Jan. 16 (Bloomberg) -- Malawi’s “Cashgate” scandal is threatening President Joyce Banda’s chances of winning elections in May, as the state battles to pay its bills following aid cuts and public anger over official corruption mounts.
Donors, which provide 40 percent of the budget, have frozen as much as $120 million in aid. Banda fired her cabinet in October and asked international investigators to study charges that as much as 30 percent of state funds was being embezzled in what local media has dubbed “Cashgate.”
Trials of as many as 69 civil servants, businessmen and politicians are set to start on Feb. 5. The probes have led to departures of party members to the opposition, which includes Peter Mutharika’s Democratic Progressive Party, the United Democratic Front and the Malawi Congress Party before presidential, parliamentary and local government elections.
“Banda faces an uphill struggle to win re-election,” Gary van Staden, a political analyst at NKC Independent Economists, said in a Jan. 14 phone interview from Johannesburg. “If an election were held tomorrow, I think Banda would lose to Muthurika.”
Banda, 63, became Africa’s second female president when she succeeded Bingu wa Mutharika, Peter’s brother, who died in office in April 2012. She devalued the kwacha and raised fuel prices a month after taking office, unlocking aid from donors such as the U.K. and the International Monetary Fund and sparking nationwide protests over rising prices.
“Huge sums of money have been swindled under the watch of President Banda,” Billy Banda, executive director of the Blantyre-based rights group, Malawi Watch, said yesterday in a telephone interview. “There is no way you can divorce her from rampant corruption in government.”
The president isn’t involved in graft, her spokesman, Steven Nhlane, said yesterday in a text message response to questions.
“There is absolutely no truth in that claim,” he said. “Whoever has evidence let him bring it forward.”
In response to the corruption allegations, Banda set up a special unit of police and government officials to examine public finances and vowed to clamp down on graft even if it cost her the election.
“This is my fight, this is our fight as a nation, as Malawians,” she said in a Nov. 21 interview in Kuwait. “If I don’t go back to State House because I was trying to do this, that’s fine. I’ve placed this before my political career.”
At a Jan. 12 rally in Blantyre, the commercial capital, Banda said she had received death threats and had changed her telephone numbers on advice from her security advisers.
Some voters praise her campaign against graft.
“She is the only president who has shown seriousness to fight corruption,” Hastings Kachopa, 50, a retired state worker, said in an interview in Blantyre. “All her predecessors failed to tackle corruption. In all fairness she deserves another term in office and I will vote for her.”
About half of Malawi’s 15 million people live on less than $1 a day, according to the IMF. The country is Africa’s top exporter of burley tobacco, a low-grade variety of the crop. Limbe Leaf Tobacco Co., a unit of U.S.-based Universal Corp., Alliance One International Inc. and Japan Tobacco Inc. are among buyers in the nation. The economy was estimated at $4.27 billion in 2012 by the World Bank.
The IMF said the alleged misappropriation of funds, which local media have dubbed “Cashgate,” had sparked donor concern that their aid wouldn’t be used correctly.
“Aside from the direct loss through theft, external financial assistance to the budget was placed at risk,” the Washington-based fund said in a Nov. 20 statement. “Development partners became reluctant to disburse funds into government systems they viewed as insecure.”
The Malawian kwacha has weakened 26 percent against the dollar since the beginning of last year, the worst performer among 22 African currencies tracked by Bloomberg. The yield on 364-day Treasury bills have fallen about 9 percentage points to 32.12 percent in the past year.
The government’s cash shortfall had forced disbursements to departments and ministries to be curtailed, and the problem will probably persist until June, Finance Ministry spokesman Nations Msowoya was cited by the Blantyre-based Daily Times as saying on Jan. 13.
The volume of trials starting next month has stretched the resources of Malawi’s judicial system, which has had to bring in judges from outside Lilongwe and secure extra space in the capital to hold the hearings, Information Minister Brown Mpinganjira told reporters Jan. 11.
“What Malawi needs is an independent commission of inquiry so that the nation knows the truth of what happened,” Banda of Malawi Watch said.
Former Justice Minister Ralph Kasambara has been charged in connection with the September shooting and wounding of Budget Director Paul Mphwiyo, an attack the president said was aimed at stopping him from probing the graft.
The People’s Party has lost much of its support base in Kasambara’s home district, Nhlane said in a phone interview.
Malawi ranked 91st out of 175 countries on Transparency International’s 2013 Corruption Perceptions Index, down from 37th, the year before.
“Corruption has worsened under Banda,” Boyd Milanzi, a 28-year-old second-hand shoe salesman said yesterday in an interview in Blantyre. “We will finish off this country if we vote her back into power.”
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