Governor Mills Jones Destroying Liberian Economy: IMF Raises Concern on Depleting Reserve
The Five Factors Causing High Inflation in Liberia
By: John S. Morlu, II
"Liberia seems to be one of the most highly dollarized economies in the world... Since Liberia was established as an independent country in 1847, its economy has been either fully or mostly dollarized...Implementation of monetary policy is complicated by the large amount of U.S. dollars in circulation and an underdeveloped financial sector," IMF Working Paper, WP/09/37 . Except IMF forgot that Samuel Doe created five Liberian dollar Coins to deal with capital flight and corruption.
"The Liberian dollar is used for small scale cash transaction and, to a limited extent, as the currency for bank deposits. It is thus the main currency used by the poorer and rural segments of the population. The U.S. dollars is widely used for trade and financial transactions, and for larger cash payments; it is the currency of choice for the wealthier and urban population and local donor representatives. Changes in the exchange rate, and associated changes in prices measured in local currency, are therefore likely to have different effects on different social strata. For example, a depreciation of the Liberian dollar could have a large negative impact on real incomes of the poor while the wealthier segments of the population would be largely unaffected." IMF Country Report No. 04/84. Except IMF forgot that U.S. dollars are used to facilitate capital flight in Liberia.
Former Economic Advisor to Chairman Gyude Bryant, Mr. Harry Greaves can explain to Liberians what IMF told them in 2004 about how Liberia does not benefit from dual currency because its economy is not fully integrated in the world economies. I gave this report to the President and Senator Kupee: "Adopting Full Dollarization in Post Conflict Economies: Would the Gains Compensate for the Losses in Liberia?," IMF Working Paper, WP/06/82
The current Minister of Finance of Liberia said he has a solution to the budget busting inflation problem facing Liberia. After the Minister of Finance's press conference on the rising inflation, on 18 September 2013, the New Republic reported that "(the Minister) used the occasion to disclose that in subsequent time the ministry will encourage tax payers to pay more of their taxes in LD, which according to him will be publish with detail later." First, Section 6 of Revenue Code 2000 (amended 2009) states that "tax may be assessed either in Liberian dollars or US dollars and may be paid in Liberian dollars or US dollars." Is the Minister saying Liberians are demanding more U.S. dollars just to pay taxes, when they law clearly says they can pay in Liberian dollars?
Second, let assumed all taxpayers paid taxes in Liberian dollars, so the Government is going to have a lot of Liberian dollars in the bank at CBL. But here is the fallacy: Government of Liberia is paying practically everything in U.S. dollars, except civil servant salaries. From the President down, they all get allowances, gas coupons, local and international travel per diem in U.S. dollars. All the $15,000, $17,000 and $22,000 salaries paid to the most 'lucky ones" are all paid in U.S. dollars. Basically, the Minister's solution is a zero sum game. Government will sell more Liberian dollars to get U.S. dollars to pay expenses in U.S. dollars. In 1998, I nearly got in trouble in Moscow. I left my hotel to jogging. On my way back, I saw a MacDonald's. I went in to get a breakfast. I handed over U.S.$20. The police was right behind also purchasing food. The cashier refused the $20 and the police told me it was illegal to use U.S. dollars to purchase anything. I had to go to a designated counter at my hotel to purchase more Russian Rubles before I could purchase "my MacDonald."
The Minister's solution is like President Doe's unorthodoxy. In the 1980s, Samuel Doe got mad and instructed his central banker to print a lot of coins thinking that printing coins alone was sufficient to curtail capital flight. It did not work. Liberian officials have to move away from these phony and unorthodox economic policies and focus on the real problem. Liberia cannot print its way to prosperity and Liberian could not also import its way to prosperity. Let the Minister of Finance and CBL Governor use fiscal and monetary policies respectively to incentivize the economy to promote real output driven by exports. If I were the President of Liberia, my number one Ministry will be the Ministry of Commerce and Industry, just it was with Japan's powerful Ministry of Trade and Industry (MITI).
I would reorganize the Ministry of Commerce and Industry in such a manner that will position Liberians to generate the output required to support our salivating demand for the U.S. dollars. How much have Liberia benefited from African Growth and Opportunity Act (AGOA) since he boasted of being accepted by U.S. into that program in 2007? And how much have we benefitted from EU's generous offer for trade with Liberia , Trade Chapter of Cotonou Agreement? Perhaps our economic policy makers need to go back and read Classical Economist David Ricardo's 'On the Principles of Political Economy and Taxation.' Or economist Adam Smith's "An Inquiry into the Nature and Causes of the Wealth of Nations."
