VZCZCXRO0808
RR RUEHMA RUEHPA
DE RUEHMV #0052/01 0201613
ZNR UUUUU ZZH
R 201613Z JAN 09
FM AMEMBASSY MONROVIA
TO RUEHC/SECSTATE WASHDC 0696
INFO RUEATRA/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHZK/ECOWAS COLLECTIVE

UNCLAS SECTION 01 OF 02 MONROVIA 000052 
 
SENSITIVE 
SIPDIS 
 
E.O.12958: N/A 
TAGS: EAID EFIN ETRD EINV ECON LI
SUBJECT: LIBERIA:  Donor Support Remains Essential As Economy 
Recovers 
 
REF A) STATE 134905; B) STATE 125609; C) MONROVIA 999 
 
¶1. (SBU) SUMMARY:  The IMF remains cautiously optimistic about 
Liberia's economic outlook and we anticipate current USG assistance 
programs will be adequate to address the challenges of the financial 
crisis.  Liberia's rubber exports are down (for domestic reasons), 
resumption of timber exports is behind schedule, and there has been 
a drop in private transfers (remittances), but Central Bank reserves 
are increasing faster than expected.  Pressure on consumers caused 
by the surge in commodity prices has been receding sharply. 
Continued investment and donor support will be critical, but so far 
neither shows evidence of diminishing.  According to the IMF, the 
GOL needs to focus on maintaining competiveness: improving 
infrastructure and avoiding excessive wage increases.  We will need 
to be vigilant that increasing needs in other countries do not 
divert aid, especially food aid, from Liberia.  The information in 
Ref C remains current.  END SUMMARY 
 
The following points are keyed to Ref A queries: 
 
Real Economy 
------------ 
 
¶2. (SBU) The GOL has been proactive in responding to the surge in 
commodity prices and the global financial crisis.  Ref C described 
the importance of remittances, investment and donor funding on 
Liberia's economy.  Although data collection is weak, thus far, the 
global financial crisis has not had a noticeable impact on the real 
economy.  Of the three funding sources, the investment climate is 
the only factor under GOL control.  The IMF has stressed the 
importance of boosting competitiveness in order to attract what 
foreign investment remains. 
 
Financial Sector 
---------------- 
 
¶3. (SBU) Liberia's isolation from the financial system has buffered 
it from the worst effects of the crisis.  Domestic banks continue to 
expand, both services and physical presence, and loan quality is 
improving.  The Central Bank licensed one new bank in 2008 (United 
Bank of Africa, Nigerian) and issued provisional licenses to Access 
Bank and Guarantee Bank (also Nigerian).  The Central Bank continues 
to tighten supervision:  bank capital adequacy ratios have been 
increased (from 8% to 10%; all but one bank exceed the minimum) and 
capitalization requirements were raised in 2008 to $6 million (up 
from $2 million at the start of the Sirleaf administration).  Credit 
had been extremely restricted in Liberia (due to the war, not the 
financial crisis) and standard credit instruments such as mortgages 
and credit cards are not available. 
 
¶4. (SBU) Liberia, with the U.S. dollar as legal tender and no debt 
repayment obligations, is in a unique situation.  As fewer U.S. 
dollars enter the country, economic activity contracts, but there 
will not be an exchange rate crisis.  According to the IMF, CBL 
efforts to increase reserves have not only been unaffected by the 
global financial squeeze, they are running ahead of projections. 
 
¶5. (SBU) Remittances play an important role in Liberia's economy and 
there were signs of a drop in remittance payments starting in 
November 2008.  The Liberia Bankers' Association reports that the 
impact was not significant in 2008, but they will continue to 
monitor trends into 2009. 
 
Impact on Government Revenue and Expenditure 
--------------------------------------------- 
 
¶6. (SBU) According to the IMF resident representative, Ref C's 
outlook remains current:  Liberia's economy will face challenges 
from the global financial crisis, but overall could emerge 
well-positioned to prosper.  Liberia's economic growth is forecast 
to continue but the GOL will remain dependent on foreign assistance 
to meet basic requirements.  Although several expected revenue 
sources, primarily timber exports and completed concession 
agreements, did not materialize in CY2008 for reasons unrelated to 
the financial crisis, the Minister of Finance has told us other 
revenue sources are coming in above expectation so the final balance 
may be near projection. 
 
