By Frank Phiri
BLANTYRE (Reuters) - Malawi's President Bingu wa Mutharika has appointed a new army chief two days after a deadly crackdown on anti-government protesters, raising speculation about the loyalty of the impoverished southern African nation's military.
In an announcement on state radio late on Friday, Mutharika promoted Henry Odillo, a junior officer, to replace Marko Chiziko, whose contract had officially expired last year but whose departure was nonetheless unexpected.
Although Odillo had been in the frame as a possible successor, the timing -- two days after 18 people were killed in a crackdown on political riots -- is likely to fuel speculation about simmering anti-Mutharika feelings in the military.
Calm has returned after this week's demonstrations demanding the resignation of Mutharika, a former World Bank economist first elected in 2004, but protest organizers have set an August 16 deadline for him to sit down and listen to their grievances.
The mood on both sides is uncompromising, suggesting further confrontation is likely in a country of 13 million people that bills itself as the peace-loving "Warm heart of Africa."
At a police graduation ceremony on Friday, Mutharika struck a combative note, saying he would "smoke out" protesters if they returned to the streets.
Ordinary Malawians, frustrated by a chronic lack of foreign exchange and fuel that they say belies the economy's stellar growth statistics, are not heeding the threats.
"The protests this week gave them a lesson," said William Sanudi, a 37-year-ol curio-seller in the capital, Lilongwe.
"August 17 - people are waiting for that day. They will go back on the streets and things will get worse. People want to fight for truth and democracy."
Mutharika has presided over six years of high-paced but aid-funded growth, but the sheen has come off this year as he has become embroiled in a diplomatic row with Britain, Malawi's biggest donor, over a leaked embassy cable that referred to him as "autocratic and intolerant of criticism."
The cable led to the expulsion of Britain's ambassador to Lilongwe, and in response, Britain expelled Malawi's representative in London and suspended aid worth $550 million over the next four years.
The freeze has left a yawning hole in the budget of a country that has relied on handouts for 40 percent of its revenues, and intensified a foreign currency shortage that is threatening the kwacha's peg at 150 to the dollar.
Condemnation from Washington and Europe over this week's crackdown suggests the aid squeeze -- and thereby Malawi's overall economic plight -- could well intensify.
The U.S. Millennium Challenge Corporation, which approved a $350 million overhaul of the decrepit national power grid early this year, said it was "deeply concerned" at the crackdown and would be reviewing its operations.
(Additional reporting and writing by Ed Cropley)