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INTERVIEW-World Bank's lending to Madagascar hinges on new government

Richard Lough
Friday, 24 Jan 2014 | 7:25 AM ET

* Normal ties depends on formation of new government

* Donors cut budget aid after Rajoelina's 2009 coup

* World Bank sees GDP growth of 3.7 pct in 2014

NAIROBI, Jan 24 (Reuters) - The World Bank said on Friday it could resume normal relations with Madagascar within a month following calm elections, which would allow it to give budget support to the island for the first time since a 2009 coup.

Haleh Bridi, the bank's country representative, said the timing depended on how swiftly a new government was appointed following December's presidential and legislative polls, the first since outgoing president Andry Rajoelina seized power.

A rapid resumption of direct aid, cut by donors in 2009, was crucial to enabling the cash-starved government to meet basic spending needs and boost the nickel-producer's anaemic growth levels, outgoing Finance Minister Lantoniaina Rasoloelison told Reuters before the vote.

"We don't consider the election process complete until we see the formation of a new government, until we see a prime minister," Bridi told Reuters in a telephone interview.

"So I am saying a month but it depends on how long it takes for the government to be formed," she said, but added that she was "very encouraged" by the smooth vote and its aftermath.

The World Bank continued lending to Madagascar during the near five-year long political crisis. But it halted budgetary support and focused instead on emergency aid.

Bridi said the bank could lend in the region of $120-150 million a year for the first three-year allocation.

Rajoelina, a one-time disc jockey, will hand power to the president-elect, Hery Rajaonarimampianina, on Saturday.

His defeated rival, Jean Louis Robinson, who previously said the vote was rigged, has shown little appetite for taking his protests to the streets and prolonging the political turmoil.

Meanwhile, results from the parliamentary poll have yet to be announced. Rajoelina this week said his coalition had won and he raised the possibility of becoming prime minister, a move which could fan tensions anew.

Rajaonarimampianina's experience encourages donors. He served as finance minister through much of the crisis. In the face of axed budget support, dwindling tax revenues and a slump in foreign investment, he slashed spending to keep inflation and the currency stable and avoid a crippling level of debt.

Even so, Madagascar's public finances are in poor shape.

"Madagascar is either already broke or close to being broke," Bridi said.

GROWTH INADEQUATE

Bridi said initial budget support would be "very, very modest" and would make no major difference to public finances.

She forecast the economy would expand 3.7 percent this year before accelerating to 4 percent in 2015, below earlier projections and insufficient she said to significantly alleviate poverty levels that deepened during the crisis.

Worryingly for the Malagasy authorities, that figure falls to around 2 percent if the mining sector, driven by Rio Tinto's mineral sands project and Toronto-listed Sherritt International's nickel and cobalt mine, is excluded.

"With a population growth of about 3 percent, 4 percent or 5 percent growth means hardly anything," Bridi said.

Rajaonarimampianina's priority, she said, should be to boost growth by creating jobs in an economy dominated by an informal sector where the average income is a meagre $25 per month.

That means restoring confidence of local business and foreign firms who had queued up for deals to exploit deposits of nickel, titanium, cobalt, iron and coal as well as hydrocarbon prospects before the chaos erupted.

There were simple, cost-free measures to lure investors back, Bridi said, including a public pledge to honour mining contracts and making the anti-corruption agency independent.

"That is the kind of thing the government should do in the short term, more so than coming with a hat to the World Bank and saying 'give us budget support'," Bridi said.

(Editing by Susan Fenton)