Trade and Investment 
--------------------- 
 
¶7. (SBU) For the first time since 1987, the Central Bank of Liberia 
(CBL) has published Balance of Payments statistics, for the period 
from 2004-2007.  Data collection is still spotty, but should improve 
with time.  According to the IMF, Liberia's balance of payments 
showed steep deterioration in the trade account in August-September 
2008 with the surge in commodity prices but that has receded sharply 
since October. 
 
 
MONROVIA 00000052  002 OF 002 
 
 
¶8. (SBU) Although decreasing prices on imported commodities (food 
and fuel) reduced consumer costs in Liberia, they also dampen 
investment in Liberian resources.  The Ministry of Agriculture 
anticipates that lower growth in OECD countries will reduce demand 
crops such as rubber and cocoa, which were expected to lead export 
growth.  However, shortfalls in anticipated exports have more to do 
with domestic constraints than with the global economy. 
 
¶9. (SBU) Ref C reported losses the GOL has incurred by failing to 
conclude agreements with potential investors while commodity prices 
were high.  One investor in palm oil decided to reduce the project 
by 75%; another is bargaining for more favorable terms.  Exports of 
timber and minerals have not resumed as quickly as anticipated, 
although major logging and minerals concession awards are likely in 
¶2009.  Rubber exports were expected to decline in coming years as 
old trees are replaced, and rubber smuggling (against which the GOL 
has taken steps) has further cut into rubber export revenue. 
According to Central Bank figures, rubber accounted for 93% of 
Liberia's export revenue in 2007. 
 
¶10. (SBU) However, Liberia recently announced a $2.6 billion mining 
investment by a Chinese firm, and there are several other major 
deals in the pipeline.  If reforms to the business climate continue 
and the tendency towards protectionism can be restrained, investors 
should continue to see long-term opportunity in Liberia. 
 
Other Donor and Multilateral Institution Plans 
--------------------------------------------- -- 
 
¶11. (SBU) Donor support is key.  In addition to the impact on 
balance of payments, donor-funded infrastructure improvements and 
support for more effective judicial and regulatory systems will be 
essential in boosting competitiveness.  Lower prices for Liberia's 
commodities reduce incentives to cut corners in concession 
negotiations or to smuggle, and may allow Liberia to enter the 
global economy with a stronger foundation as prices start to rise. 
 
 
¶12. (SBU) Food aid is critical.  In 2007, Liberia imported 
approximately 60% of its rice.  WFP tells us diminished donor 
support and increased demand will squeeze its programs in education, 
health and nutrition and increase the levels of food insecurity and 
malnutrition. 
¶13. (SBU) The impact of the financial crisis in the health and 
education sectors is not yet clear but donor contributions will 
continue to exceed GOL funding.  (Note: In Liberia FY 2008-09, which 
started July 1, the GOL budgeted $28 million to the Ministry of 
Education (MOE) and $15 million to the Ministry of Health (MOH).  In 
comparison, the USG FY 2008-09 funds were $20 million for education 
and $31 million for health.  Donor funding is not included in the 
GOL budget.  End note.)  The MOE is focusing on the 
UNICEF/Netherland/Soros Foundation-supported Pooled Fund, created to 
fill gaps as opposed to propping up the system, but the other 
bilateral or multilateral partners may cut their contributions. 
Education donor partners have not yet declared funding cuts but the 
MOE lacks either the financial resources or the human capacity to 
operate without foreign assistance. 
 
¶14. (SBU) The Global Fund for AIDS, TB and Malaria (GFATM) has 
called for a 10 to 15% "belt tightening" exercise for current 
recipients of GFATM grants.  With $79 million approved for the next 
three years GOL revenues for AIDS, TB and malaria would be $8-12 
million lower (over three years) than anticipated prior to the 
GFATM, but it is unlikely reductions in the GFATM allocations to 
health programs will result in failure to achieve most of the stated 
objectives. 
 
Comment 
------- 
 
¶15. (SBU) Donor commitment to Liberia remains strong but we will 
need to continue to monitor the impact of tighter budgets in the out 
years.  Although we anticipate drops in remittances, investment, and 
donor funding, there are indications Liberia may be less hard hit 
than other developing countries.  There is a risk that 
still-pervasive corruption could sour the optimism of both donors 
and investors, but we expect President Sirleaf's commitment to 
reforms to continue to pay dividends in attracting public and 
private funds. 
 
THOMAS-GREENFIELD