Where is Monetarist Milton Friedman with his research on' consumption analysis, monetary history and theory, and the complexity of stabilization policy'. Or where is Mr. big Government John Maynard Keynes with his he 'General Theory of Employment, Interest, and Money?' Since there seems no Friedman or Keynes in Liberia, I think we need the late U.S. President Andrew Jackson. "In 1833, President Andrew Jackson announced that the government will no longer use the Second Bank of the United States, the country's national bank. He used his executive power to remove all federal funds from the bank, in the final salvo of what is referred to as the "Bank War."A national bank had first been created by George Washington and Alexander Hamilton in 1791 to serve as a central repository for federal funds. The Second Bank of the United States was founded in 1816; five years after this first bank's charter had expired. Jackson also objected to the bank's unusual political and economic power and to the lack of congressional oversight over its business dealings."
"Jackson, known as obstinate and brutish but a man of the common people, called for an investigation into the bank's policies and political agenda as soon as he settled in to the White House in March 1829. To Jackson, the bank symbolized how a privileged class of businessmen oppressed the will of the common people of America. He made it clear that he planned to challenge the constitutionality of the bank, much to the horror of its supporters. In response, the director of the bank, Nicholas Biddle, flexed his own political power, turning to members of Congress, including the powerful Kentucky Senator Henry Clay and leading businessmen sympathetic to the bank, to fight Jackson. All of this took place during Jackson's bid for re-election; the bank's future was the focal point of a bitter political campaign between the Democratic incumbent Jackson and his opponent Henry Clay. " Because he closed down the politically corrupt central bank and also fired nearly his entire corrupt and incompetent cabinet, Jackson won re-election and obtained the highest popular vote in American history. President Jackson gambled against a popular bank governor and a corrupt system and won. Today, Jackson is considered one of America's best Presidents.
Anyway, a high ranking official of a major political Party in Liberia called me to chat about Liberian politics, the 2017 elections, political alignment and post Ellen Johnson Sirleaf. He talked about putting together a winning coalition. He suggested that we should start talking to the likes of Central Bank Governor....etc. I asked rhetorically whether the Governor was interested in politics and he replied "yes," he is very interested." And his only evidence was "don't you see all the loans the man is giving out."
I said but I don't think he has the demeanor as the Governor once attacked me, nearly hitting me in the face at the German Embassy, thanks to President Sirleaf intervention. I also said on another occasion when I decided to audit the foreign exchange receipts and payments as it is done in Ghana, the Governor stood up yelling at me and pointing his fingers at my nose. I finally had it with the Governor and I told him to sit down as he was towering over me. He calmed down and started to narrate the long friendship between his family and mine. And he never yelled at me ever again until I left Liberia. I told this politician that the Governor has a hot temper so we should go slow and then he retorted “but the old man has put his hat in the race," agreeing with two realities: He has a hot temper but he is also a 2017 presidential candidate that we must consider in any political calculation for post Ellen Sirleaf.
I have read countless accusations and counter accusations against the Governor's loan schemes. Some beneficiaries and would be beneficiaries hailing it, while staunch politicians with an eye on 2014 and 2017 lambasting it. I tried to convince a well respected professional that the Governor could be doing the loan scheme because he probably lacks other monetary policy options. This person refused to accept any alternative explanations for the Governor’s loan scheme. He kept telling me to read statements from Senate Pro Tempore, Senator Prince Y. Johnson, and Senator Jewel Howard Taylor etc. He also told me to checkout YouTube and type in "Mills Jones," as he said "you will see the convoy and the people lining up to greet Mills Jones." I was being instructed like a student taking instruction from his teacher.
I visited YouTube and did as he instructed. I saw a lot of "Mills Jones," including a latest one published on 6 October 2013, " LIB CULTURAL AMB. JULI ENDEE STORM READING PA." The subtext it reads, "The 1st International Entrepreneur's Emporium Business Conference and Honoring Ceremony of Central Bank of Liberia for it's Capacity Building Effort of Local Businesses in Post War Liberia, Dr J. Mills Jones Received the Honor on Behalf of Liberia."
