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UNCLAS SECTION 01 OF 03 MONROVIA 000999 
 
SENSITIVE 
SIPDIS 
 
E.O.12958: N/A 
TAGS: EFIN PGOV ETRD EAID EINV ECON LI
SUBJECT: LIBERIA:  GLOBAL FINANCIAL CRISIS MAY PRESENT 
OPPORTUNITIES 
 
¶1. (U) SUMMARY:  President Ellen Johnson Sirleaf and her new 
economic management team hosted a well-attended roundtable 
discussion on the impact of the global financial crisis on Liberia. 
Although Liberia's economic isolation and lack of debt service 
requirements buffer the economy, the GOL expects foreign assistance, 
investment, and remittances to drop.  Lower commodity prices will 
harm exports such as rubber but on balance cheaper food and fuel 
imports should benefit most Liberians.  The weaker economic outlook 
abroad may encourage "reverse brain drain."  The President 
highlighted revising the tax regime, accelerating expenditures that 
reduce poverty, improving competitiveness and infrastructure, and 
reducing corruption as steps that could mitigate the expected drop 
in revenue.  She summed up the discussion by saying the financial 
crisis could be a time of opportunity in which Liberia can position 
itself to take advantage of the eventual economic upturn.  END 
SUMMARY 
 
¶2. (U) President Sirleaf convened a roundtable discussion on the 
impact of the global financial crisis on November 19.  After 
presentations by members of her new economic management team, other 
participants, who included legislators, bankers, importers and some 
members of the international community, traded views on the impact 
of the economic slowdown and possible next steps for Liberia.  There 
was consensus that, although there are risks, the overall outlook is 
positive and Liberia's economy will suffer less than most. 
 
Financial Sector:  more robust 
------------------------------ 
¶3. (U) Governor of the Central Bank of Liberia (CBL) Mills Jones 
said the CBL has improved bank supervision and increased 
capitalization in recent years.  Inflation peaked in August, and had 
retreated to near 18% by the end of October.  He suggested there is 
room for government fiscal intervention, and in subsequent comments 
the roundtable participants supported accelerated GOL disbursement, 
with a renewed focus on spending that will assist the most 
vulnerable. 
 
¶4. (U) The President of the Liberian Bankers' Association reported 
banks are concerned about the length of the crisis and its depth, 
both unknowable, and feel it is prudent to prepare for the long 
haul.  (Comment:  He gave no specifics, but clearly felt the 
roundtable discussion was a step in the right direction.  End 
comment.)  Private sector investment will drop and public sector 
(donor) support, although already committed, may slow.  New demands 
on the IMF (by non-traditional borrowers) may crowd out Liberia. 
However, overall the banks do not see immediate cause for concern. 
 
Commodity Prices:  a net positive? 
---------------------------------- 
 
¶5. (U) Deputy Minister of Commerce and Industry Frederick Norkeh 
said the benefit of lower prices on imported food and fuel will 
probably outweigh the costs of lower export prices.  The drop in 
fuel prices, from $143 to $73/barrel, has made a tremendous 
difference but the GOL needs to continue removing trade barriers and 
needs a strategy to mitigate cyclical price swings.  He raised the 
need to establish reserves of essential commodities to help mitigate 
price fluctuations. 
 
¶6. (U) Foreign importers noted merchandise is not moving off the 
shelves, so even if prices on the world market drop, Liberian 
merchants are selling goods purchased at the more expensive rates. 
They called for letting market forces determine prices.  (Note:  The 
GOL monitors and sets price ceilings for "strategic" commodities 
such as rice, petroleum, and cement.  End note.)  Credit lines have 
closed down, so it may become more difficult to finance imports. 
The GOL should facilitate the customs clearance process and permit 
businesses pay income and other taxes periodically, rather than in 
one lump sum.  The exchange rate fluctuates every December and the 
CBL should take more effective steps to stabilize it.  (Comment: 
The end-of-year fluctuations are probably due to increased 
volatility of remittance flows and consumption around Christmas. 
End comment.)  Another importer worried that with remittances down 
and exports almost non-existent, there would be inadequate foreign 
exchange for imports the first half of next year.  The CBL governor 
responded that they have been rebuilding foreign exchange reserves 
and have enough cover imports and stabilize the exchange rate.  The 
CBL has increased foreign exchange reserves and plans use them as 
necessary. 
 
Investment and Remittances:  likely to drop 
------------------------------------------- 
 
¶7. (U) National Investment Commission (NIC) Chair Richard Tolbert 
said investment is booming (see chart after para 9).  Liberia's 
largest foreign investor, Mittal Steel, has said it plans to proceed 
with investment plans for Liberia.  However, the drop in iron ore 
prices will reduce Mittal's revenues and thus GOL royalties. 
 
 
MONROVIA 00000999  002 OF 003 
 
 
¶8. (U) The delay in concluding concession agreements has hurt 
Liberia, especially in oil palm negotiations.  Investors are cutting 
back or delaying proposed investment as oil prices drop, and are 
negotiating harder.  The decline in the U.S. auto sector is expected 
to affect rubber prices and the drop in U.S. housing starts will 
affect tropical timber.  (Note:  Liberia has not yet resumed 
commercial export of timber, but expects to in 2009.  End note.) 
Tolbert said the GOL may have to reduce land rental fees, stumpage 
fees, and taxes to compete and noted it could become more difficult 
to secure financing for investments in energy, the port and other 
large infrastructure projects. 
 
