Bloomberg News

Malawi to Devalue Kwacha 40% to Unlock Aid by Meeting IMF Terms

April 27, 2012

Joyce Banda, Malawi's president, speaks at a press conference. “We are willing to devalue, they are willing to begin the process of engaging with us,” she said in an interview today in Pretoria, South Africa’s capital. Photographer: Amos Gumulira/AFP/Getty Images

Joyce Banda, Malawi's president, speaks at a press conference. “We are willing to devalue, they are willing to begin the process of engaging with us,” she said in an interview today in Pretoria, South Africa’s capital. Photographer: Amos Gumulira/AFP/Getty Images

Malawi will devalue its currency, the kwacha, by 40 percent to unlock blocked aid by meeting conditions set by the International Monetary Fund, President Joyce Banda said.

The government has resumed relations with the U.K. and held talks with the IMF, World Bank and U.S. after the death of Bingu wa Mutharika, the leader who clashed with western donors, Banda said. She was sworn-in as president of the southern African nation this month after Mutharika died of a heart attack on April 5.

“We are willing to devalue, they are willing to begin the process of engaging with us,” she said in an interview yesterday in Pretoria, South Africa’s capital. “The sad bit is that we were advised to devalue three years ago. We didn’t listen, so now we have to do it all at once.”

Malawi is struggling to ease food and fuel shortages and win back support from international donors after Mutharika rejected IMF advice and a police crackdown against protesters last year led to the death of 19 people. The southern African nation relies on foreign aid for more than 40 percent of its budget.

While the former government devalued the kwacha by 10 percent in December, the move wasn’t enough to help alleviate a lack of foreign currency that has worsened a fuel shortage.

Foreign donors are willing to restart providing funds and the World Bank may offer a grant to cushion the impact of a sudden devaluation on the economy, Banda said. A donor conference was held in Washington this week, she said.

“The donors, they are only waiting for a letter from the IMF to tell them to go ahead,” Banda said.

Expelled Envoy

The U.K., the African nation’s biggest donor, ended ties with Malawi after Mutharika expelled its envoy and the U.S. stopped aid because of the police response to last year’s protests. The U.K. resumed ties on April 25.

Banda, 62, became Africa’s second female president on April 7, and leads a nation of about 16 million people. Malawi is one of the world’s poorest countries with a gross domestic product of about $5 billion, according to the World Bank. It exports burley tobacco and is Africa’s second-largest tea producer after Kenya.

The kwacha lost 1.8 percent against the dollar this year, and traded at 166.52 per unit of the American currency at 8:10 p.m. in Lilongwe.

To contact the reporters on this story: Andres R. Martinez in Johannesburg at amartinez28@bloomberg.net; Frank Jomo in Blantyre at fjomo@bloomberg.net

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net


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