Since South Africa’s political transition, Malawi appears to have dropped off Pretoria’s political map; under Banda it was South Africa’s closest African ally. Earlier this year, Malawi staged its second democratic election, amidst allegations of corruption and public unhappiness at slow economic growth. Malawi’s first election was held 1994. Bakili Muluzi won the presidential vote and despite his attempts to liberalise the economy, living standards remain low. The second elections were held this year, despite fears that the process would not be free and fair. Party campaigns failed to address important issues, and the opposition contested the election results. Malawi will benefit from the decision at the G-7 summit to reduce the debt of highly indebted poor countries. Its main revenue sources are tobacco and foreign aid, and there are plans to reduce dependency on tobacco. Other development projects concern telecommunications and the privatisation of parastatals. Import and export costs increased due to the civil war in Mozambique. Budget stringencies were made difficult by depreciation of the kwacha. Development challenges are compounded by the rate of Aids infection, directly related to poverty, and the illiteracy rate is high. South Africa remains Malawi’s principal trading partner, and it is a member of SADC and COMESA. The economy depends heavily on aid, especially from Western countries. Various foreign policy moves recently highlighted tensions between Muslims and Christian, placing Malawi at a critical crossroads in its political history.