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IdentifierCreatedClassificationOrigin
06LILONGWE848 2006-09-25 15:08:00 UNCLASSIFIED Embassy Lilongwe
Cable title:  

REFORMS MOVE AHEAD AS MCA THRESHOLD PROGRAM GETS UNDERWAY

Tags:   ECON EAID EFIN KMCA PGOV MI 
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DE RUEHLG #0848/01 2681508
ZNR UUUUU ZZH
R 251508Z SEP 06
FM AMEMBASSY LILONGWE
TO RUEHC/SECSTATE WASHDC 3321
RUEHLMC/MILLENNIUM CHALLENGE CORPORATION WASHDC
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEATRS/DEPT OF TREASURY WASHDC 0466
RUEAWJA/DEPT OF JUSTICE WASHDC
RUEAIIA/CIA WASHDC
					  UNCLAS SECTION 01 OF 03 LILONGWE 000848 

SIPDIS

STATE FOR AF/S
STATE FOR EB/IFD/ODF, EB/IFD/OMA
USAID FOR AFR/SA, ARF/DP, PPC/AA
TREASURY FOR INTERNATIONAL AFFAIRS/AFRICA
TREASURY FOR OTA - BOB WARFIELD

SIPDIS

E.O. 12958: N/A
TAGS: ECON EAID EFIN KMCA PGOV MI
SUBJECT: REFORMS MOVE AHEAD AS MCA THRESHOLD PROGRAM GETS UNDERWAY

REF: Lilongwe 690

LILONGWE 00000848 001.2 OF 003




1. (U) Summary: Since the official launch of Millennium Challenge
Threshold Program activities in April of this year, Malawi has made
important gains in addressing corruption and improving public
finance management, the two focus areas for the program. The
advances have included legislative action, regulatory reform and
improvements in program administration. Some of the reforms are
directly attributable to the MCA program, while others are part of a
general trend of small but steady positive reforms that we believe
will continue for the foreseeable future. End summary.

MCA Threshold Up and Running


--------------------------





2. (U) The Millennium Challenge Corporation granted Malawi $20.9
million in September 2005 for Threshold Program assistance to
improve the country's performance in controlling corruption and
managing public finances. In the six months following the grant
signing, USAID worked with the GOM to finalize design of some 15
specific program interventions and procure the services required to
execute those programs. In April 2006, the U.S. Mission convened
the entire team of experts contracted to carry out the Threshold
Program activities and launched the program.



3. (U) Since April, the MCA partners and contractors have
established operations and commenced their activities. A GOM
interagency MCA Task Force has met regularly to review the progress
of activities, particularly the GOM's action items under the
Threshold Plan. At the same time, the GOM has carried out a number
of reforms, and there are early signs of positive and steady
progress on legislation, regulatory reform and improvements in
program administration.

Legislative Action


--------------------------





4. (U) As reported in reftel, the Malawi Parliament passed new money
laundering legislation in August that is generally in line with
international standards. MCA-funded advisors from the U.S.
Departments of Treasury and Justice played a crucial role in the
passage of the law, supporting Mission efforts to educate
legislators and opinion makers about its importance for Malawi's
reform process. While the bill still requires some amendments and
the GOM has yet to formally implement the law, its passage is a
critical first step and an important performance benchmark for the
MCA Threshold Country Program. The passage has allowed our
MCA-funded Treasury and Justice advisors to work with the GOM on
planning specific steps for implementation of the law, which
requires creation of a Financial Intelligence Unit, and to conduct a
series of training courses for judges, police and judicial officers
on how the law will work in practice.



5. (U) In the same August session, Parliament passed an amendment to
the Public Finance Management Act that restricts the discretionary
authority of the Minister of Finance to waive taxes and duties,
except in cases of national emergencies. This closes a loophole
that was badly abused during the Muluzi administration, particularly
with regard to the waiver of import duties on motor vehicles and
other capital equipment for friends of the regime. Along with the
new amendment, the GOM has revised customs and excise regulations to
allow for expanded duty-free import of capital goods, thereby
reducing government intervention and opportunities for corruption.

