Malawi is the second fastest growing economy in the world

LILONGWE, May 17 (Reuters) - Malawians vote on Tuesday in
parliamentary and presidential elections which could reignite
political tensions and threaten Western donor funding in one of
the world's poorest countries.

President Bingu wa Mutharika's chances of victory may have
increased significantly after Malawi's Constitutional Court
upheld on Saturday a decision to throw out an application by
former president Bakili Muluzi to contest the election.

Muluzi and main opposition leader John Tembo had forged an
unofficial alliance to take on wa Mutharika. Although he can no
longer run for president, Muluzi is unlikely to quit the bid to
beat the incumbent.

Wa Mutharika's tight fiscal management may give him an
advantage despite growing frustration among the poor.

He has won billions of dollars in debt relief for driving
reforms that have steered growth of around 7 percent a year for
the past three years.

Seven candidates, including one woman, are in the race. Wa
Mutharika took office in 2004, after winning an election marred
by violence and accusations of ballot rigging.

Investors are hoping for policy continuity in the southern
African country that depends heavily on tobacco exports.

An opposition win could throw the country into uncertainty
as the global economic crisis hits agricultural exports and it
may encourage Western donors to reconsider projects.

Donors account for 80 percent of Malawi's development budget
and stability is crucial for securing aid.

"The issue if the opposition wins is going to be the
alliance's stability -- given that it was only formed to oust
the incumbent," said Mike Davies, Middle East and Africa analyst
at Eurasia Group.

Malawi is the second fastest growing economy in the world,
according to the Economist Intelligence Unit. It managed to
bring down inflation from 30 percent to single digits in 2008.

But political upheaval has often overshadowed economic
gains, making Western donors uneasy and diverting attention away
from pressing problems such as poverty and AIDS.

Two thirds of the country's 13 million people live on less
than $1 a day and stalemates between the government and
opposition in parliament have held up budgets for months.

SIMMERING TENSIONS

Tensions have been brewing ahead of the election.

Muluzi was arrested in February and charged with stealing
millions of dollars of aid money during his decade as president
that ended 2004.

He remains a powerful political force despite his legal
troubles. Hailed as a hero in 1994 for removing dictator Kamuzu
Banda, Muluzi stepped down in 2004 after unsuccessfully trying
to change the constitution to allow him to stand again.

He announced a comeback bid last year and was later detained
on suspicion of being involved in a coup plot. The charges were
dropped.

"Political tensions will continue in the next five years
because of mistrust among the current political leadership,"
said University of Malawi political analyst Blessings Chisinga.

The direction of the economy is more predictable, with the
International Monetary Fund estimating 2008 expansion at 9.7
percent, boosted by growth of the telecommunication sector, high
tobacco sales and a strong maize harvest.

It also forecast strong growth for 2009 but warned of risks
from the global economic downturn.

Finance Minister Goodall Gondwe said commodity prices would
be under pressure but said the economy would benefit from
diversification away from agriculture -- most notably a uranium
mine that opened in April and which wa Mutharika said would
become Malawi's top foreign currency earner.