28 January 2014

Liberia: Who's Responsible for Liberia's Capital Flight, Senate Eyeing Probe

Photo: Liberia Government
Members of the Liberian cabinet (File Photo)

Monrovia — All major state actors in Liberia are devising means to tackle the economic situation in the county characterized by depreciation in the value of the Liberian dollars in exchange against the United States dollars, resulting in other accompanying circumstances including an increase in prices of basic commodities, amongst others.

The Central Bank of Liberia and the Ministry of Finance are fumbling over the economic impasse, trading accusations with one side blaming the other for infusing too much Liberian dollars into the economy and the other denying such assertion. As the bickering between the two major actors in the financial sector of the country continues, other actors, including the Legislators are busy brainstorming and discussing in an effort to identify the existing problems in an effort to derive a possible solution.

Following discussions with an array of financial managers, banking and legal experts, including Professor Wilson Tarpeh, Former Finance Minister, Cllr. Wilkins Wrights, former Solicitor general, Hon. S. Baron Tarr-former Finance Minister, Mr. Charles Bright-former Finance Minister and Sen. Sumo Kupee-former Deputy Governor -National Bank of Liberia (now Central Bank of Liberia) the Senate Committee pinpointed major issues confronting the economy, the committee of the Liberian senate has dissected the state of affairs of the economy and proposed recommendations.

The Liberian Senate Committee on Banking and Currency in a report to the full plenary of the body covering major issues affecting the Liberian economy, including monetary policy of Liberia; amendment of the Central Bank of Liberia Act; moratorium on central Bank's Loan scheme to non-financial banking institutions; printing of banking notes and minting of coins and high rate of United States dollar against the Liberian dollars identified several factors responsible for the prevailing situations at the same time putting forth recommendations.

Five Factors

The committee identified five major factors contributing to the increase in the exchange rate between the two legal tenders-the Liberian and United States dollars. Amongst them, the committee listed national trade deficit and money supply, the slowdown in forestry activities, non-governmental organization slowdown, United Nations Mission in Liberia (UNMIL) drawdown and decline in global commodity price.

On the issue of the national trade deficit and money supply, the committee stated "The structure of the economy (i.e., highly import-dependent and still reliant on the traditional enclave sector comprising mainly iron ore, rubber and timber) makes the economy vulnerable to external shocks which has implication for the stability of the exchange rate coupled with rising foreign exchange demand over the limited supply accruing to the economy", the committee observed.

In a more detailed survey review of currencies movement within the West African Monetary zone (WAMZ), relative to the US dollar, the committee noted that there was mixed performance and for the period January ended to June, 2013, the Ghanaian Cedi depreciated by 4.7 percent, followed by The Gambian Dalasi, 4.0 percent; the CFA Franc and Cape Verdean Escudo, by about 3.9 percent; the Liberian dollar, by 2.7 percent; and the Guinea Franc, by 2.3 percent, while on the other hand, the Nigerian Naira and the Sierra Leonean Leone remained relatively stable during the period. The committee also cited the slowdown in forestry activities characterized by a slowdown in the activities of logging companies due to the Public Used Permit saga as issues suffering the state of the Liberian economy.

"The merits of the moratorium, notwithstanding, the economic consequences are real. Logging companies operating Public Use Permits were spending approximately US$3 million per month on wages, fuels, the other operating cost excluding taxes and fee paid to the Government and Port Authority. Again, when you consider the size of the Liberian economy, losing US$3 million per month is a big deal and should not be ignored", stated the committee. Non-governmental organization slowdown is another factor cited by the Senate committee as contributing to the current poor state of the Liberian economy.

"The last few years have seen non-governmental organization slow down their activities in Liberia. Two primary reasons are responsible: economic situation of the donor country have not been favorable and conditions in Liberia have been improving thereby necessitating a reduction in activities", the report indicated, justifying that with more than 10 years of peace and stability, it is reasonable for anyone to believe that the need for emergency and relief are minimal and therefore justifies a reduction in the activities of many non-governmental organizations who are already experiencing economic slowdowns in their donor countries. The ongoing gradual drawdown of staff of the United Nations Mission in Liberia (UNMIL) has been identified as another factor suppressing the Liberian economy.

