2010/07/24

Monday, July 26

163rd Independence Anniversary Invites To Reflect And Celebrate

On July 26, Liberia and Liberians worldwide celebrate the 163rd anniversary of the independence of Africa’s oldest republic. On this occasion, two questions come to my mind. First, what explains that Liberia has managed to exist for over 160 years? Secondly, is it really an achievement??

It is quite a challenge to try to answer these questions in less than 400 words. Nevertheless, I will try it and tackle them.

How come that Liberia has survived despite all difficulties? ‘Cause difficulties, there were many. I will neither mention all nor elaborate on them: I would already exceed my maximum 400 words. The settler population that created the republic did not come voluntary to the shores of the Pepper or Grain Coast, definitely not all of them. Further, they had to start from scratch: there was nothing, all modern institutions a.s.o. had to be built. Moreover, the immigrants alienated the peoples living on the Pepper Coast by imposing their laws while at the same time excluding them from the benefits of these laws. Not surprisingly, after 133 years, the rule of the Americo-Liberians, as they preferred to call themselves, was violently overthrown. The chaos that followed led to an even more violent struggle for power which lasted some 14 years. Since then, Liberia re-started from scratch.

In my opinion, there are two major explanations for Liberia’s survival despite all these difficulties. First and foremost I must mention the US protection and support. Without the support of the American Colonization Society (ACS) in the 19th century and the US Government in the 20th century, for reasons of the Cold War, the Lone Star Republic would not have survived. It is not a coincidence that the worst part of Liberia’s contemporary history started after the end of the Cold War.

Secondly, the successive Liberian governments and foreign investors connived in the exploitation of the rich natural resources of the country. Under this arrangement – called the Open Door Policy – the governing elite used a portion of the proceeds of the economic development which took place – albeit in enclave sectors – to stay in power and live a comfortable life. The foreign investors were allowed to take the largest share of the cake. The foregoing is important since it contains important lessons for the future.

Then the second question. How much of an achievement is it to have existed for over 160 years?
According to most sources the world nowadays counts 195 independent countries leaving important aspects of constitutional law here aside. Only about a quarter of these 195 countries exists for more than a century.

In Africa there are three ‘old’ countries: The oldest one is Ethiopia, before the 20th c. called Abyssynia. The second oldest is Liberia. The third is the Republic of South Africa (officially the ‘Union of South Africa’) – besides, another country marked by immigration and ethnic conflict (!). The Republic of South Africa emerged in the early years of the 20th c. on the ashes of the defeated Boer Republics of which Transvaal (or South African Republic) and Orange Free State were the most important ones.

Throughout history many countries split, merged, changed their names or were swept from the world map as a result of war. E.g. the Austro-Hungarian Empire in Europe, the Ottoman Empire (aka the Turkish Empire) and, more recent, the Union of Socialist Soviet Republics (USSR).

‘Independent’ African countries that have disappeared are the Boer Republics in Southern Africa, created in the last quarter of the 19th century, and the Bantustans (aka Black African homelands) in particular Transkei, Bophuthatswana, Venda, and Ciskei (the so-called TBVC states) created by the Apartheid regime but which did not survive the fall of ‘Apartheid’.

Consequently, many countries no longer exist.

In light of the foregoing there is reason to celebrate in Liberia 'July 26'. The answer to my second question is: ‘Yes, it is an achievement to have survived.’

But now, at the end of my reflections, a third question emerges: What else did Liberia achieve?

No doubt, a painful question. We will leave it until after the party.

I wish all Liberians a wonderful July 26!!

All Hail, Liberia, Hail! Click here for the music.

2010/07/10

Saturday, July 10

Is debt relief the solution?

When in 1926 Firestone gained control over Liberia’s public finance through a new - and according to some unnecessary - US $ 5 million loan which replaced all existing foreign loans of Liberia, there was a public outcry. Some people were outraged. Firestone wanted some control over the Liberian Government to protect its interests which consisted of what later proved to be a historic concession agreement for the production of natural rubber. The loan put the country virtually under the control of Americans and administrators appointed by people on the other side of the Atlantic Ocean. The Liberian Government was even forbidden to contract new loans without the written consent of Firestone!

Although there are many differences between this famous Firestone Loan and the debt relief Liberia recently obtained, there also are important similarities and, what is even more important, lessons to be learned. Because that’s ultimately the usefulness of history: to learn from it in order to improve present and future actions.

Let there be no misunderstanding about my joy for this historic debt write-off. President Ellen Johnson Sirleaf and her team are to be congratulated with this achievement. The US $ 4.6 billion (!) debt relief which Liberia thus obtained from multilateral, bilateral and commercial creditors erases a huge debt stock which contributed to discourage foreign and domestic investors to invest in the country and would have captured an important portion of public expenditures in order to service it – if the Liberian Government would have serviced its debt, which it did not do.

Since the 1980 coup d’├ętat, followed by the 14-year civil war, none of the loans Liberia owed to foreign creditors were serviced, and thus penalties and arrears (interest payments and amortization of loans) grew every year. This had resulted in a staggering US $ 4.9 billion debt when Ellen Johnson Sirleaf was elected president. As President Sirleaf said in a nation-wide address informing the Liberian population of the debt cancellation: ‘Our budget for 2009-2010 is US $ 350 million. To settle that US 4.9 billion debt, we would have had to pay our creditors our entire budget for 28 years!’

