On July 18, 2018, we reported President Weah’s Plan of Action designed to “rescue the nation’s Economy from the Great Beyond and the Liberian currency, the Liberian dollar, in ‘depreciation hot-pursuit’”, a devastating, negative impact on Liberian business and the purchasing power of the consumers, particularly, the poor, unemployed, hungry, often sick, un-informed, un-educated, etc., etc. average Liberian.
Specifically, the President identified the nation’s major economic problem that, “Our currency was (is) experiencing rapid and unprecedented depreciation, contributing to rising inflation. Unemployment was (is) very high and our foreign reserves were (and are) at an all-time low”:
1) “For many decades, we have incurred (foreign) trade deficits because we import more (goods and services) than we export”;
2) “Key to success in this endeavor is for Liberians (the Republic of Liberia) to produce more goods and services locally, so that we reduce (and eradicate) our importation of goods and services from abroad, while, at the same time increasing our exports and adding value to the raw materials that we ship to the world”;
3) “In this regard, our government intends to embark upon a major push to ensure that Liberia becomes more competitive in terms of domestic production . . . finding lasting solution to the macroeconomic challenges will take some time because nothing less than the structural transformation of the Liberian Economy will produce sustainable recovery and growth”.
Hence, the President’s request for patience in introducing the Government’s Economic Plan of Action:
“As a first step in this direction, we have placed emphasis and urgency on the formulation of a comprehensive development strategy . . . (which) will consist of short-term interventions, medium-term reforms, and long-term restructuring of the economy”.
“Over the next several weeks, the . . . Economic Management Team and . . . the CBL will announce a series of Monetary and Fiscal Policy measures that, we believe, should help reverse the decline of the value of the Liberian dollar. In seeking solutions to this problem, we intend to engage the minds of the best and brightest Liberian Economists . . .”
With this Plan of Action, the President retired a number of old-lined Economists, Technocrats and related professionals and brought in “the minds of the best and brightest Liberian Economists”, including the Honorable Nathaniel R. Patray, US trained Economist with more than 20 years of banking experience in Liberia with the National Bank of Liberia and Central Bank of Liberia.
Value of Currency, Major Economic Problem
The most major, vexing economic Problem today is the depreciation in the value of Liberian currency, the Liberian dollar with a devastating impact on the foreign exchange rate. It is significant to note, that although money/currency possesses no intrinsic (in and of itself) value in useful, human terms, but its worldwide acceptance as the medium of exchange for acquisition of human needs, goods and services desired in the marketplace gave or renders it social economic, politico-psychological value or that which has come to be known as “Storehouse of Value or Convertible Currency”.
But the Liberian currency, the Liberian dollar, does not possess or is without the recognition of international, Storehouse of value or Convertible Currency status, although declared a national currency “tied” or “pegged” to the court tails of the US dollar which circulates as legal tender with the Liberia dollar (a semi-official currency substitution, in the effort, apparently, to ease the peculiar conditions of developing countries’ inflations).
The major path to this Storehouse of Value or Convertible Currency of a country lies, among others, in the production of goods and services desired and demanded by other countries, the country’s trading partners and the general public. This, in fact, translates to demand for the Liberian currency by others and, thereby, renders it the status of Storehouse of value or Convertible Currency. But throughout its history, the Republic of Liberia has been involved in the use of foreign currencies as legal tender in circulation with Liberian currencies. The first foreign currency was the British Pound and later (1943), the United States Dollar up to this day.
The selection of a nation’s foreign exchange rate is not an issue of a “quick fix”. It is a serious undertaking/responsibility that requires graduate study and knowledge of the Theory of Macroeconomics and years of requisite training and experience; but its application as rational public policy measure is easier, since governments employ trained/experienced Economists as advisors.
The major, critical Question
Our Liberia is a small African nation of about 4 million, sparsely distributed, endowed with all natural resources and land (more land than people) for cultivation and production of tropical goods and services – cocoa, coffee, pineapples and juices, oranges and juices, rice, chickens and poultry products, banana, fish, plantains, etc., etc. for the export trade, such as the successful, neighboring countries of Ghana and La Cote d’Ivoire. What, then, is the Problem with Liberia since 1847? Major Sources are Dual Citizenship and Corruption:
The major African-American Founding Fathers of the Liberian Nation, though deported to this land of their ancestors, were American citizens. Therefore, a majority kept their American citizenships.
