PRESIDENT MUTHARIKA'S FIRST YEAR IN POWER

UNCLAS SECTION 01 OF 03 LILONGWE 000457

SIPDIS

SENSITIVE

STATE FOR AF/S, INR/AA

E.O. 12958: N/A
TAGS: PGOV KDEM KCOR ECON KPAO MI
SUBJECT: PRESIDENT MUTHARIKA'S FIRST YEAR IN POWER

REF: A. LILONGWE 438


B. LILONGWE 341

C. LILONGWE 333

D. 04 LILONGWE 820

E. LILONGWE 338

Sensitive but Unclassified - Not for Internet distribution


1. SUMMARY: Bingu wa Mutharika's first year as President of
Malawi has seen ups and downs. The questionable nature of the
May 2004 presidential election created an unsettled political
atmosphere that would have tested any president. His
inaugural speech generated hope with its emphasis on the
creation of stable macroeconomic conditions and a corruption-
free nation. Mutharika's resignation from the United
Democratic Front (UDF) served as a declaration of political
independence from his predecessor, Dr. Bakili Muluzi, who
handpicked Mutharika in an effort to continue to hold power.
However, Mutharika's formation of the Democratic Progressive
Party (DPP) has resulted in a loss of public support and
sympathy, largely due to the general public's view that the
DPP is not dramatically different from the UDF. END SUMMARY.

AN ECONOMIC PROMISE
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2. Mutharika's inaugural speech generated hope with its
emphasis on the creation of stable macroeconomic conditions
and a corruption free nation. Unlike his predecessor,
Mutharika believes that poverty can be reduced through
significant economic growth and that significant economic
growth can only occur in a stable macroeconomic environment
including with low interest rates, stable exchange rates, and
low single digit inflation. To achieve these goals the
President promised to resume an economic program with the IMF
to access greater resources and reduce domestic debt, which
would lead to increased private sector savings and investment
and economic growth. Mutharika has, to some extent, lived up
to this promise. The budget deficit is less than seven
percent of Gross Domestic Product; his predecessor ran a
budget deficit of more than fourteen percent. Government has
achieved almost all of its expenditure targets for the past
year. Most donors that provide budgetary support have resumed
some aid and the IMF has issued satisfactory reports for all
its monitoring visits in the past year. Prospects for a new
funded IMF program are generally considered to be good.

THE POLITICS OF PRIVATIZATION
--------------


3. Under Mutharika, government presence in the economy
continues to be relatively high and the administration has
shown little urgency to privatize. The privatization program
was temporarily suspended for several months last year to take
stock of past performance and to vet pending deals for signs
of corruption. Government has also recently shown worrying
signs of protecting domestic industries through import
restrictions (milk imports from Zimbabwe and beverages from
Zambia) based on weak justification. The most notable
development for the private sector, however, has been the
reduction of interest rates from 40 percent to 25 percent last
year--a good move, but small relief to private-sector
borrowers.

ANTI-CORRUPTION: SLOWLY AND UNSURELY
--------------


4. President Mutharika's most watched promise from his
inaugural speech was "zero tolerance against corruption".
Endemic official corruption under his predecessor was part of
the reason the UDF did not achieve a clean sweep in the 2004
elections. The arrests of former Finance Minister Friday
Jumbe and former senior UDF official Humphrey Mvula on
corruption charges were well received by the general public as
a break with the corrupt Muluzi administration of the past ten
years. Mutharika has recently fired his sitting Minister of
Education (who has strong ties to Muluzi) after he was
arrested for corruption (reftel A). However, the lack of high-
level convictions has created doubt among Malawians about
Mutharika's seriousness in prosecuting corruption. In
addition, the accused and their supporters have been able,
with some success, to portray their arrests as politically
motivated. However, there has been one significant corruption
conviction. Blantyre City Mayor John Chikakwiya was sentenced
to more than three years of hard labor for stealing
approximately $4,000 of private donations meant for a road
rehabilitation project (reftel B). Chikakwiya's conviction is
significant as he is the Governor of Muluzi's UDF party in its
heartland, the Southern region - a position that would
previously have made him untouchable.

