MUTHARIKA AT TWO YEARS: A MIXED RECORD

UNCLAS SECTION 01 OF 04 LILONGWE 000442

SIPDIS

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SIPDIS

E.O. 12958: N/A
TAGS: PGOV KDEM KCOR MI
STATE FOR AF/S, INR/AA
USAID FOR AYANNA TOURE

SUBJECT: MUTHARIKA AT TWO YEARS: A MIXED RECORD

Ref: A) Lilongwe 406 B) Lilongwe 433

LILONGWE 00000442 001.2 OF 004



1. (SBU) Summary: President Mutharika this week marks two
years in office, and his record is one of mixed success.
Mutharika has undertaken a number of popular initiatives to
restore order and accountability in Malawian society, and his
program of macroeconomic reforms has won praise from donors.
But Mutharika's tenure has been marred by constant political
instability, an increase in politically-motivated
prosecutions, and serious doubts about his ability to put in
place economic policies that will attract investment and
improve long-term growth. Our bottom line: Incremental
economic reform and political modernization is still possible,
but it will be harder than we thought. Real and comprehensive
reform awaits a generational change. End summary.

Success is in the Eye of the Beholder
--------------


2. (SBU) On balance, most Malawians would say that the
Mutharika administration has so far been a success, although
perceptions differ between Malawians and foreign donors on the
government's most important accomplishments.


3. (SBU) In a recent op-ed piece, the president's spokesman
cited the "restoration of dignity, national pride, discipline
and moral obligations" as first on the GOM's list of
achievements. The return to a past era of orderliness has
been a clear and consistent theme of the Mutharika government.
Most Malawians view the first ten years of multiparty
democracy under Bakili Muluzi (1994-2004) as a period of
disorder, chaos, economic turmoil, and corruption. The period
is commonly referred to as "the lost decade," and many
Malawians now look nostalgically at the order and discipline
that characterized the era of the former dictator Hastings
Kamuzu Banda.


4. (SBU) Mutharika has seized on that public longing for a
return to a perceived era of former glory, with great
political success. Reversing the policies of his predecessor,
who banished all references to Dr. Banda, Mutharika has
restored Kamuzu's name to prominent landmarks, and fast-
tracked construction of a $600,000 mausoleum in Lilongwe for
Banda, a project that had languished under the Muluzi
government. Mutharika dedicated the mausoleum with great
fanfare earlier this month, and its construction has won
almost universal public approval as a fitting tribute to "the
Father of the Malawi Nation."


5. (SBU) Other popular Mutharika policies aimed at restoring
societal order include his anti-corruption campaign, the
forced removal of vendors from city streets, the ordered
return of refugees and asylum seekers to refugee camps, the
destruction of illegal buildings, and efforts to improve the
performance of the civil service. Such measures have been
also been popular because of a traditional Malawian affinity
for "strong" leaders who give orders and get things done.


6. (SBU) A senior presidential advisor recently told us that
the average Malawian is concerned about food, health, and
education, in that order. Mutharika's most popular policy
moves have been in the all-important agricultural sector, and
he has concentrated heavily on food security. He instituted a
massive fertilizer subsidy that Malawians credit (along with
good rains) with giving the country its best maize harvest in
the past ten years. Also very popular has been an expansion
of a donor funded food-for-work program, and a giveaway of
thousands of manual irrigation pumps. Mutharika touts grand
food-related infrastructure projects such as large silos to
store grain for lean periods, dams, and irrigation schemes,
all of which have won solid public approval.

One Step Forward, One Step Back
--------------


7. (SBU) While most Malawians view these actions as positive,
many remain cautious about Mutharika and there is a sense that
his good policies have been offset by significant negatives.


8. (SBU) Much of Mutharika's tenure has been consumed by
political instability that conflict-averse Malawians find
instinctively uncomfortable. They applauded the launch of his
anti-corruption campaign in 2004, but were uneasy with the
resulting open warfare between Mutharika and his former United
Democratic Front (UDF) colleagues that persists to this day.

