VZCZCXRO5941
RR RUEHMA RUEHPA
DE RUEHMV #0804/01 3060838
ZNR UUUUU ZZH
R 020838Z NOV 09
FM AMEMBASSY MONROVIA
TO RUEHC/SECSTATE WASHDC 1435
INFO RUEHZK/ECOWAS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFISS/DEPT OF JUSTICE WASHINGTON DC
RHEHAAA/NSC WASHDC

UNCLAS SECTION 01 OF 03 MONROVIA 000804 
 
SENSITIVE 
SIPDIS 
 
E.O.12958: N/A 
TAGS: ECON EFIN EINV ECOM LI
 
SUBJECT: IMF THINKING ON LIBERIA'S HIPC COMPLETION POINT 
 
REF A) MONROVIA 673; B) MONROVIA 628; C) MONROVIA 524 
 
¶1. (SBU) SUMMARY:  Resisting political pressures to hasten 
Completion Point under the Highly Indebted Poor Countries Initiative 
before the end of 2009, an International Monetary Fund team led by 
Africa Director Antoinette Sayeh, Liberia's former Finance Minister, 
estimated that Liberia may achieve irrevocable debt forgiveness in 
May or June 2010.  During a mission to review Liberia's progress 
under its Poverty Reduction and Growth Facility, the IMF team 
observed significant reforms since their last visit in February, and 
offered an optimistic assessment of the country's resilience in 
light of food and fuel crises and a global recession that has 
delayed revenue from concessions.  The IMF discerned increasingly 
sophisticated monetary and fiscal policy, which should ready Liberia 
for a greater degree of independent economic management.  END 
SUMMARY. 
 
¶2. (SBU) Antoinette Sayeh, director for Africa, and Chris Lane, head 
of the mission to Liberia, led an IMF team that conducted Liberia's 
third review under its Poverty Reduction and Growth Facility (PRGF) 
during a visit to Monrovia October 19-28.  Poloff and Econoff met 
with Lane and Yuri Sobolev, the IMF's Resident Representative in 
Liberia, October 23.  The Ambassador also met with Sayeh, Lane and 
Sobolev October 27 to discuss Liberia's current macroeconomic 
situation and determine current IMF thinking on timing for Liberia's 
HIPC Completion Point. 
 
¶3. (SBU) Despite the tremendous exogenous shocks to Liberia's 
economy, the IMF remains optimistic about the likelihood of an 
economic rebound in 2010.  On the macroeconomic level, little has 
changed since the IMF's second review in February; the extractive 
industries continue to disappoint, and growth estimates remain at 
4.6 percent for 2009.  However, the IMF expects commodity prices 
will rebound, revenues from rubber will rise, and iron ore and 
timber extraction will resume, buoying growth to seven percent in 
¶2010.  While Lane conceded that the IMF had not anticipated the 
extent of the Liberian dollar's depreciation this year (ref A), his 
team's consultations with the Central Bank of Liberia (CBL) 
reassured the Fund that an increasingly activist monetary policy 
should steady the exchange rate. 
 
HIPC Completion Point 
--------------------- 
 
¶4. (SBU) Sayeh told the Ambassador the IMF tentatively believes 
Liberia could meet its outstanding triggers for HIPC Completion 
Point by May or June 2010, to coincide with the IMF's release of its 
fourth biannual review under the PRGF.  President Sirleaf and 
Finance Minister Ngafuan have long pressed for Completion Point by 
year's end, arguing that the HIPC mandate to maintain a cash-based 
budget constrains spending on critical social services.  While Lane 
acknowledged that six months ago the IMF might have acceded to the 
President's request, the delayed passage of key legislation, 
worrying revenue shortfalls, and the as-yet incomplete audit of 
expensive government payrolls vindicated those fiscal hawks who 
argued that the IMF must insist upon a track record of prudent 
public financial management before Liberia should be granted the 
right to contract debt. 
 
¶5. (SBU) Completion Point this year is no longer possible, because 
three key trigger points will slip to 2010: passage of the 
Investment Incentives Act, the audit of the education payroll, and 
the 12-month implementation of the Public Financial Management Act. 
The IMF was disappointed when the National Legislature unexpectedly 
failed to pass the Investment Incentives Act before it recessed in 
September, but the Liberian business community is confident the law 
will pass quickly when legislative sessions resume in January, given 
that both houses already held lengthy hearings to debate its merits. 
 The IMF will continue to monitor the audit of the Ministry of 
Education payroll.  Given that teachers' comprise one third of all 
government workers, the fact that ghost workers continue to collect 
salaries and harmonized pay scales do not yet exist imposes an 
unnecessary fiscal burden on the GOL.  Lane was heartened to learn 
that USAID will hire 300 auditors to comb education payrolls, and 
expects to complete its appraisal by March 2010. 
 
