LIBERIA: MCC SCORECARD DELIVERED; GOL EAGER FOR THRESHOLD

UNCLAS SECTION 01 OF 03 MONROVIA 001348 SIPDIS SENSITIVE SIPDIS DEPARTMENT PASS USTR FOR CONNIE HAMILTON DEPARTMENT FOR AF/EPS, AF/W AND EEB/IFD/ODF E.O. 12958: N/A TAGS: EAID ECON ETRD KMCA MCC PHUM LI SUBJECT: LIBERIA: MCC SCORECARD DELIVERED; GOL EAGER FOR THRESHOLD STATUS REF A) MONROVIA 1322; B) STATE 146777 C) MONROVIA 1201 MONROVIA 00001348 001.2 OF 003 ¶1. (SBU) Summary: Econoff delivered Liberia's MCC scorecard and reftel points to Minister of Commerce and Industry Frances Johnson Morris during an introductory call. There has been press reporting here on President Sirleaf's appeal, during her recent meetings with the President and others in Washington, for MCC Threshold status for Liberia. Although Liberia has below-average results in 10 of the indicators, current GOL initiatives are focused on the "trouble spots" -- land tenure; strengthening rule of law; controlling corruption; enhancing health and education; and improving the business climate. Progress on those initiatives should soon be reflected in the Government Effectiveness and Regulatory Quality indicators. Although Liberia is not ranked for two of the indicators (UNESCO on Girls Primary Education and Heritage Foundation on Trade Policy),the trends are positive. While The USG provides a tremendous level of support for Liberia, there are still areas where additional resources could effectively support GOL efforts to accelerate its progress in improving scorecard results. Embassy Monrovia strongly supports MCC Threshold status for Liberia. The GOL's commitment to reform is unquestionable, but the window is limited. A modest, well-targeted award could accelerate GOL efforts to show progress in building a just and equitable society. End Summary. Commitment to Primary Education -------------- ¶2. (U) School enrollment increased 40 percent in the past year, according to GOL data, and the FY2007-08 education budget is up by over 40 percent from the previous year. The President has called for universal primary education and for an end to children selling items in the streets during school hours. ¶3. (SBU) According to the UNESCO representative in Monrovia, Liberia's absence from the rating is due to the time lag in publication of the annual statistics. He said Liberia may appear in next year's compilation of 2005 data. More recent data, such as the census being conducted in March 2008, will not appear for several years. However, UNESCO confirmed that the information on primary education expenditures provided by post in response to the initial MCC request in August was collected by UNESCO at the request of the Ministry of Finance for the MCC. Business Climate Improving -------------- ¶4. (U) In September, the World Bank's International Finance Corporation included Liberia on its "Doing Business" ranking for the first time. The ranking (170 out of 178) was a wake-up call for both the GOL and the Liberian private sector, and provides excellent ammunition for those who have been advocating reform. During a presentation to the President and members of her cabinet on November 14, the IFC highlighted administrative reforms (not requiring legislation) that, had they been made before the deadline, would have moved Liberia from number 170 to number 140 (assuming other countries remain constant). Many of the reforms are already in train and the GOL is eager to continue progress. The IFC presentation was prepared at the request of the GOL to provide concrete examples of regulatory changes that would improve the business climate. ¶5. (U) Businesses, both Liberian and American, report that things are getting better. The U.S. Center for International Private Enterprise (CIPE) held a week-long workshop in early November to strengthen management of business organizations and teach them how to cooperate in advocacy efforts. Major legislation, including the tax code and investment code, is being revised, but the GOL is instituting reforms in advance of legislative changes. The Ministry of Finance has restructured its revenue bureau, creating an office to oversee tax reform. The process of paying taxes is already less onerous and work continues to broaden the tax base and lower rates. Although the customs process remains more cumbersome (and subject to rent-seeking) than necessary, a "one-stop-shop" at the port for importers has been created, eliminating a third of the steps needed to clear inbound goods, and the GOL is also working towards harmonizing tariffs with ECOWAS neighbors. The Liberian Better Business Forum, a public-private dialogue, has gained new momentum and will be coordinating more closely with the Poverty Reduction Strategy initiatives already underway. Wrestling with Land Reform and Corruption -------------- ¶6. (SBU) Land reform is fundamental to growth and stability. Many consider land disputes, if not resolved, to be the most likely source of future conflict. Unreliable land title records hamper MONROVIA 00001348 002.2 OF 003 economic growth by limiting access to bank loans. Contested land is difficult to develop, slowing agriculture, mining exploration and urban planning. The GOL is tackling the complex issue head-on. The Governance Commission has been charged with proposing comprehensive land reform. President Sirleaf's government is going beyond just trying to restore pre-war property records; it is committed to establishing an equitable system that will correct injustices dating from the 1822 arrival of settlers under the auspices of the American Colonization Society. A particularly thorny issue is improving access to land for women and young men, whose rights under traditional tenure systems are tenuous. ¶7. (SBU) The Sirleaf Administration is also committed to fighting corruption. A bill to establish an Anti-Corruption Commission is before the legislature. The government has initiated the trial of Gyude Bryant, chairman of the former (interim) government. The GOL took the concrete step of raising Civil Service salaries (although they are still extremely low) and paying salary arrears from past governments, and is pursuing broad-based civil service reform. ¶8. (SBU) The battle against corruption is being waged on a more concrete