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Most Malawians approved of Mutharika's resignation from the
UDF, but were disappointed when he quickly formed another
party and attracted many of the same tired politicians to
join. Many people viewed the move as business-as-usual
Malawian politics, and felt that Mutharika's new party would
be little different from its corrupt predecessors.


9. (SBU) Many Malawians are unhappy with the clear increase in
political prosecutions that has taken place in recent months
(ref A). The arrests and prosecutions of a number of
opposition MPs, journalists and other political opponents are
seen as a worrisome trend that could return Malawi to the
denial of political freedom that was standard practice under
Dr. Banda. Many people side with Mutharika in the belief that
Vice President Chilumpha has neglected his duties, but they
are not comfortable with the undignified treatment of the vice
president, in which he has been shown in the media riding in
the back of police vans and speaking to his family members
through prison barbed wire.


10. (SBU) The recent visit of President Mugabe was strongly
opposed by many Malawians and frowned upon by businesspeople
who complained that the visit damaged investor confidence.
The government managed to keep a lid on public protests by
pacifying human rights NGOs and arresting a number of
opposition figures before the visit. Many people worry about
Mutharika's close ties to Mugabe, and most Malawians have no
interest in emulating Zimbabwe's example on human rights or
economic policies.


11. (SBU) Concern about the administration's direction is
sufficiently widespread to prompt Malawians to question the
President's motives, even when they are evidently well-
intentioned. Many commentators have expressed concern about a
particular Banda-imitation activity: annual "crop inspection"
tours. Mutharika wants to encourage the farmers by showing
interest in what they do and how their crops are doing. But
to many, the inspections evoke the era when Dr. Banda ordered
peasants to grow certain crops and meted out punishment for
non-compliance, a policy that distorted agricultural markets
and contributed to Malawi's overwhelming and unhealthy
dependence on maize as a primary cereal crop. In a similar
vein, a number of parliamentarians also wonder whether the
administration intends to re-invent the unlamented Banda-era
"Forfeiture Act" in the form of the draft anti-money
laundering legislation, and we and the bill's sponsors have
spent significant effort to distinguish a modern money-
laundering regime from the tool used during the Banda period
to seize houses, businesses, and other property.


12. (SBU) Most Malawians are not pleased with the performance
of Parliament in the past two years, and deplore the lack of
harmony between Mutharika and parliamentary leaders. Last
year's impeachment fight was the most prominent example of a
Parliament that is seen as bogged down in political squabbles
and unable to get any work done.

The Foreigners' View of Success...
--------------


13. (SBU) Western perceptions of Mutharika's success are
rather different. In the eyes of donors, his control of
government spending, lowering of domestic debt, and focus on
macroeconomic fundamentals are the signal achievements thus
far. In the face of IMF pressure, the GOM has allowed the
kwacha to depreciate toward a more realistic value.
Mutharika's emphasis on fiscal discipline won the confidence
of donors early on, and aid flows have increased. The IMF
granted a new Poverty Reduction and Growth Facility (PRGF) in
August 2005, the World Bank has expanded its program and
granted a new structural adjustment loan, and European
bilateral donors have augmented budget support.


14. (SBU) The GOM won praise from donors for its cooperative
and timely response to the past year's food security crisis,
and the coordinated action of donors and government averted
massive hunger.

... and Failure
--------------


15. (SBU) Despite a stated orientation toward reform and some
clear successes, the Mutharika government faces many problems,
and some of its proposed solutions are cause for concern.


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16. (SBU) Donors are constantly frustrated by painfully slow
decision making at the highest levels of government. Major
policy documents languish in Cabinet for months at a time, and
many important decisions are seemingly never taken. The
vicious battle over impeachment in late 2005 has left
parliament deadlocked, and Mutharika's minority government has
been unable to pass any significant legislation in over a
year. There is a large backlog of bills awaiting passage that
are critical to any forward movement on reform.


