Malawi has arrested former leader Bakili Muluzi on charges of stealing millions of dollars given to the country by international donors, in a case that could damage his bid to run for president again this year.

"We have re-arrested him and charged him with 87 counts on allegations of siphoning over $11 million of donor money into his private account. He will appear in court today," director of the Anti-Corruption Bureau Alex Nampota said on Thursday.

The bureau has been investigating Muluzi -- president of the southern African country for 10 years until 2004 -- for two years on allegations of siphoning money from Taiwan, Morocco, Libya and other donors. He denies any wrongdoing.

Muluzi, the opposition United Democratic Front's candidate for the May 19 presidential election, stepped down in 2004 after unsuccessfully trying to change the constitution to allow him to stand again. But he remains a powerful political force.

It is not clear if the case will prevent him contesting the poll.

"The arrest of Muluzi smacks of political interest driving the whole corruption case especially that it is just ahead of the presidential elections," said Mabvuto Bamusi, executive director for the Human Rights Consultative Committe.

"This will inadvertently create confusion and fear to would-be investors in Malawi as they may decide to wait and see."

Mike Davies, Middle East and Africa analyst at Eurasia Group, said the arrest would fuel hostility ahead of the election but could eventually ease the concerns of Western donors.

"The divisions between the two camps, within the political spectrum has been a frustration to donors when it has actually led to actual legislative reforms not being passed," he said.

"So hopefully to some extent at least this would now start get things moving in some sort of direction."

TROUBLED

Muluzi, hailed as a hero in 1994 for removing dictator Kamuzu Banda, announced a comeback last year and plans to contest the election.

He remains popular in his home region in the southern part of the country. Muluzi was detained last year on suspicion of being involved in a coup plot. The charges were later dropped.

Bingu Wa Mutharika is expected to win after presiding over four years of economic growth averaging 7 percent a year, with inflation reduced to single digits.

But Wa Mutharika's rule has been troubled since he took office in 2004 after winning an election marred by violence and accusations of ballot-rigging. Political crises have threatened to derail international donor programmes.

The southern African nation relies heavily on balance of payment support from donors which accounts for 80 percent of its development budget.

Malawi's economy had been enjoying a modest boom, but was hit last year by food and fuel costs. Latest government data put economic expansion at about 7 percent in 2008, compared to 8 percent the previous year.