A PARTY IS BORN
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5. Concurrent with his "zero tolerance for corruption"
policy, President Mutharika's most obvious political challenge
was to declare his independence from his predecessor, Dr.
Bakili Muluzi (reftel C). Prior to Mutharika's departure from
the UDF, it was common knowledge that Muluzi had handpicked
Mutharika so that he could continue to hold the power behind
the "throne"." Mutharika's quest for political autonomy led
to a divide within the UDF - one faction backed the party's
National Chairman (Muluzi) while the other faction backed
President Mutharika. The main cause of the divide was
Mutharika's anti-corruption campaign, which netted a few of
Muluzi's close associates. The divide became complete when
Mutharika left the UDF in early February 2005.


6. President Mutharika's abandonment of the UDF was probably
his most popular act during his first year in office.
However, Mutharika's move to form his own party, the
Democratic Progressive Party (DPP),has resulted in a loss of
public support and sympathy, largely attributed to the make up
of the new party. With a considerable number of the DPP's
leadership having originally come from the UDF, the party is
not viewed as so dramatically different from the UDF. Another
image problem for the DPP has been the fact that party
membership consists primarily of political opportunists who
have joined the party in a quest for political ingratiation.
A good example is the party's Publicity Secretary, Dr.
Hetherwick Ntaba, who is also Malawi's Health Minister. Since
January 2004, Ntaba resigned from three different political
parties before joining the DPP.

PUBLIC RELATIONS PROBLEMS
--------------

7. Mutharika's media honeymoon has clearly ended. Contrary
to initial statements,(reftel D),media freedoms under
Mutharika have not dramatically increased; rather, it appears
media freedoms have experienced something of a backslide.
Following the arrest of three journalists for reports that
allegedly caused embarrassment to the president (reftel E),
Mutharika remained unapologetic and apparently unaware of the
impact this action may have had on the public and on his
political ambitions. While some media organizations view the
Mutharika Administration as being cut from the Muluzi mold,
reporting on Mutharika, his administration, and the DPP
remains largely balanced. The same cannot be said for TV
Malawi and Malawi Broadcasting Corporation, Malawi's publicly
owned television and radio stations. These have largely
followed the same traditions established under Banda and
Muluzi, and function essentially as the mouthpiece of the
Administration and the DPP. Post will provide a media
environment update septel.

COMMENT
--------------


8. President Mutharika's performance during his first year
has been mixed. Since Mutharika took office, civil service
and other government officials have been put on notice that
they will be held to higher standards of professionalism and
accountability. The president has mandated monthly reports
from his cabinet ministers; government employees are expected
to report to work on time and be productive; buildings, roads,
and public institutions are receiving long-needed
improvements. These changes are not insignificant and have
sent a clear message that a government job comes with
responsibilities, not just perks.


9. What Mutharika lacks in the ability to form a cohesive
political strategy he makes up for in sheer courage in his
departure from the hitherto omnipotent UDF. Mutharika's
genuine need for a political base led him to form the DPP,
which has in turn, resulted in a loss of focus on his
inaugural agenda. However, the most significant problem with
the formation of the DPP is in its timing. It appears that
the gargantuan task of engineering a new party, combined with
the necessity of coddling potential opponents, may have
hampered Mutharika's ability to produce more tangible results
on the economy and corruption.


10. On corruption, the conviction of the former Mayor of
Blantyre and recent arrest of a cabinet minister have breathed
new life into the anticorruption campaign, which was in danger
of atrophying due to lack of court convictions. Economically,
Mutharika has done well on managing public expenditure, but
the business sector has begun to complain that he is too slow
in implementing needed microeconomic reforms. The economic
outlook remains unpredictable and will depend on his ability
to convince a touchy political class to support unpopular and
painful economic reform.
GILMOUR