VZCZCXRO3611
RR RUEHMA RUEHPA
DE RUEHMV #0628/01 2401346
ZNR UUUUU ZZH
R 281346Z AUG 09
FM AMEMBASSY MONROVIA
TO RUEHC/SECSTATE WASHDC 1276
RUEHZK/ECOWAS COLLECTIVE
RUEATRA/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEHAAA/NSC WASHDC

UNCLAS SECTION 01 OF 03 MONROVIA 000628 
 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR AF/W, EEB/OMA AND INR/AA 
 
E.O.12958: N/A 
TAGS: PGOV ECON EFIN LI
SUBJECT: LIBERIA PASSES LONG-AWAITED PUBLIC FINANCIAL MANAGEMENT ACT 
 
REF: 08 MONROVIA 891 
 
(SBU) SUMMARY:  The National Legislature passed the much-anticipated 
Public Financial Management Act August 20, nearly a year after the 
Ministry of Finance (MOF) first submitted a draft.  Although 
Liberia's HIPC Initiative debt restructuring requires the GOL to 
implement the act for one year, concerns that the legislative 
bottleneck would postpone Completion Point beyond 2009 may be 
unwarranted.  The International Monetary Fund, cognizant of both the 
Legislature's notorious delays and the Executive branch's 
fulfillment of the spirit of public financial management reform, has 
signaled its intention to apply a liberal interpretation of that 
benchmark to ensure irrevocable debt forgiveness by year's end. 
Post believes it may be counterproductive to push a premature HIPC 
Completion Point, but if the IMF does chose to accelerate the 
process, the following staff-monitored program should entail strict 
monitoring.  END SUMMARY. 
 
-------------------------------- 
Who Controls the National Purse? 
-------------------------------- 
 
¶2. (SBU) The Ministry of Finance, with assistance from the 
International Monetary Fund, began drafting the Public Financial 
Management Act in 2007, and submitted it to the National Legislature 
on August 28, 2008 (reftel).  The Paris Club, International 
Financial Institutions, domestic fiscal hawks and President Sirleaf 
actively lobbied for swift passage of the draft law, which outlined 
procedures for preparation, adoption, and execution of the national 
budget.  Indeed, the stakes were high and the timeline short: the 
GOL's Poverty Reduction Strategy identified the PFM Act as a key 
deliverable, and the Highly Indebted Poor Country (HIPC) Initiative 
requires Liberia to implement the law for one year in order to 
receive irrevocable forgiveness on the remaining $1.9 billion in 
external debt.  Yet despite the Act's importance, the Act failed to 
make it onto the 2008 legislative agenda, languished in committee, 
and only passed on August 20 in the waning days of the 2009 session. 
 
 
¶3. (SBU) Blamoh Nelson, co-chairman of the Senate Ways, Means, 
Budget and Finance Committee, and leader of a joint House and Senate 
committee created to review the draft act, defended his colleagues' 
lengthy deliberations.  He conceded few legislators understood the 
HIPC process or the consequent costs of their delay until President 
Sirleaf herself summoned the joint committee to the Executive 
Mansion for a briefing on the Paris Club, HIPC and the productive or 
obstructive role they might play in debt forgiveness. 
 
¶4. (SBU) Yet even as the committee came to understand their role in 
the responsible management of public finances, they hoped to recast 
the draft act to retain primacy over fiscal affairs - a mandate they 
believe the Liberian Constitution grants the Legislature, and not 
the Ministry of Finance.  Unable to resist a HIPC mandate, the 
Legislature already had conceded to MOF's absorption of the Bureau 
of the Budget.  Indisposed to accept further territorial erosion, 
they resented the PFM Act's explicit vision of a super-Finance 
Ministry that would preside over budget creation, revenue 
collection, expenditure and debt management and economic analysis. 
 
¶5. (SBU) The Legislature further questioned the absence of measures 
strengthening legislative and executive authority over state-owned 
enterprises.  Historically, revenue-generating agencies such as the 
Liberian Petroleum Refining Company and the Bureau of Maritime 
Affairs operated outside the budgetary process and were permitted to 
retain surplus earnings - reducing government revenues and 
oversight, and facilitating widespread fraud.  The joint committee, 
with assistance from the General Auditing Commission, introduced 
robust amendments requiring the refund of surplus funds from SOEs to 
a single GOL account known as the Consolidated Fund.  Additional 
legislative amendments to the final version included a stronger 
system for registering and tracking government assets for audit 
purposes, and the placement of internal auditors within each 
ministry. 
 
----------------------- 
The Compromise PFM Act 
----------------------- 
 
¶6. (U) The final version of the PFM Act provides the legal basis for 
comprehensive reform of Liberia's public finances, empowers the MOF 
to create implementing regulations that will improve revenue 
collection, strengthen auditing and enforcement, streamline onerous 
procedures imposed upon tax payers, tighten internal controls within 
the ministries that spend money, and establish transparent 
procedures for debt management and reporting.  However, it also 
 
MONROVIA 00000628  002.9 OF 003 
 
 
concedes authority to the Legislature for budgetary review and 
notably constrains the revenue and operational autonomy of 
state-owned enterprises.  The Act applies to all GOL institutions, 
agencies and entities, targeting five broad areas: 
 
-- Budget Preparation and Approval: strengthens the links between 
economic and development policy priorities and the budget process, 
calls for three-year forecasts of revenue and expenditure, specifies 
the format and timeline for submission of the MOF's draft budget to 
the Legislature and release to the public, and outlines the 
Legislature's rights and responsibilities for modification and 
approval of the budget. 
 