Strengthening Parliament


--------------------------





6. (U) A key component of the Threshold Program is strengthening the
oversight role of Parliament, which will contribute to both the
goals of combating corruption and improving GOM fiscal management.
In the new budget passed in August the GOM has, for the first time,
provided full funding for the operation of parliamentary committees.
Previously, that funding had not been available, and only three of
Parliament's committees had met since the election of May 2004.



7. (U) Parliamentarians have taken up the new resources with great
enthusiasm, and committees are meeting and conducting oversight
hearings. The Public Appointments, Public Accounts, and Legal
Affairs committees have been particularly active. The Appointments
Committee has already approved and denied several presidential
nominations for senior government positions and is playing a much
more assertive role than in the past. The Accounts Committee has
called several senior civil servants to testify on their handling of

LILONGWE 00000848 002.2 OF 003


public finances, and has made many recommendations to government on
how to improve operations. The Legal Affairs Committee this week
called on the Government to accelerate presentation of a draft
freedom of information act, another MCA Threshold performance
benchmark. The committee meetings have garnered significant media
coverage and have sparked a healthy and refreshing national debate
on the role and practice of parliamentary committees in the
oversight of government.



8. (U) Since March an MCA-funded team from the State University of
New York Center for International Development has set up operations
and worked with Parliament to lay out an action plan of training and
development activities that will take place over the life of the
Threshold program.

Regulatory and Administrative Reforms


--------------------------





9. (U) The Threshold Program has already provided targeted training
to a range of professionals who are directly involved in
anti-corruption efforts and public finance management. MCA-funded
Treasury and Justice experts have conducted a number of training
courses for police, judges, prosecutors, and other legal
professionals in money laundering, financial crimes, and
investigative techniques. MCA is funding three staff members from
the Office of the Director of Public Procurement to earn masters
degrees in the next year, and four Malawian legal professionals are
attending an MCA-funded legislative drafting course in the UK.



10. (U) At the urgent request of the Finance Minister, the
MCA-funded U.S. Treasury debt advisor recently visited the country
to help formulate a policy on securitizing the GOM's arrears that
were accumulated during the period of extensive corruption of the
previous Muluzi administration. Thanks to flexible and responsive
MCA assistance, the Ministry of Finance will soon roll out a plan to
create a bond market for that debt and put it on a sustainable
financial footing.



11. (U) MCA funds have purchased Fitch Sovereign Credit Rating
Service for Malawi, to provide a real-world measure of the country's
progress in managing its finances. U.S. Treasury advisors are
working with the Reserve Bank of Malawi to get ready for the first
credit rating visit with a series of training events in November.



12. (U) MCA is providing critical support to a major overhaul of the
GOM's accounting systems, by implementing a long-delayed Integrated
Financial Management Information System (IFMIS). MCA-supported
experts have carried out comprehensive assessments of both the
technological and accounting aspects of the system, and MCA funding
is currently training 15 GOM auditors in Tanzania, which operates a
similar system. Implementation of the IFMIS is another major MCA
Threshold performance benchmark, and will significantly improve
accountability and transparency across the executive and the
legislature.



13. (U) Apart from the Threshold Program, the GOM has carried out
numerous reforms in the areas of internal controls and financial
management as part of the ongoing IMF review of Malawi's Poverty
Reduction Growth Facility (PRGF). Last month the IMF announced
Malawi's satisfactory completion of the second review of the PRGF,
and the Fund released the next disbursement of over $7 million of
PRGF funds.



14. (U) The GOM is also pursuing implementation of a national ID
program, as well as mandatory birth and death registrations. If
successful, those reforms will improve accountability in the
processing of government benefits and should reduce fraud and
waste.

Comment: Moving in the Right Direction


--------------------------





15. (U) While MCA Threshold Program activities are still in the
initial stages, the actions of government described above show that
the atmosphere for reform is positive, and that Malawians are
pushing ahead with constructive changes large and small. This is
precisely the kind of support for home-grown reform efforts that we
envisioned when Malawi first became eligible for MCA Threshold
assistance nearly two years ago. We realize that not every
intervention of the Threshold Plan will be equally successful, but
we are optimistic that the progress shown thus far is the beginning
of a steady incremental reform process that will continue for the
foreseeable future.

LILONGWE 00000848 003.2 OF 003


EASTHAM