Firstly, historical, emotional attachment to and preference of the US greenbacks by Liberia’s African-American Elites, the social, economic and political ruling Class that constitutes the sole, major public policy decision-making Body in Liberian society are not unexpected.
The secondly, it was, and is, their apparent, conscious refusal and negligence to plan organize, establish and develop industrial enterprises/organizations designed for the production and export of goods and services desired and demanded by the Americans and other nationals.
But, unfortunately, as Liberian citizens who have major public policy decision-making power and, simultaneously, citizens of a foreign countries (as it had been and is), it is in their best political and economic interest for Liberia to continue buying imported goods from the countries of their citizenships, infinitively and dangerously, rather than plan, organize, establish and develop local, industrial enterprises for production of goods and services for local consumption and export.
In time, the Congos and Indigenous Liberians (emerged/emerging Political Class) converted to African-Americanism by social-cultural “baptism” joined the Dual Citizenship bandwagon, recognizing its socio-economic and political benefits. Indigenous Liberian Dual Citizens now dominate the National Legislature in violation of Article 30 of the 1986 Constitution and Cllr. Jerome Korkoya as Chairman of the National Elections Commission, also, in violation of Liberia’s Statutory and Constitutional Laws, as the proven citizen of a foreign country.
Historically, moreover, dual citizens dominated and controlled the political economy of Liberia; they continue to dominate and control the economics, including the major decision-making power of Liberia today. Just take a closer look at LPRC, NPA, NOCAL, Liberia Revenue Authority (LRA), Ministry of Finance & Development Planning (MFDP), NIC, etc., etc. These are the enclaves for Dual Citizens. Fabulous salaries “earned” in Liberia are transferred, periodically, to countries of their citizenship to purchase and maintain homes and families permanently. They travelled, often, to these countries to which they pledged loyalty, allegiance, patriotism and in which the hold fabulous bank accounts.
Corruption, Graft & Greed
The prevailing economic paralysis in Liberia must be and is credited to dishonesty of Liberian Public officials who, obviously, have monopolized Corruption, the universal vice found on all continents, in every country, culture and society irrespective of social, economic and political development and affluence. The Liberian officials have been found profoundly wanting in their management and application of Monetary and Fiscal Policies with particular respect to:
a) Choice of a rational foreign exchange rate regime, choice of national currency as legal tender for circulation, management of commercial banks and related financial institutions with respect to general organizational responsibilities and funds transfer, money laundering, interest rates, etc.
b) National Budget, the major tool for manipulation of aggregate supply/demand and stimulation of the economy, the planning, organization, establishment and development of industrial enterprises/organizations for production of goods and services for local and export trade, a long-term undertaking.
Our Article of June, 2001
In June, 2001, we wrote, from the comforts of the Monrovia Central Prison and published (Analyst Liberia, June 2001) the article entitled “Now That We Printed New Liberian Banknotes. . . .”. In that article, we held, specifically that:
The printing/circulation of the banknotes and the withdrawal of both the “Liberty” and “JJ” banknotes. The printing of such a huge quantity of banknotes at an un-disclosed and undoubtedly astronomical cost appeared to be unjustified, given the nation’s hairline financial position at the time. Particularly so when, upon separate advice by the International Monetary Fund and the World Bank (see Reports dated January/February 1994-95), the Interim Government of Liberia in 1993, declared the “JJ” banknotes illegal, ordered them withdrawn from circulation and replaced with new “Liberty” banknotes. This policy action was based on the massive looting of banks, financial and business houses during the civil war and, thereby, placed the “JJ” banknotes, then in lawful circulation, in excess, an economic recipe for price inflation.
In the light of this lawful and rational, economic policy measure, we had expected that the printing of banknotes would be limited only to the required quantity of “Liberty” banknotes to replace the illegal and highly mutilated “JJ” banknotes. However, we were taken aback not only by the double printing (“Liberty” and “JJ” banknotes), but also by the purchase-withdrawal rate of two newly-printed, “Liberty” $5 notes for one old, mutilated “JJ” $5 note, since there were no legal and valid, economic reasons given for this two-for-one exchange rate. Also, the “JJ” banknotes were an illegal currency, very highly mutilated; they were not, in any way, in relative high demand to justify premium exchange rate.