-- Budget Execution: provides legal mandates to control commitments 
against appropriations, limits the amount that may be transferred 
between line items, and requires annual procurement and spending 
plans for each ministry and spending agency. 
 
-- Debt Management: requires that all proceeds from government 
borrowing be credited to the Consolidated Fund, stipulates that debt 
service payments are among the first claims on resources, and 
requires the publication of a debt management strategy and the 
bi-annual submission of reports on new borrowing.  The PFM Act also 
establishes a Debt Management Committee (composed of the Ministers 
of Finance and Justice, the Governor of the Central Bank, and two 
other presidential appointees) that must approve all central 
government loan agreements or contracts that impose contingent 
financial liabilities upon the government. 
 
-- Accounting, Reporting and Auditing: mandates quarterly public 
reports and internal audits for all agencies, requires publication 
of the general budget and annual external audits of the final 
accounts.  The law also requires that the budget include separate 
annexes on foreign grants and loans. 
 
-- Oversight of State-Owned Enterprises: requires SOEs and 
autonomous agencies to submit draft budgets and strategic plans to 
the Minister of Finance for approval, compels SOEs to petition the 
Debt Management Board prior to contracting debt, and directs SOEs to 
disburse all surplus money to the Consolidated Fund at the 
conclusion of the fiscal year. 
 
-------------------------------------- 
HIPC Completion Point: Still on Track? 
--------------------------------------- 
 
¶7. (SBU) Despite fears that legislative wrangling would stymie the 
MOF's adamant and very public determination to reach HIPC Completion 
Point by the end of 2009, the International Monetary Fund appears 
ready to assent to a generous interpretation of the trigger that 
Liberia "implement" for one year both the PFM law and supporting 
financial regulations.  Alexander Deline, senior economist for the 
IMF in Liberia, said the Liberian Executive Director Samuel Itam has 
argued persuasively that the 2009/2010 budget process embodied the 
spirit of the PFM Act.  Deline believes political pressure from 
donors eager to support Liberia would make a delay past 2009 
untenable. 
 
¶8. (SBU) In fact, Yuri Sobolev, the new Resident Representative in 
Liberia, conceded that the IMF had permitted President Sirleaf to 
interview him concerning his views on Completion Point.  Only after 
he assured her of his commitment to an end-2009 timeline did she 
assent to his appointment as ResRep. 
 
------- 
Comment 
------- 
 
¶9. (SBU) The passage of the PFM Act should empower the MOF to 
continue its admirable progress toward a tightly controlled and 
transparent budget process.  The PFM Act is also welcome as the 
Governance and Economic Assistance Program (GEMAP) will end in 
October, and GEMAP technical advisors will no longer have co-signing 
authority at SOEs, the only check against questionable expenditures 
in the early years of the Sirleaf administration.  As public 
financial management continues to improve, budget support from the 
donors is expected to increase, enabling the GOL and donors to 
better coordinate resource allocation. 
 
¶10. (SBU) The GOL continues to demonstrate its commitment to a 
post-HIPC regime of fiscal prudence and cautious debt management, 
but the IMF's vocal willingness to push Completion Point this year 
may be counterproductive, given that impending debt forgiveness 
constitutes the GOL's most compelling impetus for reform.  To that 
end, post will continue to press the GOL to move forward not only 
with PFM implementation, but with other HIPC-mandated reforms that 
 
MONROVIA 00000628  003 OF 003 
 
 
are behind schedule, including external audits of key ministries, 
the development of an active Anti-Corruption Commission, and the 
rollout of a new debt management strategy. 
 
¶11. (SBU) It appears that Secretary Clinton's address to the 
Liberian Legislature August 13 may have had some effect, as 
legislators now seem intent on passing key legislation before they 
recess.  However, if the Legislature is to become a responsible 
interlocutor in the budget process, it needs both training for its 
members and a staff or technocratic experts capable of independent 
budget analysis.  Ongoing support provided by both the House 
Democracy Assistance Committee and USAID (through the National 
Democratic Institute) is welcome.  Now that the PFM Act is signed, 
there also is an opportunity for NDI to help support the budget 
committee's vision of a Legislative Budget Office.  A peevish 
Legislature that feels relegated from the budget process may 
willfully delay MOF priorities or renew oft-threatened efforts to 
spin off the revenue function into an autonomous agency that 
resembles the Internal Revenue Service. 
 
¶12. (SBU) Post recognizes that political imperatives may make an 
end-2009 HIPC Completion Point inevitable.  Indeed, both the MOF and 
Legislature have demonstrated laudable progress in exercising 
responsibly their respective roles in public financial management. 
However, we are concerned that a premature Completion Point would 
not give Liberia the time to institutionalize its promising track 
record of reform.  One way to address this concern would be for the 
IMF's staff-monitored program to reinforce continued PFM reforms and 
restrict new borrowing to sectors that offer strong employment 
prospects and contribute to Liberia's economic recovery. 
 
ROBINSON