¶9. (U) The crisis, he said, shows the importance of dealing with 
strong companies and the need for the GOL to conduct better 
due-diligence on investors.  The President has called on them to 
speed up negotiations and to be more flexible on labor-intensive 
investments.  They should consider corporate tax holidays, 
especially on agricultural investment, and could expand reductions 
in the corporate tax rate for investment that create jobs.  Easier 
entry for business travelers, such as airport visas, might help. 
They plan to target sovereign wealth funds and expand South-South 
cooperation, especially with Brazil, India, China and Nigeria.  The 
NIC's 2008 investment target is $100 million, and Tolbert expects 
total new investment to easily exceed that goal, even if large 
mining investment is excluded. 
 
New investment facilitated by the NIC 
------------------------------------- 
Year  Amount 
2005  $20 million (excluding Mittal) 
2006  $50 million 
2007  $97 million 
2008  $75 million (ytd) 
 
¶10. (U) Tolbert warned Liberia should expect the $150 million a year 
in remittances to decline, a view endorsed by other participants, 
but reverse brain drain may pick up as economies and Europe and the 
United States slow.  The Bankers' Association noted that thus far 
remittances are in line with seasonal patterns but banks will 
continue to monitor them closely. 
 
Aid/Philanthropy:  more competition 
----------------------------------- 
 
¶11. (U) Deputy Minister of Planning and Economic Affairs Sebastian 
Muah noted the GOL may have to re-prioritize the Poverty Reduction 
Strategy as competition for assistance funding becomes stiffer.  The 
GOL Aid Strategy paper is out for review and MPEA is planning to 
better track NGO activity. 
 
Macro overview:  protect the vulnerable 
---------------------------------------- 
 
¶12. (U) The IMF Resident Representative provided an overview of 
Liberia's macroeconomic outlook, saying there are not major risks. 
He confirmed that although Liberia's anticipated GDP growth rate in 
2008 has be revised down to 7%, the IMF still anticipates over 12% 
GDP growth in 2009 as mining and timber exports increase.  (Note: 
The GOL estimated that a 1% change in GDP leads to a $15 million 
change in tax revenue. End note)  Although GOL revenues will 
probably decline, lower prices for many GOL purchase should keep 
expenditures in check.  Liberia's reliance on U.S. dollars helps 
maintain a stable exchange rate. (Note:  More detail is available in 
the December 4 Staff Report for the 2008 Article IV consultation. 
End note.) 
 
¶13. (U) The World Bank Country Director noted that during recent 
meetings in Tunis and Washington, Liberia stood out as one country 
that is already thinking about the problems.  (Note:  In a more 
detailed written analysis, the WB summarized the opportunities and 
vulnerabilities facing Liberia.  Noting many of the factors covered 
in the roundtable, the WB stressed the need to protect the 
vulnerable and continue reforms, including progress on meeting 
deliverables of the Poverty Reduction Strategy.  End note.) 
 
¶14. (U) The head of the Governance Commission expanded on that 
point, noting the crisis is coming while Liberia is in the process 
of reforming institutions.  The GOL needs better coordination and 
can legitimize the reform agenda, and the tough choices that need to 
be made, by consulting the public.  The head of the new 
Anti-Corruption Commission stressed that one cause of the crisis is 
financial malfeasance. 
 
 
¶15. (U) The Minister of Finance, in his closing remarks, said the 
GOL is monitoring the domestic situation and does not see cause to 
be precipitously worried.  He and the President, referring to the 
recent flurry of press reports on financial scandals, said there are 
more reports on corruption because it is being dealt with, which is 
 
MONROVIA 00000999  003 OF 003 
 
 
good news.  He said the Ministry of Finance plans to introduce 
surveys regarding public perception of tax and customs officials so 
they can pinpoint problem areas.  (Comment: There has been a surge 
in press reporting on corruption allegations, driven in part by 
release of the first reports by the General Audit Commission and in 
part by changes in procedures and personnel made at the Ministry of 
Finance and other agencies.  End comment) 
 
¶16. (U) In her closing remarks, President Sirleaf said the global 
crisis affords an opportunity to re-examine policies and she refuses 
to believe there are limits on Liberia's growth.  She proposed a 
follow-on discussion during which the GOL would report its progress 
on activities suggested at this meeting and solicit ideas on further 
steps.  She encouraged citizens to lead discussions of their own and 
identified the major topics of concern as: 
 
-- The impact on the poor, especially employment; 
 
-- The need to support expenditure and tax incentives that boost 
employment and food production; 
 
-- The lack of GOL coordination and serious capacity limits on 
efficiency and effectiveness; 
 
-- "Malpractices" (corruption); 
 
-- The lack of adequate data. 
 
¶117. (SBU) Comment:  The roundtable discussion is a promising sign 
that coordination is improving among GOL economic agencies and that 
the need for public outreach is finally being institutionalized. 
Econoff spoke with legislators, business people and bankers who 
found the lengthy event valuable and welcomed the plan to hold 
similar discussions in the future.  The GOL has influence over only 
one element of the financial crisis:  the investment climate, 
including control of corruption.  We should continue to support 
reforms that favor investors and entrepreneurs.  End comment. 
 
THOMAS-GREENFIELD