I clicked on the YouTube and watched the event. While speaking after he received the award, he downplayed the "Agenda for Transformation," arguing that such an Agenda is just on paper. He tried to convince his audience that it is only he who has the solution to the economic problems in Liberia. The Governor argued, "an Agenda alone will not do it. What it will take is transformational leadership and transformation policies. That is what will turn an agenda into reality. My message to the Liberian people is that poverty is not our destiny. We are going to change the Liberian economy. We are going to bring about economic emancipation." Not we are changing the economy and bringing about economic emancipation. The Governor was clearly speaking in futurist terms.
But as a person who motives was always being questioned when I served as Auditor General, I am mindful of building an argument on someone's perceived motive for certain public action. Instead I like to concentrate on his argument that his policies will bring about 'economic emancipation' and 'changing the Liberian economy in a way that will ensure that poverty is not our destiny.' Some have argued that there is a political risk in Liberia for questioning popular policies that are embraced by the people, forgetting to know that only a small number of people are in fact benefitting from the Governor's loan schemes. The majority of the population are in fact subsidizing a small number of people who are benefitting from the loan schemes and other ill-timed, ill-fitted policies.
Macroeconomic theory posits that the Central Bank functions to regulate the money supply, using monetary policies to stimulate economic activities and slow down economic activity when the economy is 'over heating' to bring inflation under control. In some regimes like Germany, decision making by the central bank is restrictive (rule based). Others like the U.S., the role of the Central Bank is discretionary, meaning the Central Bank decides when to act to increase or decrease the money supply. In discretionary policymaking regimes like USA and Liberia, the Governor decides pretty much what level of inflation he is comfortable with.
CBL Mission and Objectives
Some notable professionals including a well respected Liberian Economist appeared before the Senate Committee to defend the Governor's policies of using the Central Bank as a "Loan Shop." One of them argued that the Governor does not have many policy making options in Liberia. In theory and practice, Central Banks use monetary policies such as changing the reserve requirement, and open market operations (buying/selling treasuries) to increase or decrease the money supply. For specific monetary intervention, Central Banks use transmission mechanisms (banks/financial institutions) to effect the policies. For instance, when the U.S. Federal Reserve wanted to rescue the mortgage companies, they used JP Morgan to do it for them. The U.S. Federal Reserve did the same to rescue the Hedge Fund, Long Term Capital. That is clearly not the case in Liberia. The CBL Governor is using non-bank institutions to direct loans.
Some have argued the Governor's policies violate the Act creating CBL, as they argued CBL is prohibited from making direct loans and loans that are not fully collateralized. Let Liberians read the CBL's Mission and Objectives as stated by the CBL to see whether making direct loans is part of their mission and objectives as stated on CBL Website (www.cbl.org.lr). It reads,
"The Mission and Objectives of the Central Bank of Liberia is to maintain price stability and to ensure a sound banking and financial system, thereby contributing to sustainable economic development of the nation. The Management of the Central Bank of Liberia seeks to achieve the objectives of its mission through:
In achieving the objectives above, the Bank commits itself to providing effective support functions through a sound banking and financial control system, appropriate information system and the development of competent and qualified staff."
While CBL and its benefactors can defend the policies of the Governor and while others can question the legality of its action and the political motives, the fact remains that the Governor's policies are hurting the Liberian people and the Liberian economy, with devastating near-and-long term consequences. This is a debate that the Governor and his supporters cannot win, as the bad economic consequences of his policies have worsen the economic well being of Liberians, including the very people who have benefitted from the loan and foreign exchange window schemes. As seen from data produced by the CBL, the Governor has failed to maintain price stability in the face of escalating depreciation of the Liberian dollar against the U.S. dollar, a bad condition that is self created and purposely inflicted on the well being of Liberians. Even the Minister of Finance acknowledges how bad things are getting, although he is too sweetish to pin down the problem and solve it.
Finance Minister of Liberia Sidesteps the Real Problems Causing Inflation
There has been a lot of complaint from Liberians about the high rate of inflation. As of 24 October 2013, the Liberian dollar had depreciated against the U.S. Dollars to L$81.00/US$1.00. This is contrary to the Governor's assertion when he said, "my message to the Liberian people is that poverty is not our destiny. We are going to change the Liberian economy. We are going to bring about economic emancipation." Inflation is the worst enemy to sustainable economic growth and the well being of the people of any nation. Inflation diminishes our purchasing power. As an Economist, the Governor should know this very well. Inflation is impoverishing Liberians by the day.
