Resuscitating Liberia’s Economy: Can the IMF Succeed When America Did Not?
Monrovia – In 1987, United States President Ronald Reagan dispatched 17 ”operational experts” to Liberia during the reign of late President Samuel Kanyon Doe, to take control of the government’s finances. Exactly 32 years later, this week, a team of experts from the International Monetary Fund are in Liberia to assist the George Manneh Weah-led government put its books in order as a precondition for the country’s re-entry into the IMF program.
Report by Rodney D. Sieh, [email protected]
The administration of former President Ellen Johnson-Sirleaf also benefited from the program which ended in Nov 2017. At the start of the Weah-led government, authorities were at first reluctant to enter the program as it elapsed.
30 Years Later, A Lot of Similarities
Now, with its back against the wall, the government, running out of option, has turned to the IMF for remedy.
Dr. David Farhat, who was Deputy Minister of Finance when the US Team arrived in 1987, expressed some concerns to the New York Times about the way the team was carrying out its work. ”If an operational expert says, ‘You can’t do this, you’ve got to do that,’ he can get on a plane and go!” Dr. Farhat said at the time. Regarding the experts as ”advisers,” the minister at the time, predicted that ”they will see we are doing the best under the circumstances.”
Looking back, thirty-two years on, Dr. Farhat, now Director of the Graduate Program of Business and Public Administration (MBA/MPA) at the University of Liberia sees some similarity but different sets of circumstances to what the current team of IMF experts are operating under in Liberia.
“They(the Americans) came in 1987 to give support to help us put things in order – and so they would tell you what to do. They didn’t bring money. On the contrary, the IMF currently in the country, will eventually bring in money. So, you know what they say, he who plays the piper, calls the tune. So, they would be playing the piper, and we would have to call the tune – and we would have to play along – or – we don’t’ get the money. The American program was set up to help Liberia manage its own money. They were trying to push the government just as they did with the Ellen Johnson-Sirleaf-led government, they had to walk a chalk line because when you lose the program, you lose the money.”
Dr. Farhat said the ’87 team of operational experts nicknamed “OPEX”, started on a diplomatic mission when the Doe government asked the Americans for assistance to help put the government on its track. “They wanted people to be stationed in many of the ministries – there were people who were bitter against it but I was one of those who felt that it was one of the best things to do,” recalled Dr. Farhat.
The Times reported that under a draft contract agreed with President Doe, the 17 Americans were expected to wield co-signing authority in several key ministries and state corporations: finance, commerce, planning, the central bank, the national oil company and the produce marketing company.
The Opex system was set up after lengthy negotiations between Liberia and the U.S. Agency for International Development, which is spending $18.4 million on the project. The team was made up of veteran consultants, accountants and financial systems specialists with long experience in Third World economies. They ranged in age from 42 to 64 and all had a minimum of 15 years’ experience in their fields.
In addition, the experts were tasked with approving government checks, investigating first to make sure there is money in the bank, that the payment is in the budget, that the price is right and that the goods or services were delivered.
President Doe had acknowledged to the Americans that his fiscal affairs were out of control and the Los Angeles Times reported at the time that Doe lamented, “I don’t know who to trust.”
The OPEX project was a two-year project seen as a last-ditch effort to save an economy racked by corruption and a government looking to restore credibility after running through $500 million in United States aid and loans since 1980.
When the experts arrived, Liberia was $400 million behind in loan payments to the World Bank and the IMF. Both global agencies had shut down offices in Monrovia, effectively ending Liberia’s chances of borrowing. At the time, Liberia owed the American government about $1 million, and under U.S. law no new aid can be provided until the country paid up.
Scandal, Mismanagement Under Doe
Liberia under Doe was awash in fraud and mismanagement after wasting more than $60 million a year out of the $200-million annual budget. The state telephone company lost millions of dollars during a six-month period last year because operators were accepting $10 bribes to place lengthy overseas calls and charge them to other numbers.
The LA Times also reported that government officials have routinely authorized projects that the country cannot afford, awarding contracts to relatives and friends. President Doe ordered 80 new Mercedes-Benz cars for top-level government workers at a cost of $2.5 million last year, and the planned renovation of the presidential mansion will run about $8 million.
Fast forward to today, the current administration is in the midst of an economic decline after recently running into trouble with the donor community after misusing monies intended for their projects.
In the letter to President Weah from the nine diplomats representing the European Union Delegation to Liberia, the governments of the United States of America, France, Germany, Ireland, Japan, Norway, Sweden and United Kingdom of Great Britain and Northern Ireland, they told him that they are “apprehensive about the potential negative impact that such conduct may have on assistance level to Liberia overall.”