¶6. (SBU) The only pending trigger with some room for interpretation 
is the implementation period for the Public Financial Management 
(PFM) Act.  The PFM Act passed in August, after languishing in the 
legislature for nearly a year (ref B), so a literal application of 
the 12-month implementation requirement would push Completion Point 
until December 2010, when the IMF releases its fifth review under 
the PRGF.  While there is precedent for softening implementation 
requirements, Lane cautioned that the IMF has learned that it must 
minimally ensure that Liberia fulfills the trigger point in spirit. 
During its second review, the IMF liberally interpreted the 
requirement that the Liberian Anti-Corruption Commission (LACC) be 
 
MONROVIA 00000804  002 OF 003 
 
 
"fully operational" for one year before Completion Point.  Sayeh 
acknowledged that while the LACC may have fulfilled that nominal 
pre-requisite, the IMF's concession lifted pressure on the GOL to 
create a robust institution with a track record of 
corruption-busting.  On the PFM Act, the IMF might be willing to 
abbreviate the 12-month implementation period, given that the Act 
itself is a solid piece of legislation that meets the IMF's high 
standards, and given that the Ministry of Finance readied strong 
implementing regulations while awaiting passage.    However, Lane 
said the IMF will insist upon "continued strong performance" under 
the PFM Act and will ask the GOL to submit at least two quarterly 
implementation reports. 
 
Monetary and Fiscal Policy After HIPC 
-------------------------------------- 
 
¶7. (SBU) Sayeh and Lane both observed promising indications that a 
post-HIPC Liberia will guard against political and social pressures 
to spend profligately, embarking upon a prudent fiscal policy that 
uses debt only to smooth government expenditures, and an assertive 
monetary policy that staves off further depreciation until greater 
exports steady demand for the Liberian dollar. 
 
¶8. (SBU) The delayed resumption of timber and iron ore exports, 
along with sagging customs revenues and lackluster income tax 
receipts, have constrained already-modest government expenditures. 
Yet Lane said that while the fiscal situation is undoubtedly 
worrying, it has afforded the MOF an opportunity to test its mettle. 
 The IMF estimates that Liberia's true resource envelope for Fiscal 
2009-2010 is USD 305 million (compared to the ratified budget of USD 
372 million).  The budget office independently arrived at a similar 
conclusion as early as June (ref C), signaling that the MOF's 
capacity for revenue projection has become quite sophisticated. 
Since then, Lane noted that the MOF has implemented its risk 
management strategy effectively, communicating with line ministries 
and negotiating budget cuts.  Lane said he was impressed that every 
ministry he met with seemed to understand how the revenue shortfall 
would affect their respective allotments. That augurs well for a 
post-HIPC fiscal environment, when Liberia must ensure kneejerk 
borrowing is not the inevitable response to every budget crisis. 
 
¶9. (SBU) The IMF is also working with the GOL to design a cautious 
borrowing strategy.  The Central Bank of Liberia is drafting the 
outlines of a nascent Treasury-bill market for Liberian 
dollar-denominated bonds with 90-day durations.  Given that 
commercial banks complain their vaults are full of Liberian dollars 
collecting no interest, the IMF believes the CBL will find a ready 
market for its notes.  A small-scale bond market will absorb some of 
this excess supply of local currency, which in turn could buoy the 
Liberian dollar. 
 
¶10. (SBU) The IMF also praised the CBL for an increasingly 
resourceful use of it limited toolkit of monetary instruments. 
In October, the CBL raised the longstanding ceiling on foreign 
exchange sales at its weekly auction from USD 500,000 to USD 1.5 
million, thereby reversing six months of steady depreciation.  Lane 
also saluted the CBL's "sensible" decision not to draw upon an IMF 
allocation of Special Drawing Rights equivalent to USD 160 million. 
Lane noted that where many countries have been tempted by this 
low-interest credit line, the CBL exhibited laudable restraint. 
 
Pleasant Surprises and Unmet Challenges 
---------------------------------------- 
 
¶11. (SBU) Since its February assessment, the IMF team was pleased to 
discover reforms that exceeded expectations.  Sayeh was encouraged 
to see that Liberia is now only the second country to achieve 
compliance under the Extractive Industries Transparency Initiative. 
Lane also noted that the CBL created units to monitor insurance 
companies and micro-finance, shoring up some gaps in supervision, 
and doing so independently, without help or support from any 
international partners or advisors. 
 
¶12. (SBU) On the negative side, the IMF team said their meetings at 
the Ministry of Justice alerted them up to the monumental challenges 
that face rule of law in Liberia.  Lane said the IMF had been 
focusing on commercial law reform, after discussing with Minister 
Christiana Tah the monumental tasks she has faced since taking over 
in July, he recognized more fundamental problems, relating to basic 
training of law professionals, prison management and judicial 
independence.  He welcomed information about USG rule of law 
programs. 
 
¶13. (SBU) COMMENT: The IMF's current thinking appears to be that 
while a cash-based budget imposes painful short-term constraints, 
premature Completion Point would curtail the institution-building 
that will be essential to sound fiscal management in years to come. 
 
MONROVIA 00000804  003 OF 003 
 
 
We welcome the IMF's sanguine assessment of Liberia's readiness for 
a post-HIPC environment, but we recognize that the government sees 
Completion Point as more a political achievement than the basis to 
form a new fiscal policy.  We regard HIPC-mandated reforms as the 
modest foundation on which will rest ever-improving economic 
policies that facilitate widespread growth and engender social 
equity.  To that end, we will continue to encourage ongoing 
improvements in public financial management, external audits of key 
ministries, and the development of dynamic anti-corruption 
mechanisms, even after Liberia achieves Completion Point. 
 
THOMAS-GREENFIELD