VZCZCXRO2404
RR RUEHMA RUEHPA
DE RUEHMV #0469/01 1811305
ZNR UUUUU ZZH
R 301305Z JUN 09
FM AMEMBASSY MONROVIA
TO RUEHC/SECSTATE WASHDC 1128
INFO RUEHZK/ECOWAS COLLECTIVE
RUEHRH/AMEMBASSY RIYADH 0008
RUEATRA/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 MONROVIA 000469 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EEB/OMA, AF/EPS, AND AF/W 
TREASURY FOR OFFICE OF AFRICAN NATIONS 
RIYADH ALSO FOR TREASURY ATTACHE 
 
E.O.12958: N/A 
TAGS: ECON EAID EFIN PREL LI
SUBJECT:  WITHDRAWAL OF SAUDI LOAN IMPERILS LIBERIA'S PORT REFORM 
 
¶1. (SBU) SUMMARY:  The Saudi Development Fund may be unable to 
fulfill its promise to provide a $50 million soft loan to renovate 
the Freeport of Monrovia, after Saudi Arabia and Liberia were unable 
to reschedule outstanding debt on terms comparable to the Paris 
Club.  Without the Saudi loan, the GOL will be forced to grant the 
port management concession to a company willing to rehabilitate the 
port, with the expectation that the concessionaire would raise port 
fees to recoup that investment.  In an import-dependent country such 
as Liberia, the loss of the Saudi loan may translate into higher 
prices for food and other essentials, hitting the poor and small 
businesses hardest for years to come.  If President Ellen Johnson 
Sirleaf's bilateral lobbying fails, it is likely the GOL will urge 
the USG to intervene with the Saudis.  Post believes a State 
Department response should include a demarche to the Saudi 
government to continue a dialogue on concluding a deal for partial 
debt forgiveness.  END SUMMARY. 
 
¶2.  (SBU) In November 2008, Liberia announced plans to convert a 
dilapidated and inefficient state-owned port system into a 
public-private partnership, hoping to generate revenue for the 
government and reduce shipping costs for businesses.  The Freeport 
rehabilitation scheme was launched in February 2009, with a call for 
expressions of interest to develop and operate the port.  The 
National Port Authority issued a needs assessment estimating that 
port renovation would cost approximately $50 million.  The only 
question was whether the GOL could rehabilitate the port before 
granting the concession, thus improving its negotiating position 
with port management companies, or if it would be forced to delegate 
an expensive construction project to the future concessionaire. 
 
¶3.  (SBU) A Saudi economist came to Monrovia in February to assess 
the port, and the Saudi Development Fund subsequently offered to 
provide a $50 million highly-concessional loan to renovate the 
marginal wharf.  Although the terms of Liberia's Poverty Reduction 
and Growth Facility (PRGF) prohibited government borrowing, Post and 
the U.S. Treasury believed the expected rate of return on such a 
project merited a one-time exception.   After some lobbying from the 
U.S. Executive Director's office, the International Monetary Fund 
approved a modification to Liberia's PRGF, and lifted the 
zero-borrowing ceiling for the port loan. 
¶4.  (SBU) Vishal Gujadhur, advisor to Minister of Finance Augustine 
Ngafuan, told Econoff June 24 that the agreement for the loan may 
unravel over the issue of $26 million in outstanding debt that 
Liberia contracted during the 1980s and 1990s.  The Saudi 
Development Fund's charter prohibits it from forgiving principal on 
outstanding debt.  Yet the GOL cannot repay in full, or it risks 
violating its agreement with the Paris Club and threatening all debt 
forgiveness under the Highly-Indebted Poor Country (HIPC) 
Initiative.  The HIPC Initiative requires all non-Paris Club members 
to accept three cents on the dollar for all Liberian debt.  The GOL 
offered to repay the principal in full over 100 years, making the 
net present value of the debt comparable to the 97 percent loss 
Paris Club creditors will accept.  However, "the Saudis were not 
amused," Gujadhur noted. 
 
¶5.  (SBU) Without the Saudi loan, any would-be concessionaire will 
be forced to invest considerable capital in port renovation.  The 
GOL has tendered a fixed concession, which requires the 
concessionaire to pay a flat annual fee to the government in 
exchange for port revenues.  Consequently, government revenues will 
be unaffected by the loss of the Saudi-funded port renovation, but 
the private port manager will raise port fees in order to recoup an 
upfront investment. 
 
¶6.  (SBU) A hike in port fees would hit the poor and small 
businesses hardest.  Liberia imports over 90% of its foodstuffs and 
exercises minimal control over the money supply, so higher prices 
for imports always translate into inflation: in August 2008, when 
global commodity prices hit their peak, headline inflation in 
Liberia reached 26%.  Given that the minimum wage for government 
workers is fixed at $80 per month, any inflation will erode their 
already-modest purchasing power.  At the same time, the Ministry of 
Commerce and Industry imposes price ceilings on staple goods, and 
local merchants complain they are forced to absorb rising 
transportation costs. 
 
¶7.  (SBU) President Sirleaf intends to petition the Saudi government 
at the highest levels to permit an exception to the Saudi 
Development Fund's charter, Gujadhur said.  The GOL hopes to 
persuade the Saudis to provide further grants to cancel a portion of 
the $26 million, and reschedule the rest on HIPC-comparable terms. 
The Saudis have considered establishing a diplomatic post in Liberia 
for some time, and if they do open a consulate or embassy, the 
Ministry of Finance (MOF) believes the inaugural ceremony may be the 
appropriate occasion to announce both debt forgiveness and the port 
 
MONROVIA 00000469  002 OF 002 
 
 
loan.  If the President's intervention is unsuccessful, as the GOL 
expects it will be, the MOF alerted Econoff that the President may 
appeal to the U.S. for help with the Saudis. 
 
¶8.  (SBU) COMMENT:  Given that other donors have declined to finance 
port renovation, post believes the Saudi loan constitutes Liberia's 
best chance to avoid the expensive consequences of a 
concessionaire-funded reconstruction.  We understand that Saudi 
Arabia has sometimes frustrated the Paris Club in the past, but in 
fact has offered partial debt forgiveness to other HIPC borrowers. 
If the Saudi Development Fund is not immune to persuasion, then the 
USG would be in the best position to affect a meaningful savings for 
the Liberian people.  At a minimum, we should encourage the Saudis 
to continue their discussions with the Liberians. 
 
THOMAS-GREENFIELD