17. (SBU) While the GOM has made honest efforts at addressing
long term food security problems, its policy solutions, such
as massive fertilizer and seed subsidies and construction of
costly grain silos, are not necessarily the best prescription
for success. Mutharika's emphasis on other fanciful schemes
such as his pet project Shire Zambezi Waterway and the
construction of a new technology university in Lilongwe
exhibit a certain detachment from reality, and an
unwillingness to tackle more concrete problems that are within
the GOM's power to resolve.


18. (SBU) Democracy remains fragile. The above-mentioned
political prosecutions are cause for concern, although the
recent firing of Attorney General Ralph Kasambara may change
the outlook. The GOM has yet to produce any solid evidence
against Vice President Chilumpha in his ongoing treason case.
Despite significant donor pressure, the GOM shows little
interest in conducting long-postponed local government
elections. Mutharika dismissed all of the elected district
and municipal assemblies last year when their terms expired.
This has led to a lack of oversight of local and district
administrators, and deprives the country of a feeder system
for the development of younger political leaders.


19. (SBU) Mutharika's recent pronouncements on economic policy
are of particular concern. His mandated minimum prices for
tobacco have caused major disruptions in the tobacco market
(which provides 60% of Malawi's foreign exchange) and have
precipitated an ongoing forex shortage that could have very
serious implications for the country's balance of payments
later in the year (ref B). Mutharika has announced his
intention to intervene in the markets of other "strategic"
crops such as tea and cotton, and producers and buyers in
those markets are very nervous about the prospect of
government interference.


20. (SBU) During a recent performance review, a visiting IMF
mission expressed serious concern that the GOM's structural
reforms in public expenditure have stalled, and signaled that
Malawi's anticipated HIPC debt relief may not be as easily
achieved as previously thought.


21. (SBU) Malawi's business community continues to worry about
increased political risk and businesspeople complain that
instability is driving away investment and raising the cost of
capital on international markets. Among business leaders,
Mutharika is no longer seen as the reformer they had hoped for
in 2004, when he launched his anti-corruption campaign and
promised reforms to stimulate investment.


22. (SBU) The GOM has made a laudable effort to correct
Malawi's macroeconomic fundamentals, but there has been almost
no progress on making essential (and relatively easy)
improvements to the business climate that will attract new
investment. There are still major problems with transport,
electric and water utilities, tax administration, and customs
procedures. The lack of GOM willingness to fix these problems
is doubly surprising, since a raft of studies have clearly
identified the problems and Mutharika himself constantly talks
of improving the business environment. The GOM's program for
privatization of unprofitable state enterprises is moribund,
and only one major privatization has taken place since
Mutharika took office. Many observers believe that the
president "talks the talk" of economic liberalization, but his
actions show that he doesn't really believe the message.

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


23. (SBU) Clearly the optimism that was present in early
months of this administration, on the part of Malawians and
foreign observers alike, has been greatly tempered. Mutharika
wants to be a reformist president, but his reforms are slow
and not terribly dynamic. Ironically, his vision of reform
looks backward rather than to the future, and he seems to

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idealize a Malawi of the 1960s rather than pushing his country
to be a competitor in the globalized world of the 21st
century.


24. (SBU) Malawi's transition to democracy is not yet
complete. It came about through exhaustion and mortality, and
left behind an older generation of leaders who grew up under
the Banda dictatorship and who sometimes seem to be struggling
not to reform and democratize Malawi but to claim the mantle
of the Life President and to restore the perceived order and
unity of his era. Mutharika is clearly a politician in this
mold. He will achieve some positive steps for Malawi, but it
will take longer and be much harder than we thought two years
ago. Real and comprehensive reform will probably need to wait
for the coming of a new generation of Malawian leaders.

EASTHAM