UK call to aid Malawi's economy

Banda is the first female leader in Malawi

Britain is calling for urgent action to prevent a Greece-style financial crisis in Malawi, one of the world's poorest countries, where recent political turmoil, a suspension of foreign aid, and an abrupt currency devaluation have conspired to leave the new government with a gaping hole in its budget.

"Malawi is at a crossroads today and action in three to six months may be too late," said Andrew Mitchell, UK Secretary of State for Development.

The UK was among those which suspended direct aid to the government last year.

Now it is scrambling to bring forward some £30m ($47m) - not due to be handed to the Malawian treasury until later in the year - in the next few weeks, and is urging other donors to do the same.

"We need a lot of support, very quickly - in the region of $500m," acknowledged Joyce Banda, Malawi's new president, who grappled her way to power last month after her predecessor Bingu wa Mutharika died of a heart attack and his aides briefly attempted to subvert the constitution to keep her from taking over.

"Look at me - I'm not panicking," said President Banda, in an interview at State House in Lilongwe.

She argued that much of the cash has already been pledged by foreign donors, then suspended last year because of the increasingly autocratic behaviour of her predecessor, and could be released to Malawi swiftly once the IMF gives her new government's economic programme its blessing.

"We have moved quickly. The situation was self-made therefore things can be corrected - and the good thing is that we know what to do," said President Banda, pointing out how swiftly her team has moved to restore diplomatic relations with Britain, and to invite the IMF back to Malawi.

The 33% currency devaluation - although widely recommended by economists - has put huge strain on the treasury, and on many ordinary Malawians, as the price of imported goods has soared.

Privately, western diplomats here are warning of the possibility of economic collapse, and a backlash against President Banda, if the situation isn't handled firmly and fast.

"An inflationary spiral is a real threat - if the economy collapses, Banda will lose support and political instability could follow. The cost of rescuing Malawi will be much more expensive than supporting it now," said one diplomat, speaking on condition of anonymity.