Global Policy Forum

By Brendan Boyle

The International Monetary Fund on Tuesday denied Malawian government claims that it had recommended the sale of strategic maize reserves at a loss on the eve of a crop failure that has plunged Malawi into crisis.

"We have no expertise in food security policy," the IMF representative in Malawi, Girma Begashaw, said in a telephone interview. "We did not instruct the Malawi government or the NFRA (National Food Reserve Agency) to dispose of the reserves."

Begashaw said Malawi had sold the maize partly on the advice of a food security consultant hired by the government in a European Union-funded project and partly on the basis of hugely inaccurate crop estimates.

He said the food security consultant had advised the government to run its reserve down from 167 000 tons to around 60 000 tons, which would be enough to provide a short-term emergency buffer.

"They thought they would have a good harvest in 2001, so they went ahead and sold all the 167 000 metric tons in the reserve. They did not even keep the 60 000 tons that their own policy required them to keep," he said.

Political analyst Maxon Mbendera said the government had sold the reserve on the basis of inaccurate economic and agricultural advice. "Whether there was corruption I cannot say. Maybe there was, but perhaps it was just plain incompetence."

Agriculture Minister Aleke Banda said in Malawi last week the IMF had urged the government to sell at least part of the reserve in 2000 to reduce debt.

He said it was not an instruction but the advice had seemed sound because crop forecasts were pointing to a second successive bumper harvest from March 2001.

In fact, the crop failed and thousands went hungry between December last year and March this year, when a second poor harvest delivered a short respite from hunger for the nation's largely peasant population.

"The situation is critical," Banda said, adding that the country faced a 600 000-ton deficit and would need international donor aid to feed up to three million people over the next nine months.

Finance Minister Friday Jumbe said in a separate interview the government had been encouraged by the IMF and other donors to settle commercial debts and had sold the food reserve to pay off the one-year commercial loan taken in 1999 to establish the reserve.

"The entire reserve was purchased in 1999 with a short-term loan from the commercial banks, guaranteed by the government. The rationale behind it (the sale) and the advice given by the IMF was: Why don't you sell this maize, get the cash and buy the new crop."

Jumbe said the NFRA sold the reserve between July 2000 and January 2001 at an average loss of more than 50 percent, completing the sale as news broke that the March 2001 crop would be well below average.

He said the NFRA had sold the maize against forecasts of a bumper crop that pushed the price down to less than half the average price of 7,8 kwacha (about R1) a kilogram. "The NFRA had to sell that maize at three kwacha. That's part of the answer to where the money went: It disappeared into thin air because of market conditions," said Jumbe. He declined to identify the buyers, who saw prices rocket more than 400 percent from the purchase price within weeks.

Begashaw said the IMF's three-year poverty reduction facility agreed with Malawi in 2000 required the government not to take further commercial loans. "There has to be comparable treatment of creditors. You can't pay one on commercial terms and ask another to write off debt."

He said the IMF had urged Malawi to re-establish fiscal discipline and to slash non-essential spending in its June budget. The fund would consider the release of frozen balance-of-payment support of nearly $40-million around November if the government performed.

The government called on Monday for tenders for 40 000 tons of locally grown maize to begin rebuilding the strategic reserve. The project is being financed by the EU.

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