We were amazed, also, by the Central Bank’s announcement of policy action retaining the US dollar as legal tender to circulate in tandem with the Liberian, national currency, the Liberian dollar. It is not a sound economic policy for a nation having a national currency to adopt, circulate and utilize the national currency of another as a legal tender. Among the negative, economic consequences are the likelihood to attract economic shocks such as run-away price inflation, interest rates, unemployment, etc., into the adopting nation’s economy (see IMF/WB Reports, January 1982 & January/February 1994-95).
Short- to Mid-term Suggestions
In the light of the foregoing considerations, we made the following suggestions directed to and at selected areas of our “economy”. The implementation of these suggestions assumes that there will be comprehensive study, review and analysis designed for holistic, national economic recovery:
1. That all domestic transactions – public, commercial and personal – which take place within the territory of the Republic of Liberia shall be in Liberian currency only, and that the use of the US dollar as legal tender shall be discontinued.
2. That the “one-to-one” parity (equivalence) of one US dollar to one Liberian dollar be repealed; this rate does not reflect the outcome of the interaction of market forces and, therefore, unrealistic in economic terms.
3. Also that the level of imported goods and services bought with foreign currency be controlled and reduced through import tariff levies. Commodities such as soft drinks, beer, stout (also 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 subjected to tariff manipulation to discourage import of these commodities. The control and, therefore, reduction of the level of import of the described goods and services will 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 and educational materials and supplies.
b. These measures will also reduce and eventually eliminate fierce competition on the Liberian market between “made-in-Liberia” products – soft drinks, beer, stout, etc. – and imported commodities often subsidized by foreign governments. This competition is highly likely to force the Liberian products out of the market and, eventually, drive the Liberian producer out of business, resulting to unemployment.
Importantly, the application of the foregoing measures will reduce, significantly, the unnecessary, excessive demand for foreign currency to purchase, also, unnecessary, imported goods and services. It is, indeed, 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 consumers. This price inflation, due to the rise of the foreign exchange rate, comes about because:
c. The more and more a given commodity is demanded by consumers, the higher and higher the price of that commodity rises; the foreign exchange rate is a price, a price paid in Liberian dollars for a US dollar, British pound, German mark, the CFA, etc.
d. Therefore, the more and more of the foreign currencies are demanded by Liberian consumers in order to purchase importable goods and services, the higher and higher the prices (or foreign exchange rates) rise.
e. Thus, we have seen and experienced that from a three-Liberian-dollar to one US-dollar exchange rate in early 1989, the exchange rate now stands at 64:1 in favor of the US dollar and rising. In other words, the Liberian consumer now pays a great deal more than twenty times for the same quantity and quality of goods and service bought in 1989; this prevailing condition raised the cost of living while, simultaneously, holding income constant at the depreciating or depreciated, Liberian dollar value; thereby, depreciating, also, or drastically reducing consumer buying power, a triple economic tragedy!!!
4. Abolish, by law, the 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 and freezers, mobile and land telephone equipment, taxes, rent and lease payments, real estate and (including land) pricing, the list goes on and on. But Salaries and wages are paid in Liberian currency.
5. Why are Liberians required to purchase goods and services in foreign currency? Since the Central Bank of Liberia has established and monitors a foreign exchange bureau or the parallel market foreign exchange system, it is extremely necessary that this service, critical to foreign trade and commerce, be removed from the hands of individuals who are not relevantly trained and experienced.
6. Currency traders should and must be organized in accordance with law, with reporting/accountability responsibilities to the Central Bank and the Ministry of Finance.
7. Require, by law, that all export earnings or proceeds thereof be repatriated to Liberia, deposited in accounts held by the exporter in Liberian banks and in the currency in which payments for such exports were made. This action will and should control, through efficient management of the supply/demand/allocation of foreign currency in the effort to facilitate legitimate, economic activities.
8. The mind-boggling escalation of the nation’s foreign exchange rate sent shock waves throughout the economy with a chilling, negative impact on the buying power of the Liberian consumer. The President of Liberia was so moved and concerned that he Decreed the rising rate of 64:1 (64 Liberian dollars to one US dollar) be dropped to the low of 50:1. This was done with “immediate effect”, April 2002.
That there should and must now, 2018 and thereafter, be demand/supply-determined foreign exchange rate regime in Liberia, efficiently managed and controlled by the Central Bank, we argue.
This article was written 12 years ago with dual citizen-policy makers. The overwhelming majority of the prevailing officials are not only disloyal and unpatriotic, but also, dual citizens and corrupt!!