position outside Malawi at the African Development Bank.

10. (C) Gondwe's 2002 return to Malawi coincided with a GOM
push to get back on track with its IMF program. Several IMF
team members expressed the opinion that Gondwe was taken on
with the express purpose of managing the Fund. Under
Gondwe's influence, relations between the Ministry of Finance
(in the former Muluzi administration) and visiting IMF
missions soured somewhat, but contact with the Fund's senior
management has increased.


11. (C) Gondwe is a Northerner, is good-humored, and is both
an economic and political pragmatist. He is the younger
brother of Vincent Gondwe, former Malawi Ambassador to Ghana
and the U.S.


12. (U) Gondwe is married and has three children.
RASPOLIC