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Tuesday, December 18, 2012

Malawi: Recent Developments and U.S. Relations

Nicolas Cook
Specialist in African Affairs

President Barack Obama’s Administration and a number of Members of Congress have welcomed Malawian President Joyce Banda’s accession to power, largely because she has reversed a number of contentious decisions taken by her predecessor, Bingu wa Mutharika, who died in early April 2012 while serving a contentious second term. Banda’s status as Africa’s second female president, an internationally recognized women’s rights advocate, and a leader with personal socioeconomic development expertise has also drawn U.S. and other international support. There are also some indications that Banda may pursue a foreign policy aligned with selected U.S. regional policy goals. In August 2012, Secretary of State Hillary Rodham Clinton traveled to Malawi for discussions of economic and political governance and reform and to highlight bilateral development cooperation projects. In September Banda addressed a gathering of Members of Congress at a forum on U.S.-Malawian and broader U.S.-African relations.

Malawi, a former British colony, is a small, poor country in southeastern Africa that underwent a democratic transition from one-party rule in the early 1990s and has long relied on donor aid. Under Mutharika, however, Malawi’s ties with donors had been damaged over concerns related to economic management, undemocratic governance trends, and Mutharika’s acrimonious stance toward donors. Upon taking office, Banda—who had served as Mutharika’s vice president and therefore succeeded him upon his death—made a range of economic and governance reform pledges and related policy decisions. In response, most donors that had suspended aid under Mutharika have reinstated it, a welcome prospect for Malawi’s flagging economy. Such reinstated aid has included a U.S. Millennium Challenge Corporation (MCC) compact.

Key among Banda’s donor-backed policy changes have been a devaluation of the national currency, the kwacha, and support for the repeal of several controversial civil and political rights laws passed under Mutharika. She has also supported austerity measures, such as the sale of a presidential jet and state-owned luxury vehicles, and she and her deputy are taking a 30% salary cut. She has also set out a number of policies designed to spur socioeconomic development and growth, gender equality, and respect for human rights. Banda appears politically well-positioned to implement her agenda, having garnered substantial support in parliament.

Banda faces interlinked economic and political challenges arising from her management of the faltering economy she inherited from Mutharika. Her decision to devalue the currency was intended to bring parity to currency exchange rates in the long run, provide market incentives to spur greater production for local and export markets, and boost macroeconomic stability. In the short run, however, it has sharply driven up inflation, including for fuel and the staple food, maize, sparking public sector strikes. In addition, some donors have released aid funds more slowly than initially anticipated or have imposed new aid policy conditions.

In addition to a $350 million, five-year MCC compact, the United States provides significant bilateral aid focused on food security and agricultural growth; poverty reduction; health and education; economic growth; and democracy and good governance. State Department and U.S. Agency for International Development (USAID)-administered bilateral assistance to Malawi totaled over $172.6 million in FY2011; an estimated $166.7 million in FY2012; and $145.8 million in requested funds for FY2013.

Date of Report: December 11, 2012
Number of Pages: 23
Order Number: R42856
Price: $29.95

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