The Donors wrote: “In light of this finding, the donor partners are obligated to consider the integrity of the funding that our governments have allocated for Liberian assistance programs and ways to protect it going forward. The so-called “borrowing initiative” damages donor confidence in your government’s use of donor resources and in its ability to serve as an effective partner on development programs. We are apprehensive about the potential negative impact that such conduct may have on assistance levels to Liberia over all.”
Focus on the Money Flow
Like the 87 experts’ arrival, the current realities have IMF team preparing Liberia for the long haul to fix the broken economy in the same vein that the OPEX experts tried to do.
Dr. Farhat recalls that the OPEX team of 1987, was greeted with some resistance. “My point then was we told them that the government had requested their help and they were coming – and they were not bringing in money –– they were just coming to look at our books and support our finances and come and dictate what government should do and be able to show them what would happen and I tell you, they came and started and the thing went sour.”
‘The concept, according to an unnamed US official quoted by the Times, was not to put financial experts in every ministry, but to focus on where the money is flowing in and out.”
Similarly, the current IMF team in Liberia is expected to work with Liberian authorities to spot loopholes and avenues to see where the government can recoup lost funds and get it back on track. The key concern for many diplomatic observers and economists, is whether the current government will be open to allow IMF team to see the books – what’s coming in and what’s going out?
A key reason the 87 American team struggled centered on clashes between the experts and Liberian government officials over which checks to issue and which would have to go through the presidency, the Weah administration has assured the IMF that they are unlikely to be a problem. The key, diplomatic observers say, could lie in the extent the IMF is allowed to see the financial activities.
Former Auditor General John S. Morlu says the GEMAP-style monitoring is not new to Liberia. “As far back at the League of Nations and the Edwin Barclay era, then William V.S. Tubman, his successor William R. Tolbert, Doe, Charles Taylor, Bryant, and Sirleaf, Liberia has always been subjected to foreign interventions to save the state from collapse.”
Following the dubious elections of 1927, when he received 234,000 votes even though Liberia had 15,000 registered voters at the time, making an entry into the Guinness Book of World Record as the most fraudulent elections in history, President Charles D.B. King was forced to step down in the wake of a major forced labor and slavery scandal.
Thomas Faulkner, who lost to King, accused many members of the True Whig Party government of recruiting and selling contract labor as slaves. Despite Liberia’s firm denials and a refusal to cooperate, the League of Nations established a commission under the leadership of British zoologist Cuthbert Christy to determine the extent of forced labor and slavery still practiced by Liberia. U.S. President Herbert Hoover briefly suspended relations to press Monrovia into compliance.
In 1930 the League of Nations published the committee’s report, dubbed the ‘Christy Report’ after the Committee’s chairman. The report supported many of Faulkner’s allegations, and implicated many government officials, including vice president Allen Yancy. It was found that forced labor was used for construction of certain public works such as roads in the interior. And certain tribes did practice domestic servitude that could be considered as slavery.
After DB King, the U.S. Great Britain wanted 100% Trusteeship for Liberia. But President Barclay pleaded as the country settled for a GEMAP(Governance and Economic Management Assistance Program (GEMAP))-type agreement.
Barclay went on to break the arrangement. His successor, Tubman promised to make it work and agreed to form the Commission of Government Operations, another GEMAP type. But would later circumvent the international team of experts who showed up, paying lip service to the process.
Similarly, Tubman’s successor, Tolbert formed the first-ever Anti-Corruption Agency in hopes of eradicating corruption. The agency became so corrupt it was termed by Liberians “the corruption Bureau.”
Former President Charles Taylor briefly toyed with the IMF, putting in place the Central Bank of Liberia and Revenue Code 2000 Acts but failing to implement them.
Charles Gyude Bryant, from the erstwhile National Transitional Government of Liberia(NTGL) signed onto the GEMAP which was embraced by President Ellen Johnson-Sirleaf when she took office in January, 2006.
Crucial Adjustments in Play
Mr. Morlu says, under former President Sirleaf, the GEMAP struggled to succeed. “International comptrollers were placed in ministries, agencies and public corporations but corruption and mismanagement remained rife. IMF had a program in addition to GEMAP during Sirleaf’ regime, and the country was left broke for CDC to inherited. While the Heavily Indebted Poor Countries program was deemed successful, the Sirleaf administration, according to her successor, the current administration of President Weah, left a broke country. The IMF waived nearly 80% of HIPC requirements and Liberia sailed through “easy.”
Morlu added: “We hope the IMF will not again put in programs through waivers because of the infamous argument that Liberia is still a fragile state. Had we really done the hard work to meet the HIPC requirements, perhaps the Weah administration would have been left a stronger economy. IMF must not put yet another band-aid on a seriously flawed governance system. The required reforms should be deeper and sustainable, that means it should bite deep into in restarting a flawed system of governance. No more gradualism. Liberia needs a shock therapy.”
