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09MONROVIA52 2009-01-20 16:13:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Monrovia
Cable title:  

LIBERIA: Donor Support Remains Essential As Economy

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DE RUEHMV #0052/01 0201613
R 201613Z JAN 09
					  UNCLAS SECTION 01 OF 02 MONROVIA 000052 


E.O.12958: N/A
SUBJECT: LIBERIA: Donor Support Remains Essential As Economy

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

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



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.