Malawi donors to continue withholding aid: paper

BLANTYRE (Reuters) - International donors withholding $500 million in aid to Malawi will not lift their embargo until President Bingu wa Mutharika addresses concerns about his political and economic leadership of the southern African nation, a newspaper said on Thursday.

"The donors are still concerned about threats to press freedom and the 'shrinking political space'," the Nation newspaper quoted World Bank country manager Sandra Bloemekamp as saying.

"These, , are continuously raising Malawi's profile in the international community in negative light."

Bloemekamp, who chairs a committee of the donors who normally account for 40 percent of Malawi's budget, was also quoted as saying outside governments were concerned about Lilongwe's failure to get an IMF loan programme back on track.

In addition, the paper said donors were demanding Mutharika speed up an inquiry into a July crackdown on anti-government protests in which 20 demonstrators were killed.

The aid freeze started earlier this year with a diplomatic spat with Britain, Malawi's biggest donor, caused by a leaked diplomatic cable that labelled Mutharika "autocratic and intolerant of criticism".

Washington joined in after the July violence, suspending a $350 million project to upgrade the impoverished, land-locked state's decrepit electricity grid.

Combined with a collapse in revenues from tobacco, Malawi's main foreign exchange earner, the aid embargo has triggered an acute dollar shortage, putting pressure on the kwacha currency and hitting imports of basics such as food and fuel.

Petrol stations are frequently dry, and when they do have fuel, motorists are forced to queue for hours to fill up.

The hardship in evidence on the streets is in stark contrast to the official statistics, which suggest that Malawi has been among the world's fastest-growing economies in the last six years.

Much of that performance has been based on a fertiliser subsidy scheme for farmers, although the aid freeze has also thrown that programme into doubt.