In the current scenario, the IMF team’s assistance comes at a crucial time for Liberia, when the current government has agreed to endorse the IMF-Supported Program for Liberia while tightening screws and putting in place cost-saving measures to ease the economic woes.
This coming at a time when the latest Article IV Consultation report from the IMF is painting a picture that the near- and medium-term outlook under the baseline scenario remains challenging. “Growth is projected to slow further to about 0.4 percent in 2019 and remain below 2 percent into the medium-term,” the released this week noted. “In the baseline scenario, the authorities face the possibility of a forced, abrupt adjustment when domestic and external financing options are exhausted. An alternative reform scenario is therefore presented as a more viable alternative, in which growth weakens somewhat in the near term, due to proactive fiscal and monetary tightening, but picks up significantly over the medium term to exceed 5 percent by 2024.”
These adjustments come as IMF Directors are emphasizing that significant fiscal adjustment is needed going forward. In its latest Article IV report, the IMF Directors underscore that efforts should focus on mobilizing domestic revenue and rationalizing spending, especially the wage bill, while securing needed space for social and capital spending. Directors encouraged the authorities to formulate realistic budgets and to implement a sound borrowing plan that ensures debt sustainability, while advocating caution in engaging in non-concessional borrowing. They also called for further progress in public financial management reforms to improve the quality of spending in a resource-constrained environment.
The IMF agreed that the Central Bank of Liberia (CBL) should tighten monetary policy with the objective of reducing inflation to single digits by 2021. Directors emphasized that further issuance of CBL bills should be suspended until the cost of the operation is included in the government budget, and the fiscal financing gap is closed without CBL financing and noted that while the financial soundness indicators show that the banking sector appears adequately capitalized, the CBL should enhance its supervisory efforts. The IMF highlighted the need to prioritize strengthening the CBL’s supervisory, regulatory, and resolution frameworks in light of the elevated level of nonperforming loans, focusing on measures that improve loan underwriting standards.
Directors highlighted the need to improve the external position by tightening monetary and fiscal policies, allowing for greater exchange rate flexibility, and raising competitiveness through improvements in the business environment. They welcomed that the authorities’ pro-poor agenda focuses on physical and human capital, particularly improving service delivery in health and education.
Executive, Legislative Branches on Same Page?
To achieve this goal, the current Liberian government is hoping to put in place the measures necessary to succeed – with an eye on an External Credit Facility (ECF) arrangement which provides financial assistance to countries with protracted balance of payments problems in a more flexible form to low-income countries.
The ECF was created under the Poverty Reduction and Growth Trust (PRGT) as part of a broader reform to make the Fund’s financial support more flexible and better tailored to the diverse needs of low-income countries (LICs), including in times of crisis. The ECF is the Fund’s main tool for providing medium-term support to LICs.
The million-dollar question on the minds of many is, how much of a stretch the Weah administration is willing to go in fitting the IMF’s strait jacket?
More importantly, would officials be willing to go along with the program’s sets of conditions and rules in meeting the priorities to put the finances of Liberia back on good footing.
This could entail, scrutiny of leases, purchase orders, checks and payment documents and access to a lot of paperwork. For now, the government says it is ready to play along, instituting cuts within the Executive branch while pledging a revised budget of US$515 million. The government says it is also working to slice the wage bill, something the IMF has been frowning upon. Complicating all this is where will the national legislature fit in?
Like the era of Doe, the Weah administration finds itself struggling to resuscitate the economy while making adjustments. In the final analysis, observers say, it could boil down to how much of a political will President Weah is willing to muster to convince the international community that he is sincere in his quest to fight graft.
In the past few weeks, the administration has been flirting with the idea of convincing former Auditor General Morlu to return in some capacity, although those discussions, FrontPageAfrica has learned has simmered over Mr. Morlu’s proposed Term of Reference which the administration appears to be unwilling to agree to. The nomination of Syrennius Cephus as Solicitor General is also raising red flags and questions about the government’s seriousness to play along with the rigid demand of the IMF program – amid conflict of interest issues and the Solicitor General’s previous suspension by the Supreme Court on ethical grounds.
For the foreseeable future, Liberia appears to be headed toward a collision course with historical interventions – and the stakes have never been higher for a nation, once again on the brinks of uncertainty and toying with an economic collapse; yet still relying on a program drawing similarities from others which have been tried and tested with limited results but obviously good intentions.
The bottom-line question remains: Will this new IMF initiative finally succeed to put Liberia on a solid footing when numerous interventions including IMF’s previous international have not succeeded?