It all began in 2008. In March of that year, after two years in office, President Sirleaf and (then) Finance Minister Antoinette Sayeh had succeeded in normalizing relations with the International Monetary Fund (IMF) and the World Bank. Being former World Bank officials, Ellen Johnson Sirleaf and Antoinette Sayeh are on good terms with the Bretton Woods Institutions and their staff. See my March 19, 2008 posting on this blog. I then announced that HIPC and PRSP would become household words in Liberia. HIPC stands for Heavily-Indebted Poor Country. Liberia joined this club of now 29 poor and heavily indebted countries in 2008, when it reached the so-called decision point (see the previous link, but scroll), the first step towards a more comprehensive debt relief. Shortly after Liberia became a so-called HIPC-country, Antoinette Sayeh was appointed Director of the IMF’s African Department, in May 2008, and returned to Washington DC where she had been living for 17 years, working with the World Bank, before joining Sirleaf’s administration in 2006. Also in 2008, the Sirleaf Administration submitted a Poverty Reduction Strategy Paper (PRSP) to the IMF and World Bank, one of the many conditions for further debt relief. Liberia worked hard to meet the other conditions for a comprehensive debt relief agreement and to reach the so-called completion point (see this link and scroll). These requirements are very technical, interested readers are referred to the HIPC site just mentioned.

Finance and Planning Ministers Augustine K. Ngafuan and Amara Konneh, who led Liberia’s HIPC delegation to Washington DC, returned to Liberia on June 29, announcing that Liberia had reached the HPIC completion point, thus obtaining the green light from World Bank and IMF for a US $ 4.6 billion debt cancellation. One of the conditions they noted was that now Liberia is only allowed to borrow for development projects. Another condition prescribed that loans should not exceed 2% of the country’s GDP which means US $ 40 million annually. Once more Liberia is placed under guardianship. This time not of the US overnment or a US company, but of the Bretton Woods Institutions.

President Ellen Johnson Sirleaf immediately expressed great satisfaction over the debt relief in a nation-wide address, comparing it with another Independence Day for Liberia. Antoinette Sayeh said that Liberia now has a real chance to develop with the debt burden lifted. Dr. Toga McIntosh Gaewea, former Liberian Finance minister and one of the brains behind the PRSP - now World Bank executive in Washington DC - praised the commitment of the Sirleaf administration to pro poor growth, macroeconomic stability, fiscal and monetary prudence and sustainable development through the PRSP and other development frameworks.

It is important to mention that one of the weakest points in the performance of the Sirleaf Administration refers to public finance management. Liberia did not fully meet the standards set by IMF and World Bank. In popular terms, the management of the public sector still suffers from mismanagment, inefficiency and corruption. However, this has not prevented the EU to immdiately grant budgetary support to the Government of Liberia to the tune of US $ 8.5 million. In light of the budgetary deficit Liberia is facing due to the worldwide economic crisis, a present from heaven.

Liberia’s economic history is one of relying on foreign capital, be it direct foreign investments or foreign loans. Notably the latter proved to do more harm than good. It started with the 1871 loan which led to the country’s first coup d’├ętat and the death of President Edward Roye, followed by the loans of 1906 and 1912, the infamous 1926 Firestone Loan, and many more. Will the present step, erasing once more all of its debts, enable Liberia to definitely leave its ugly past of notorious borrower failing to meet its obligations?

I will not conceal that I have mixed feelings with respect to this as well as other debt relief deals, notably since it concerns countries which are well endowed with natural resources and where outright thievery and corruption combined with mismanagement are among the root causes of the inability to service the debt incurred. Moreover, the economic potential of these countries, rich in minerals, and a huge potential in agricutural development, should enable them to finance their own development. In the same week that Liberia reached the HIPC completion point another Sub-Saharan African country, also well endowed with natural resources, reached the HIPC completion point. On the eve of the 50th anniversary of its independence, the Democratic Republic of Congo ('Congo-Kinshasa') reached the HIPC completion point. This paved the way for the Paris Club to cancel more than US$ 13 billion.

These amounts always puzzle me. US $ 4.600.000.000,00 That is what it is. Four thousand six hundred million American dollars. I bet nobody reading this blog can explain me how much this really is. Take one million for you - and one for me :-) and we still have an amount left of US $ 4.598.000.000,00 - unbelievable.

Comparing the two countries,DRC and Liberia, I will immediately admit that I am far more optimistic about Liberia’s future and prospects than those of the DRC. There are many reasons for it, one of the most important being the commitment of the country's leader.

Notwithstanding this difference, Liberia is far from leaving its ugly past behind. There still are many challenges. The country will need to regain the confidence of foreign investors – despite some recent successes in the agricultural and mining sectors. Liberia will have to stop borrowing for unproductive purposes. There are many, many more challenges.

Three priorities impose themselves. Failing to realize them will mean that the lessons of the infamous 1926 Firestone loan and the recent debt cancellation have not been learned. The proceeds of the infamous 1926 Firestone loan were not used for productive activities but were squandered. The HIPC debt relief of 2010 will also not benefit the people of Liberia unless the following three priorities will be rigorously pursued: 1) eradicate corruption, 2) improve infrastructure and 3) enhance agriculture.

Therefore, the answer to my question: 'Is debt relief a solution?' is an outright 'NO'. Debt relief is no panacea for Liberia's problems, as also Vice President Boakai and Finance Minister Ngaufuan said. But it represents an opportunity that should not be missed.

The penalty to miss it is misery and poverty. The Liberian people deserves better. It all depends on the leaders. Next year, presidental and legislative elections will be held. Who will be the new leader(s)? The country cannot afford missteps.