28 March 2008
analysis
Fresh from winning the leadership contest of war-ravaged Liberia, the Johnson-Sirleaf administration stepped right into the challenge of balancing the debt repayment expectation of financial institutions and lender nations with the recovery expectation of millions of war-devastated Liberians.
It's been more than a year of discussions and compromises now, and the Executive Board of the International Monetary Fund (IMF) says it is providing a growth-enabling environment for Liberia.
There is a resounding "Hooray!" across the nation, but the questions that remain are, "Is Liberia ready to handle the requirements of that environment in order to remain the IMF's trusted partner?" "Is the country's new status a blessing or the benefit of the doubt for Liberia?"
Or better still, "How long will the conditions in Liberia make the IMF compassionate enough to keep engaged - outside the hard core lending and business rules?"
The Analyst Staff Writer has been considering just these questions plus more.
Announcements by the Executive Board of the International Monetary Fund (IMF), last week, leaves as much for delight as it leaves hard questions for reflection and consideration lest the delight is short-lived, observers and analysts have suggested.
The announcement, though, lifted for the 185-nation IMF and the Johnson-Sirleaf administration a chorus of "Hooray!" amongst unsuspecting Liberians across the nation last week. These expect that the administration will now begin to restore basic social services, revamp the private and public sectors, and begin creating new jobs to service the nation's daunting unemployment problem.
"But how realistic are the expectations in the face of crawling realities that comprise troubling contradictions and professional and structural insufficiencies?" is yet another question observers and analysts want answered.
IMF Announcement
IMF Board, in a policy statement, said it has fully restored Liberia's IMF status after 20 years delinquency in loan servicing, approved financial support amounting to US$952 Million, and agreed in principle to designate Liberia as a "Decision Point country" under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative.
A country reaches decision point, amongst other things, after it had establish a track record of reform and sound policies through IMF- and World Bank's International Development Association (IDA)-supported programs.
This include, foremost, after the country had developed what is called a Poverty Reduction Strategy Paper (PRSP) through a process that involved the IMF and World Bank and all of the country's stakeholders in the private and public sectors.
The IMF eligibility criteria say a country at decision point may immediately begin receiving interim relief on its debt service falling due. In order for the relief to become full and irrevocable, the criteria say, the country must establish a further track record of good performance under IMF- and IDA-supported programs; implement satisfactorily key reforms agreed at the decision point, and adopt and implement the PRSP for at least one year.
Achievement at this level will qualify the nation for what IMF calls its completion point, at which time lenders are expected to provide the full debt relief committed at decision point. The IMF announcement says the Board approved the range of measures to complete the steps necessary for Liberia to fully normalize financial relations after more than two decades of protracted arrears to the IMF.
The decisions, according to the policy statement, also enabled it to commit IMF financial support amounting to a combined SDR 582 million, about US$952 million. SDR is initials for "special drawing right" the current value of which is determined daily by the IMF by summing the values in U.S. dollars, based on market exchange rates, of a basket of four major currencies - the euro, Japanese yen, pound sterling, and the U.S. dollar.
The SDR valuation basket is normally reviewed every five years. Interest on SDR holdings is paid, and charges on net cumulative allocations are collected, on a quarterly basis, and are settled on the first day of the subsequent quarter.
The full restoration of Liberia's IMF status, according to the Board, includes the Executive Board's agreement to restore Liberia's voting and related rights, and its decision to restore Liberia's eligibility to use the general resources of the Fund.
Liberia's suspension rights to use SDRs was also lifted after overdue obligations to the IMF were cleared through a bridge loan amounting to an equivalent to SDR 543 million (about US$888 million) was paid by the U.S. government.
"Financial support approved by the Executive Board includes a three-year, SDR 239.02 million (about US$391 million) arrangement under the Poverty Reduction and Growth Facility (PRGF) and a SDR 342.77 million (about US$561 million) arrangement under the Extended Fund Facility (EFF) in support of the Liberia government's economic program covering 2008-10," the announcement said.
It noted further that the Executive Board's decisions allow an immediate disbursement to Liberia of an amount equivalent to SDR 550.03 million (about US$900 million) under the arrangements. The remaining SDR 31.76 million (about US$52 million) will be drawn in six installments.
What the announcement did not bother to say is whether or not the disbursements would be released directly to the Liberian government through budgetary allocations or would pass through middle UN, US, or NGO middlemen in which case Liberia will have no part in or control over the implementation as was the case in the past.
According to the announcement, details regarding the deliberations of Liberia's Decision Point under the enhanced HIPC Initiative would be released early this week. It said this is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty.
PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5½-year grace period on principal payments. Assistance under the EFF is given to IMF member nations with economies suffering from serious balance of payment difficulties caused by structural imbalances in production, trade and prices.
Or alternatively, to those countries whose economies are characterized by slow growth and an inherently weak balance of payments position. Drawings can be made over a period of three years under conditions similar to IMF standby drawings.
At the conclusion of the IMF Executive Board's discussion of Liberia's relations with the Fund and the country's requests for three-year arrangements under the PRGF and EFF, Mr. Murilo Portugal, Deputy Managing Director and Acting chair, issued the following statement:
"The government's reform objectives are ambitious, and will require continued strong commitment to the economic program to ensure achievement of key benchmarks. Continued financial and technical support from the international community will be important to support the government's efforts.
"Over the past two years, Liberia has strengthened public expenditure management and financial transparency, and increased government revenues.
Efforts are required to improve budget implementation without weakening the procedures for approving, controlling and monitoring spending. Adoption of a comprehensive public financial management law will be an important step in this regard, and would allow for further improvements in budget preparation and implementation and a more efficient allocation of government resources to achieve Liberia's poverty reduction goals.
"Liberia has also made good progress in strengthening governance. An important step in this regard was the adoption of a comprehensive anti-corruption strategy by the government. Finalization of legal and other arrangements for establishing an independent anti-corruption commission, as called for in the government's economic strategy, is important to firmly establish an environment of zero tolerance for corruption.
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