level. Government ministries, such as Finance and Commerce, have signs displayed prominently noting which forms and services are free of charge. The Minister of Foreign Affairs conducted a publicity campaign detailing the process of applying for new passports, enumerating the costs and the stages for which there is no charge. The Deputy Minister of Finance for Revenue reportedly established a phone number for reporting corruption, but it has not been widely publicized, and whistle-blower protection legislation, while endorsed by the President, has not yet been drafted. ¶9. (U) The Governance and Economic Management Assistance Program (GEMAP) has been successful in capturing revenue that previously "leaked" from government coffers. GOL revenues increased 75 percent last fiscal year, well in excess of GDP growth. Publication of the FY2007-08 budget and of the FY2006-07 final fiscal outturn is shining a spotlight on government finances and creating a climate of transparency. Government Learning the Ropes -------------- ¶10. (SBU) All three branches are learning the delicate balancing act of governing in a democracy. Each branch of government has used its powers (and the press) to defend its prerogatives and challenge the other branches. Legislation has been delayed; officials have been embarrassed by public disclosure; unsubstantiated accusations have been reported; but through it all the government has functioned and its institutions are growing stronger. ¶11. (U) There have been solid steps towards improving government effectiveness. In addition to becoming eligible for the Kimberley Process, the GOL is finalizing a chain-of-custody agreement that will govern logging, and is refining the customs pre-shipment inspection regime to make it more equitable and effective. Evidence of commitment to improving daily life is ever more evident as the dry season arrives: road repairs, uniformed police directing rush-hour traffic, the opening of newly-rehabilitated markets, shiny new dumpsters, and work on sanitation system restoration are a few of the most visible changes. In short, the GOL's commitment to reform is unquestionable. However, the President needs to show results quickly to solidify Liberians' expectations of government effectiveness and transparency before the 2011 elections. Poverty Reduction is Not Just a Slogan -------------- ¶12. (SBU) The GOL has a target of July 2008 for its HIPC-related Poverty Reduction Strategy (PRS). The process is guided by the Liberian Reconstruction and Development Committee (LRDC),chaired by the President. Ministerial-level "pillars" of the LRDC focus on Security; Economic Revitalization; Governance and Rule of Law; and Infrastructure/Basic Services, such as education and health. Stakeholder consultations in each county on PRS proposals started in October and will continue through December. There is keen awareness that changes are necessary in each pillar to create a just and stable society conducive to economic growth and development, and that progress in one pillar is not possible without progress in all. The Embassy is closely involved in all aspects of the process and will continue to work with the GOL on supporting initiatives of the PRS that will move Liberia closer to Threshold status. What Would Make a Difference? -------------- ¶13. (SBU) The President is under tremendous pressure to show results, and is tackling the most fundamental and intractable MONROVIA 00001348 003.2 OF 003 barriers to equitable development. The U.S. Government provides strong support for Liberia, but there are still areas where we could do more to enhance the government's efforts. The following suggestions are all high priorities for the GOL, and are all receiving donor support. However, a modest, well-targeted commitment under the Threshold program to speed the process would help the GOL show results before the public becomes disillusioned with the slow pace of progress. -- Private investment (domestic and foreign) is hampered without basic infrastructure, primarily roads and electricity. Although international donors are funding infrastructure projects, major financing gaps remain and investment there would have tremendous multiplier effects. This would improve the Investment in People indicators by extending the reach of government programs. -- Tax reform is key to boosting government revenues, improving equity, and spreading a sense of participation in the economy. The Ministry of Finance has made dramatic improvements, with revenue up 75 percent over last year, but advice on crafting legislative changes or support for further computerization of the revenue system would improve government resources and effectiveness. This would boost performance in all three indicator categories, improving government effectiveness, allowing greater investment in people, and improving regulatory and fiscal policy. -- Human capital is desperately inadequate. Boosting the GOL's capacity to manage (through long-term training, graduate studies, e-governance systems) would ensure that innovations in government operations, such as those instituted under GEMAP, are sustainable. Private sector firms are ham-strung by the lack of professionals with basic financial, accounting/audit or legal credentials. This would further improve government effectiveness, regulatory quality, and economic freedom. -- The GOL is addressing the land issue, but well-targeted financial support for consolidation of land records or a catalogue of pending land disputes could accelerate resolution of the problem, speed economic develop and support political stability. Resolving land ownership problems will unshackle the economy and reduce potential for conflict. It will lay a foundation for ruling justly and provide extremely visible proof of GOL commitment to progress and reform. -- Improvements in the financial sector would ripple through the economy. Most counties in Liberia still do not have a single bank. We have been told that if all Liberia's banks formed a syndicate, they could probably support a loan in the $2-3 million range. Access to capital will encourage economic freedom. ¶13. (U) Embassy POC for MCC issues is Economic Officer Lucy Abbott at AbbottLK@state.gov. BOOTH