"As we all know, UNMIL has been a major part of the economic activities in Liberia since 2003. One doesn't have to be an economist to understand the critical role that UNMIL has been playing in the economy. With more than 15,000 troops on the ground coupled with the huge logistical demand in supporting those troops, it is clear, even to the most ordinary person, that UNMIL did bring into the economy a lot of cash on a monthly basis to support its activities", the report stated.

The senators observed that now that UNMIL has started to reduce its force size and therefore its activities, there is no doubt that the amount of US dollars that UNMIL brought into the country has significantly reduced.

The decline in global commodity prices is another reason the senate committee identified as plaguing the Liberian economy. "Our research indicates from the Central Bank Newsletter that over the period, 2012 to 2015, real GDP growth of the Liberian economy is expected to average 7.4 percent. However, the declining trend in the global prices of commodities presents a risk to this steady projected growth outlook that assumes strong export performance driven mainly by iron ore, rubber and timber exports. It is important to note that such projections are subject to the behavior of the demand for a price of Liberia's primary commodity exports on the global market and key supportive domestic policy actions, including the provision of relatively cheap electricity supply, improved road network, sea and airports", stated the Senate committee report.

Additionally, the committee stated that it observed that further declines in export receipts, combined with increasing demand for imports do have the potential of exerting upward pressure on the Liberian dollar, which would translate into higher inflation.

Senators Nine Count Recommendations

The committee put forth nine count recommendations on how to tackle the current impasse facing the Liberian economy amongst which it is proposing that the National Legislature passes a statute expressly and particularly granting the Central Bank of Liberia the legal right and authority to print banknotes and mint coins. Article 34 of the Liberian Constitution (d, II) says... No coins shall be minted or national currency issued except by the expressed authority of the legislature. The interpretations of "expressed authority of the legislature", the committee observed is subject to debate and constitutional interpretation.

According to the committee, all agencies of government involved in economic activities or management, including Ministry of Finance, Ministry of Commerce, Ministry of Lands, Mines and Energy and Central Bank of Liberia, Forestry Development Authority, etc should coordinate their activities to achieve optimum benefits to the economy. The committee also recommended that the use of foreign exchange serves requires prudential guideline, while aspiring to achieve maximum earnings.

"To accelerate the process of economic transformation, it is a requirement that a greater portion of national resources is being used for agro-industrial development with emphasis on the promotion of value-chain production. The private sector has to scale up its activities from being mainly importers of goods and services to domestic manufacturing and value-added business activities", the senators recommend.

The senators are also calling for collaboration between local businesses including giving Liberian entrepreneurs opportunities to obtain contracts to provide goods and service that may be needed by large foreign investors.

Clarity sought on CBL Stimulus initiative

In further recommendations, the senators are seeking clarity on the CBL's stimulus initiative. "in the wake of the ongoing debate on the legality of the CBL's stimulus initiative's, it behooves the Central Bank of Liberia to provide clarity for the public on the role of the Central Bank of Liberia in conducting monetary policy as per the power and authority given it as contained in the 1999 Act. The Bank must pursue to achieve and maintain price stability in the Liberia economy for which the formulation and implementation of monetary policy exclusively lies. And research has shown that the micro-finance stimulus initiative is producing a positive response and should continue".

The senators are advising that the Central bank of Liberia continues the weekly US$1. 5 m auction being practiced by the bank, indicating that it serves as a short and medium terms mechanism to maintain its status as a store of value-one of the methods of appreciating the Liberian dollar against the United States dollars. The lawmakers are also recommending that the issue of capital flight be properly investigated as it is undermining the strength of the Liberian economy.

Recommends the Senator "The issue of capital flight has to be properly investigated (in detailed) by all committees because it is one of the identifiable instruments which tend to undermine the strength of our national currency (outflow of remittances or cash). People in both the private and public sectors are allegedly involved".

The Senate Committee on Banking and Currency is chaired by Isaac W. Nyenabo, II (NDPL, Grand Gedeh); Jonathan Banney (Rivercess County) Co-chairman and members include Senator Henry W. Yallah, Clarice A. Jah, H. Dan Morias and Sumo G. Kupee.

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