ANALYSIS-No end in sight for Madagascar crisis
* Turmoil to continue for months
* Economy to fall into negative territory
* Rajoelina holds balance of power
By Richard Lough
ANTANANARIVO, Sept 11 (Reuters) - Political turmoil in Madagascar is likely to rock the island for months to come, stunting investment, prolonging an aid freeze and driving economic growth into negative territory.
A broad-based solution to the nine-month long crisis looks increasingly unlikely in the near future after President Andry Rajoelina unilaterally named a unity government this week that is meant to steer the country to fresh elections, but which was immediately rejected by the opposition.
Lydie Boka, Madagascar expert at the risk consultancy StrategieCo., said a power-sharing deal agreed last month in Maputo, the Mozambique capital, was not necessarily dead. But she said the balance of power was in Rajoelina's favour, and he appeared to be in no hurry to negotiate.
"It's not a question of Maputo failing. It is just part of a long bargaining process," Boka told Reuters.
"Rajoelina doesn't need to give too much too quickly with the army behind him. They will just offer token gestures."
Southern African nations have joined Madagascar's opposition in refusing to recognise the 35-year-old former DJ's transitional authority.
On Thursday, the African Union's Peace and Security Council condemned the appointments and said it might impose sanctions on Rajoelina's team and its supporters. [ID:nLA288142]
It did not say what sanctions it was considering.
The former mayor of Antananarivo spearheaded weeks of violent street protests before toppling former leader Marc Ravalomanana in a coup last March with the help of dissidents in the military.
How quickly Africa's youngest incumbent will offer sweeteners to the opposition -- who are united more through convenience than any convergence of ideology -- will depend on Madagascar's finances.
WHAT WILL DONORS DO?
More than 70 percent of the country's budget is donor funded. Several major donors including the International Monetary Fund, the United States and European Union have frozen aid worth hundreds of millions of dollars.
"Rajoelina is banking on donors returning, so he knows he has to comply eventually with the international community," Boka said.
Others believe the boyish-faced leader, who has limited political experience, will simply hope to limp through to the next presidential election, which is scheduled for the end of next year under the terms of the Maputo deal.
"Rajoelina will be thinking he's just got to get through the next 14 months, hold elections and count on the international community coming back," said one diplomatic source.
Whether he has to contend with the popular anger he galvanised towards Ravalomanana will hinge on the opposition's ability to present a united front, and the economic outlook.
Analysts say there is a sense of deflation and frustration in the opposition, which had believed that a deal was within reach and now seems to have limited space to manoeuvre.
The economic picture is likely to present the new government with a greater challenge.
Under Ravalomanana, who was accused of abuse of office for private gain, Madagascar enjoyed sustained economic growth as the country opened its doors to foreign investors hoping to exploit its oil, nickel, cobalt, gold, uranium and coal.
The U.S. government has also warned it will suspend Madagascar from its AGOA trade deal, the mainstay of the country's $600 million-a-year textile sector, if it fails to make progress towards restoring constitutional order.
"We recently downgraded our economic growth forecast to a small negative," said Thea Fourie, economist at South Africa-based risk consultancy IHS Global Insight.
"New investors will be hesitant to enter given the political risk ... the government no longer has the funds for infrastructure projects. So that will definitely impact on growth," Fourie said. (Editing by Daniel Wallis)
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