Lest we forget: November 2001 - US and EU withdraw Aid due to gross mismanagement and corruption in the Muluzi administration

Mr Mathews Chikaonda told the BBC's
Focus on Africa programme that as far as the government was concerned,
"there is no problem with the donors" and he called the reports
"baseless rumours".

Donors say the money is not going where it is supposed to go

But a copy of a leaked memorandum sent
to President Bakili Muluzi dated 25 September 2001 and obtained by BBC
News Online says both the European Union and the United States have
suspended development aid.

Mr Chikaonda later admitted at a rowdy
press conference to writing the memo but accused journalists of
stealing " a very confidential memo."

The minister's letter referred to
"some sad developments which have resulted in some donor funds that
were factored into the 2001/2002 being cancelled for various reasons".

It says the EU has not only suspended
the release of 15m Euros ($13m) but has also demanded a refund of 7m
Euros already disbursed.

Problems ahead

He told the programme that there was a
communication to the president spelling out "potential problems, unless
action is taken in a number of areas".

But the minister would not elaborate on what these problems might be.

However under the heading "Donor
funding" his letter said that the EU delegation had discovered
anomalies while carrying out an audit, discovering that funds had been
used for projects outside any bilateral agreement.

The delegation's economic advisor,
Theo Kaspers, said the EU had written a fresh memorandum of
understanding with conditions which had to be signed.

The United States Government, through
the US Agency for International Development (USAID), has also diverted
at least $6m of the $7m meant for Malawi to another country.

Bad timing

It said the move came in response to the Malawi Government's decision to suspend its privatisation programme.

Other donors, notably Britain, have
also put on hold development aid to Malawi because of corruption,
mismanagement and political uncertainty.

Denmark, whose envoy Orla Bakdal was
forced to leave after the Danish embassy questioned how its money was
being used, has also scaled down sponsored projects in Malawi.

But the finance minister told
journalists that the envoy was recalled following Malawi government's
complaint that he was rude to President Muluzi.

The suspensions of aid could not come at a worse time for Malawi.

Budget would not balance without donor funds

The government needs to imports thousands of
tonnes of maize to offset the worsening food crisis.

In his letter, Mr Chikaonda recommended that the cabinet be informed on the developments to discuss other ways of
raising money.

He also suggested that President Muluzi should take him along to Brussels to discuss developments with the EU.

Meanwhile, the practical effects of the aid suspensions are already being felt.

New salaries for teachers, the police
and medical workers - which President Muluzi promised last June - have
yet to materialise, already fuelling sporadic strike actions.