Madagascar teeters on edge of further sanctions

Madagascar's diplomatically isolated leader risks sanctions and the possible cancellation of critical foreign aid if he sticks to his hardline stance on how to end his country's year-long political crisis.                                           

Foreign diplomats warn the Indian Ocean island could become a pariah state if Andry Rajoelina fails to compromise on a road map for holding elections that appeases opposition leaders, regional neighbours and donor nations.                                           

There are signs that the 35-year-old former disc jockey is slowly leaning towards moderates within his administration who argue he needs international support and stability to reboot the stagnant economy and soothe the fears of foreign investors.

"In my view, Andry Rajoelina has begun to change his position, but he's not yet done enough to convince the international community he is behind a consensual and inclusive solution," Guy Ratrimoarivony, director of the Centre for Diplomatic and Strategic Studies in Antananarivo, told Reuters.                                           

In a last-ditch effort to persuade the European Union (EU) and African Union (AU) that he is serious about accommodating his political rivals, Rajoelina told French parliamentarians in Paris last week he proposed creating an opposition-filled body to check the executive's power ahead of an eventual ballot.  

Both bodies will discuss possible sanctions soon. Former leader Marc Ravalomanana opened Madagascar's doors to major foreign companies, and overseas investment surged to around $1.47 billion to 2008 from $86 million in 2005. Inflows collapsed during last year's crisis, but how much is not clear.   

Big foreign miners including Rio Tinto and Sheritt International have driven outside investment, with extractive industries accounting for $472 million dollars -- or more than 60 percent of FDI inflows -- in 2007.                                           

The AU's new chairman, Malawian president Bingu wa Mutharika, wants the pan-African body to "declare war" on unconstitutional changes of government, and is expected to increase the pressure on Rajoelina.                                           

"But, as far as sanctions, we are not sure yet. There are figures in the AU pushing for the imposition of sanctions, but others want a softer approach," one AU diplomat told Reuters on condition of anonymity.                                                                                  

EU TO BE "REASONABLY TOUGH"                                          
Ramtane Lamamra, AU Commissioner for Peace and Security, told Reuters separately that a decision would be taken after the AU's Peace and Security Council met on February 19.

One European diplomat expected the EU to be "reasonably tough" with Madagascar if no progress was made on a workable political deal in the coming days.                                           

Rajoelina's military-backed overthrow of Ravalomanana last March flagrantly violated good governance conditions on European aid worth 600 million euros, the EU has previously said. Many expect, however, that the EU is unlikely to cancel aid definitively.    

"The EU will have to abide by the Cotonou rules, but a way will be found to have any sanctions limited in scope and timeframe," risk consultant Lydie Boka told Reuters.

The Cotonou accord gives the African, Caribbean and Pacific (ACP) group of countries preferential access to the EU trade bloc and sets the framework for aid policy, but is conditional on good governance and upholding democratic values. 

Donor aid financed roughly 70 percent of public spending last year and more than 45 percent of Madagascar's entire budget, analysts say. Economic growth in 2010 is expected be weak at best if aid remains frozen.                                           

The $8.6 billion economy shrank 0.2 percent in 2009 from 5.0 percent growth a year earlier, IMF data showed, as government spending dried up and private investment slowed sharply.

The EU's decision will likely be strongly influenced by France, which maintains deep political, cultural and commercial ties with its former colony, has continued bilateral aid since the crisis broke out and backed Rajoelina's call for elections.

But observer's doubt Paris will risk compromising its relations within the EU if the groundswell of opposition becomes too great as patience wears thin.

"France has its own interests to defend but will not want to disassociate itself... from the EU," said Guy Ratrimoarivony.