“Economy Not In Disarry” – CBL Governor: Some Comments
Indeed, it took a front-page, banner headline (New Democrat, December 9, 2013) with breath-taking, full-color photographs, two-page center-spread for Central Bank of Liberia (CBL), Executive Governor, Dr. Joseph Mills Jones, to deny accusation by unidentified, “several economic experts” that the nation’s economy is in “disarray”.
In classic, ivory-tower, academic, macroeconomic parlance above the heads and comprehension of the uninitiated, ordinary Joe Blows like us (we know not about the “several economic” and “financial experts”), Dr. Jones says that “significant” progress have been made in the nation’s economy as evidenced by “our growth averaged at 6.9% in the past six years . . . debt burden is relatively low and, at the moment, . . . sustainable . . . inflation rate is in a single digit”.
Then comes the disarming, politico-economic testament that “. . . international, financial institutions, including insurance companies, are knocking on the doors of the CBL to explore the possibility of operation in Liberia; where there is positive engagement with the African Development Bank (ADB), the World Bank (WB) and International Monetary Fund (IMF), that economy is not about to collapse . . .”.
Continuing the political sermon, the CBL Executive Governor held that “we usher in the new (political) dispensation; our song of hope must be the economic empowerment of the private sectors . . . our mothers and sisters in the villages and loan associations of the 15 counties . . . our doors are open for business . . . the CBL has engaged many initiatives relating to the private sector . . . we put our money where our mouth is . . . we extend a hand of partnership to foreign investors . . . we have a burgeoning economy . . . a positive impact on the standard of living of the Liberian people with a more (than what?) equitable distribution of income”, while in the same breath admits that there are “challenges relating to . . . economic reform in job-creation and poverty reduction” and the need for “innovative strategy . . . to lift the economy . . . lift the standard of living for Liberians”. I wonder, how many and which of the “mothers and sisters in the villages and loan associations of the 15 counties” that the Executive Governor visited lately? I am a Southeasterner of five counties.
According to the New Democrat, the CBL Executive Governor “confirms commitment to the transformation of the economy especially the private sector . . . implementing policies that promote microeconomic stability . . . remain focused in keeping inflation in check . . . (but) said (that) since the beginning of 2013 the exchange rate has come under pressure with a depreciation of more than 8% (reduction of or decrease in value) due largely to 17% deterioration in Liberia’s Terms of Trade and increased demand on (or for) imports”.
Indeed, Terms of Trade!!
I doubt that any of the market women, men and children; the mothers and sisters of the loan association in the 15 counties; the working men and women of the nation know anything called “terms of trade”, let alone heard about it.
Non-financial neither economic “expert” but a serious student of and long-time watcher of our finance & economic management, I wrote an Open Letter to the Minister of Finance & Economic Planning, predicated upon an earlier Paper about issues that are concerned with our excessive demand for imports – and deterioration of nation’s Terms of Trade. That letter is hereunder-provided for the information of the reading public. The Paper, upon which the Open Letter is predicated, is herewith attached, also, for the information of the reading public.
November 25, 2013
Open Letter to the Minister of Finance & Economic Planning
The Honorable Amara Konneh, Minister of Finance & Economic Planning
Republic of Liberia, Monrovia
I write in response to the macroeconomic policy measures – “to enhance the economy, improve the value of the Liberian dollar and stabilize the exchange rate” – that you announced (New Democrat, November 21, 2013).
Herewith attached is my Paper (“Now That We Printed New Liberian Banknotes”, June 2001), written from the “comfort” of Cell #1 of the Political Cellblock of the Monrovia Central Prison in 2001 and published, in reaction to the printing of new, Liberian banknotes, the Liberty banknotes.
In that paper, I observed the-then prevailing, general, economic conditions, with relevant remarks; raised questions regarding some macroeconomic policy decisions and actions taken, and suggested short-to-mid-term, policy measures. Many of those conditions about which I wrote have been addressed and resolved, while others, very important macroeconomic conditions and relevant, policy measures, in my view, remain, painfully constant. There is no doubt, absolutely, that the National Economic Planning Ministry is informed and guided by the fact of economic reality and that an exchange rate regime – whether floating, fixed or managed – is the outcome of the interaction of the market forces of supply and demand.
For your information, the Ministry’s consideration and possible action, I re- submit these continuing, negative, adverse conditions:
1. The continuing, excessive demand for imported goods and services bought with foreign currencies and sold on the local market at prices denominated, also, in foreign currencies. As you know, this excessive demand for imported goods and services is, in fact, excessive demand for foreign currencies; therefore, the “price”, of the given, foreign currency, expressed in the Liberian dollar, rises excessively, with disastrous, economic impact.
