LILONGWE (Reuters) - Malawi’s finance minister expects suspended international aid to be restored under its new president, Joyce Banda, helping prop up a budget increasingly under strain after the previous president picked fights with overseas donors.
Finance Minister Ken Lipenga also told Reuters on Monday that former President Bingu wa Mutharika, who died on Thursday of a heart attack, had blocked plans called for by the International Monetary Fund to devalue the currency because he was worried the move would hurt the poor.
Aid-dependent Malawi slid into economic crisis over the past year as Mutharika, a professorial but temperamental former World Bank economist, squabbled with major western donors who then froze millions of dollars of assistance that had traditionally bankrolled about 40 percent of the budget.
“I expect the resumption of aid will happen,” Lipenga said.
Foreign diplomats showed their support for Banda by visiting her residence even before she had been officially installed, but so far there have been no concrete signs the West is preparing to restart the flow of aid.
The finance minister has not yet discussed economic policy with Banda since she became president but he thinks she will be able to address some issues that raised red flags with donors including suppression of human rights and the media.
“The donors were emphasizing the concerns of the Malawi people,” he said.
Mutharika plunged the country into isolation last year when he expelled the ambassador from former colonial master and biggest aid donor Britain, who said in a leaked diplomatic cable Mutharika was autocratic and intolerant of criticism.
In a watershed moment for the normally peaceful state known as the “Warm Heart of Africa” Mutharika’s police killed 20 people in anti-government protests in July 2011, leading to international condemnation and a cut of aid packages from other donors.
The IMF, which has suspended a $79 million aid facility due to conflict with Mutharika, wants to see Malawi’s currency, the kwacha, further devalued, saying too much of the state’s precious reserves are being used to defend it.
Malawi devalued the kwacha last year to 165 to the dollar from 150. On the black market, the price is nearly double, reaching 295 to the dollar just before Mutharika’s death.
On news of his death, the rate dropped to 270-275 with many anticipating an end to a foreign currency crisis that had crippled the economy. As dollars disappeared, fuel prices had soared and foreign goods such as medicine became prohibitively expensive.
Lipenga said the government was poised for another devaluation in September, after he returned from a meeting with the IMF in Washington, but Mutharika blocked it.
“He was very much against devaluation unaccompanied by other measures because he argued it would hurt the poor,” Lipenga said.
Malawi was one of the fastest growing economies in the world after Mutharika took office in 2004, averaging 7 percent expansion between 2005-2010 thanks to internationally funded fertilizer subsidies and seed programs that turned the nation of subsistence farmers into food exporters.
But the aid cutoff and Mutharika’s steadfast ways put the economy on a death spiral.
Lipenga said the economy could return to its fast rate of growth if aid was restored but added the country needed to move away from its biggest cash crop tobacco, which at one point provided up to 80 percent of its foreign currency, by increasing the strength of its value-added businesses.
“We really need to start generating forex for ourselves,” he said.
Reporting by Jon Herskovitz, editing by Ed Stoddard and