'Cashgate' scandal shows dark side of model African state

Donors have halted aid to Malawi amid claims that up to third of the nation's budget may have been diverted. 

Malawi, the southern tier African state headed by President Joyce Banda, has been widely viewed as a model of budget cutting and corruption fighting on a continent where such models are few.

Ms. Banda won international headlines last spring for cutting her salary and selling her presidential jet for $15 million in an effort to economize.  

Yet that picture of virtuous management has slipped after graft revelations lifted the lid on corrupt government officials, including some close to President Banda. The scandal known as "Cashgate" was set off when gunmen shot the nation’s budget director hours before he was to blow the whistle on the wrongdoing. 

The ensuing furore has shaken the nation and international backers to the core. In the past month donors have suspended direct aid to Malawi over practices of malfeasance said to involve up to a third of the country’s budget and that led to the arrest of a cabinet minister along with other senior officials.

Banda, who got plaudits last year from the International Monetary Fund for devaluing Malawi's currency, the Kwacha, has described the Cashgate scandal as a “national tragedy” that has left her citizens “traumatized,” and she has dissolved her cabinet in response to the crisis. 

The scale of the graft began to emerge when the family of Malawi budget director Paul Mphwiyo, who was shot with three bullets but who survived, went public with his findings, namely that he had uncovered widespread looting by officials who abused the government's procurement system. 

Within days, police began raiding the homes and offices of officials from the treasury and other departments, and found thousands of dollars in cash stashed not only indoors but in some cases in car trunks. 

So far, 68 people have been arrested from Malawian companies and from government offices including the departments of tourism, finance, and the office of the president and cabinet; more than 30 state and private bank accounts have been frozen. 

Travel budget in spotlight

Ministers here have also been told to avoid all but essential travel in a bid to cut the government’s sizable expenditure on travel. However, Banda has been criticized for recently flying first class with a 30-member delegation to the UN General Assembly. 

She has declared that “no one,” including her own children, will be shielded from justice if they are involved, and in recent weeks she has received praise from the international community for her purported openness. 

Two of her former ministers were dropped from the new cabinet. One, former Justice minister Ralph Kasambara, previously a close ally of Banda, has been arrested over the attempted murder of the budget director.

The other, finance minister Ken Lipenga, was originally tasked with investigating possible leakages in the procurement system but several accountants in his office have since been implicated in the graft. 

Donors including Britain, the European Union and Norway -- who between them provide around 40 percent of Malawi’s government’s budget -- suspended their aid and financial assistance. 

Sarah Sanyahumbi, head of Great Britain's Department for International Development, who currently acts as spokesman for the direct aid donors, said there was “something wrong” with outsiders pumping money toward helping Malawi’s poorest when their own countrymen were stealing from them.

“This is not business as usual. As far as we are concerned, the line has been crossed, so once the line has been crossed you cannot go back to what you had before,” Ms. Sanyahumbi said in a statement. 

The US has said it has no plans to suspend its aid since it goes to NGOs rather than to the official budget.  

IMF freezes new loans

After sending a fact-finding team to Malawi, the IMF reported that “massive fraud” had been perpetrated and delayed extending its credit facility.

The IMF team’s head Tsidi Tsikata said Malawi would have to make serious cuts due to its drastically reduced circumstances, until confidence was sufficiently restored among the donor community for them to resume direct aid.  

“In this process, it will be important to ensure to the extent possible that cuts are designed in a way that preserve social spending so that the burden of adjustment does not fall on the most vulnerable members of society,” he added.

In Malawi, there is deep dismay about the decision by Britain, its former colonizer, and other nations that plan to suspend aid for a second time. The first time was under its Malawi's previous, autocratic president Bingu wa Mutharika, who fell out with international partners before dying in office last year. Banda, the vice president, was took power after his death. 

Brown Mpinganjira, the press minister, said that the donors’ approach to Malawi would deter other African leaders from dealing with graft: “If anything Malawi deserved a pat on the back from the donors, because what the government is doing is fighting corruption which started with previous administration long time ago,” he said.

Benefit of the doubt

There is now intense debate about whether Banda, who is due to fight elections next year, will survive the crisis.

Most donor nations say privately that they have seen no evidence she is involved and they are prepared to give her the benefit of the doubt. 

Michael Gonzales, US deputy chief of mission to Malawi, told the local Nyasa Times he had “significant confidence” on the action taken by the government. “We are very impressed with transparency (that) the government has shown," Mr. Gonzales added. 

But Steve Sharra, a popular local blogger, said most Malawians he had spoken to believed the president knew more about the corruption than she had let on.

“She ought to have known what was going on because it’s been going on for a while,” he said in an interview, adding that, “Malawians know one Joyce Banda and the rest of the world seemed to know another. The one Malawians know is a typical politician, very shrewd, looking at the elections next year, speaking in high-faluting language about her ideals and vision but doing little on the ground, knowing about corruption but pretending not to know.”