The Governor should also know the argument behind the Philip Curve, historical inverse relationship between the rate of unemployment and the rate of inflation in an economy. The Phillip Curve simply posits that there is a trade-off between inflation and unemployment; the high inflation leads to low unemployment. This is not the case in Liberia. In Liberia, there is high inflation, high unemployment. In the go-go days of the dotcom revolution in the 1990s, America differed the Philip Curve and achieved the twin benefit of low unemployment and low inflation. Federal Reserve Bank explains this paradox away by saying information technology has led to higher productivity which has caused the low inflation, low unemployment rate in USA. The Liberian Minister of Finance and the CBL Governor have not been able to explain to Liberians why we have HIGH INFLATION, HIGH UNEMPLOYMENT. A good explanation of this Liberian economic paradox could lead to winning a Nobel Prize in Economics. But can they explain it with facts and economics?
On 18 September 2013, the New Republic's carried an article published on Allafrica.com entitled, "'Infusion Causes Inflation' - Minister Konneh Asserts." On 20 September 2013, FrontpageAfrica and other papers carried similar story but with this headline, "Konneh Promises Six Percent Decrease in Inflation As Exchange Rate Sky Rockets."
FrontpageAfrica reported, " The money market in Liberia has for the first time in about ten years drawn the attention of senior government officials so much so that the Minster Finance, Amara Konneh himself admitted that many Liberians are suffering because the exchange rate has sky rocketed and stands at LD$80 to US$1," quoting the current Liberian Finance Minister at his press conference, "ladies and gentlemen, in the last few months we have witnessed a persistent depreciation of the Liberian dollar." All Liberians, including the Governor, agreed with the Minister of Finance that Liberia has witnessed persistent depreciation of the Liberian dollar and that is hurting all Liberians, hitting hardest the poor and the downtrodden who have to pay for everything using Liberian dollars such as taxi fare and a cup of rice.
But where I disagree with the Minister of Finance is his diagnoses of what is causing the inflation rate in Liberia. First, according to FrontPageAfrica, the Minister of Finance stated that, "we recognized this is affecting the majority of Liberians who earn their living in LD since the market prices are often pegged to the US dollar because of our dual currency regime." First, I felt FrontpageAfrica is likely misquoting the Minister of Finance. But then I read all the other papers and they carried the same attribution to the Minister of Finance. The New Republic wrote, " (the Minister of Finance) added that this is affecting the majority of Liberians who earned their income in the LD since the market price is often pegged to the US dollars to the US dollars due to the dual currency regime." Liberian dollar is not pegged to the U.S. dollar. Instead it is a floating rate that is determined solely by market forces of demand and supply. In economic terms, pegging Liberian dollars to the U.S. dollar means there is a range/band in which Liberian dollar can trade against U.S. dollars. Singapore dollar is pegged to the U.S. dollars, as a matter of official policy/law.
Second, FrontpageAfrica reported, "according to (the Minister of Finance), "the depreciation of the LD is being driven mainly by the structural imbalance between the supply of and demand for the US dollar in the market due to high and growing trade deficit with practically everything that is consumed in the Liberian economy being imported while exports receipts have somewhat stagnated."In economic theory this is true but I will differ that this not is the case in Liberia. We have signed $16 billion of concessions and contracts since 2006. The Minister wants Liberians to believe that although we have signed all these concessions, they have not helped to increase exports from Liberia. Instead exports have remained stagnant? It begs the question then what benefits have accrued to Liberia from the $16 billion in concessions we have boasted of all over the world?
Third, according to FrontpageAfrica, the Minister of Finance further provided these reasons for the rising inflation," " Another reason for the depreciation is the injection of more Liberian Dollars in the economy in the last six months. We are trading more in Liberian dollars now so the circulation is increasing." And then Minister of Finance caught himself as he does not want to be viewed as badmouthing his Bank Governor. FrontpageAfrica wrote, " Minister Konneh who was quick to say that he was not criticizing the monetary policy of the central bank put the blame of the depreciation of the Liberian dollar and inflation squarely upon the unevenness of trade. So the Finance Minister qualified his statement against the CBL and said, " It is not because of bad policy. It is because of policies that we pursue to improve the lives of our people which can create some effect in the other part of the economy." The Minister of Finance should call a spade a spade. Why are people so scare to debate policy issues in Liberia?