2. Also, that the continuing level of imported goods and services bought with foreign currencies be controlled and reduced through import tariff levels. Commodities such as soft drinks, beer, stout, plastic containers, bottled, drinking water (produced in the country) and tobacco products (proved to be injurious to health), other expensive alcoholic beverages (also known to be injurious to health) and expensive, luxury automobiles, jewelry, etc., should be subject to tariff manipulation to discourage import of these commodities. The control and, therefore, the reduction of the level of import of the described goods and services will also yield the following, economic benefits:
a) Reduce the pressure on the nation’s meager, foreign exchange reserves, with priority attention placed on the import of “essential commodities” such as pharmaceuticals, petroleum products, educational materials and supplies.
b) The measures will also reduce and eventually eliminate fierce competition on the Liberian market between products “made-in-Liberia” and imported commodities often subsidized by foreign, home governments. Ignored, this competition is highly likely to force the Liberian products out of the market and, eventually, drive the Liberian producers out of business, resulting in unemployment.
c) Importantly, the application of the foregoing measures will reduce, significantly, the excessive demand for foreign currency to purchase unnecessary imported goods and services. It is, as you know, this excessive demand for foreign currency that drives up the foreign exchange rate which, in turn, drives up commodity prices and, thus, causes the general price inflation. This economic spiral bears the major responsibility for the economic hardships that affect all Liberian, salary/wage earners and related consumers.
d) The continuing, inflationary pricing and sale of goods and services in foreign currency within the territory of the Republic. Examples are used and new automobiles, electric power generators, electric current, ice boxes, freezers, mobile and landline telephone equipment, taxes, rent and lease payments, real estate (including land) pricing, the list goes on and on. Salaries/wages are paid in Liberian currency, but Liberians are required, unreasonably, to purchase goods and services with prices denominated in foreign currency.
e) In this connection, I wish to invite the National Economic Planners’ attention to serious, economic matters/issues affecting the nation:
1. The continuing absence of Transportation/communications – efficient/effective, safe and all-weather roads/highways throughout our relatively small and sparsely-populated nation, although we have been around for more than century and a half, have had all that it would have taken and, now, have all that it will take to achieve this crucial objective of national economic development.
2. The multiplicity and rise of the “pehn–pehn”, motorcycle-taxis with the problem of traffic control, safety, congestion and importantly, in economic terms, the importation/sale of which, again, is in foreign currency, an adverse, macroeconomic condition.
3. And finally, this one: the popularity and rise of the electric, power generator. The generator has effectively replaced our Mount Coffee Hydro and the Liberia Electricity Corporation (LEC), much as the plastic water tanks have replaced the Liberia Water & Sewer Corporation (LWSC). This phenomena is not only a planning liability, but also an economic demand.
In the article (“Ay Be Libela-This is Liberia”, November 29, 2011), I observed that “There are some 100-, 200-, 300- and 400-KVA, electric generators – gasoline or diesel – that supply electricity for 10-12-24 hours per day to the ministries and agencies of government. Furthermore, foreign-owned and operated hotels, restaurants, business-houses, residences, diplomatic missions and those of us (Liberians who can afford it buy in foreign currency) and install electric generators to provide private, electric power, with overhead, plastic water tanks from which water is pumped by electric power.”
“Meanwhile, the majority of city dwellers nation-wide, live in darkness or by kerosene or candle light (a potential and often fire hazard) without pipe-borne, safe, drinking water. Some residents, who, in relative terms, can afford the expense, buy electric power from foreigners and enterprising, Liberian entrepreneurs who, very often, lack the capital, management experience and relevant, professional competence for efficiency and safety”.
“Is it not, according to elementary principles of economics, effective and efficient, optimal use of scarce resources at the least, possible cost, to combine all of the mosaic of disjointed, inefficient, and costly service into a single, manageable, cost-effective scheme for service to the general public?”
“Disappointingly, our Mount Coffee Hydro, extensively looted of its equipment, is sinking or has sunk into the great beyond”.
“It is important to note that there are two major reasons for this state of economic affairs in our country. The first is the historical, emotional attachment to and unreasonable preference of the US greenbacks by Liberia’s elite, a social, economic and political class that constitutes the sole decision-making body in our society”. The validated facts of Liberian history show, conclusively, that the nation’s political economy had been controlled and dominated by high officials of government with socio-cultural attachment to the USA.
“The second is due to the first – socio-cultural, emotional attachment to the USA, a foreign country, and preference of its Greenbacks – which gave and gives rise to our inability to organize and establish enterprises/organizations for the production and export of goods and services desired and demanded by foreign countries and consumers – USA, UK, France, Germany, etc”.
“However, Until and unless we establish the enabling infrastructure to produce such goods and services, the Americans, British, French, Germans, etc., will NOT open up the vaults of their central banks and dish out to us, free of charge, millions or billions of greenbacks, pounds, francs or marks, historical/emotional attachment and reasonable preference notwithstanding. We will have to earn their currency through trade, commerce and investment”.
Bai M. Gbala, Sr.
Enclosed: “Now That We Printed New Liberian Banknotes”