[ 2012-05-07 ]

Malawi devalues currency by third to aid economy
BLANTYRE (AFP) - Malawi floated its currency on
Monday, with the kwacha plunging a third against
the US dollar as the impoverished nation bowed to
a key demand of the International Monetary Fund to
fix its troubled economy.

The central bank's notice of official exchange
rates put one dollar at 250 kwacha, compared to
166 kwacha on Friday, a 33.598 percent value
drop.

"Following this devaluation, the kwacha is now
fully liberalised," the Reserve Bank of Malawi
said in a statement.

On the black market, the US dollar has sold at
more than 300 kwacha, a disparity that drove
foreign currency out of the banking system and
into the hands of informal dealers.

"At 250 kwacha per dollar the exchange rate is
well adjusted, as the black market is certainly
under-devalued," the central bank said.

The late president Bingu wa Mutharika had fixed
the exchange rate in 2005.

Since then he had steadfastly refused to make a
major devaluation, which he argued would hurt the
poor.

The IMF has for months called for a devaluation to
end a shortage of foreign currency that has left
Malawi unable to import enough fuel to keep the
nation running.

After Mutharika's sudden death last month, the new
President Joyce Banda has moved quickly to restore
relations with international lenders and donors.

Several key donors -- including former colonial
power Britain -- suspended aid to the impoverished
southern African country, citing concerns about
growing authoritarian tendencies in Mutharika's
government.

Central bank governor Charles Chuka also announced
a series of reforms to loosen controls on foreign
currency.

Dollars earned at auctions of tobacco, Malawi's
main export, can now be transferred to commercial
banks. Previously all proceeds had to be routed
through the Reserve Bank.

Foreign tourists will also be able to settle their
local bills in major currencies, it added.

The bank said the devaluation of the kwacha was
further expected to have the effect of reducing
demand for imports of consumer goods in favour of
domestically made products.

"Most importantly, it should also, together with
the liberalisation of foreign exchange market,
contribute to government's efforts to reach early
agreement with the IMF which should lead to
unlocking donor flows in the next few months," it
added.

The IMF suspended its programme with Malawi last
year, for a credit of nearly $80 million that
should have cushioned foreign exchange shortages.

Banda sacked Mutharika ally Perks Ligoya as head
of the central bank, naming Chuka as the new
chief.

Ligoya hung closely to Mutharika's fears about
devaluation hurting the poor by sending prices
soaring. But Chuka said businesses had for a long
time already been forced to find foreign currency
on the black market.

"As a result, most commodity prices already
reflect the black market rate. It is therefore
expected that this devaluation should not trigger
additional price increases," it said.

Source - AFP

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