In today's Liberia, the fact is that more Liberian dollar being push on the economy is bad monetary policy. Printing more and more money without the aggregate output level to support it is bad policy. Adolph Hitler printed a lot of money in Germany to finance his World War II and he got hyperinflation and Germans suffered. In the 1980s, Mexico, Argentina, Brazil and so many poor countries could not pay their debts to multi-lateral institutions and their bilateral debts. They fooled themselves to think that the easiest way out was to just print more and more money and the result was their economies tanked due to skyrocketing inflation. In recent years, we have read Zimbabwe's 100 Trillion Dollar Banknotes and the result has been a complete economic devastation and massive suffering of the people of Zimbabwe.
The Minister of Finance provides his own solution. The New Republic reported that, "he used the occasion to disclose that in subsequent time the ministry will encourage tax payers to pay more of their taxes in LD, which according to him will be published with detail later." This is not the solution. It will not solve the problem, it does not address the real issues causing the inflation.
The Liberian Finance Minister promised that "inflation is projected to gradually decline to 6 % in 2014." This was on 18 September 2013 when the Liberian dollar was trailing L$80.00/US$1.00. By 24 October 2013, the Liberian dollar have further depreciated trailing at L$81.00/US$1.00. I do not see improvements in those numbers.
The Five Factors Causing Inflation in Liberia
While those Liberians benefitting from the Governor's voodoo monetary policies might argue that they are benefitting from his loan schemes and that is all that matter, the Governor's policies are hurting the majority of Liberians whose economic well being is worsening under his ill-conceived policies. The Minister of Finance needs to tell the Governor to stop his bad policies. Here are examples of the things that are really causing the inflation:
The Loan Shop Scheme
Central Bank does not have its own money to give away. Instead it using its role as the depositor and custodian of Liberian taxpayers' monies to make these loans. Making loans is directly increasing the money supply in the economy. The loans provided by the Governor are in Liberian dollars. Where does the Governor get the Liberian dollar to loan out? The Governor is printing more Liberian dollars to support his loan schemes, increasing the amount of Liberian dollars in circulation without a corresponding output to obtain more U.S. dollars.
Further compounding the problem, the beneficiaries of the loan schemes are not in the exporting business. They are importing goods from Guinea, Togo, China, Nigeria, Sierra Leone, Dubai and Ivory coast. It is hard to find a nation that that is import driven to path its away to prosperity. It is also hard to find a nation that has created prosperity and ended poverty by printing more money. The loan scheme is an inflation generator, cranking out inflation by the hour.
U.S. Dollar Window at Central Bank
The Governor provides loans in Liberian Dollars. These "marketers" have a lot of Liberian dollars. But then they decided to go back and complain to the Governor that they cannot get enough U.S. dollars to go to Guinea, Togo, China, Dubai, Ivory Coast, Sierra Leone and Ghana, etc to buy goods. This is because the Liberian dollar is not accepted in these countries as a medium of exchange. It is only the mighty U.S. dollars that is accepted.
The Governor comes under pressure and then he ordered for there to be a special window at the Central Bank providing U.S. dollars to the "market women." Anyone can disprove me by going to the Central Bank to see the special discount window created by the Governor to service these importers, calling themselves "market women." These "market women" take the U.S. dollars and off they go to Guinea, Sierra Leone, Ivory Coast, Ghana, Togo, Dubai and China to purchase goods to import to Liberia. They are literally taking out of circulation the U.S. dollars and selling them to foreign countries.
Liberia does not have any power to create more U.S. dollars, so each time these people claiming to be 'market women" take U.S. dollars to foreign countries to buy more imported goods, the less U.S. dollars in circulation, leaving more and more Liberian dollar on the market. More Liberian dollar on the market versus U.S. dollars means more Liberian dollar chasing few U.S. dollars and so you have inflation.
By his action, the Governor has created a moral hazard problem. The market women bring the imported goods on the Liberian market . These market women know they will need U.S. dollars to return to these foreign countries to import more goods to sell in Liberia. Many of them demand that Liberians pay them in U.S. dollars for their goods. Liberians do not have U.S. dollars to buy the goods. So more Liberian dollars are used to purchase these goods imported by using U.S. dollars. At the end of the period, these market women have in possession, again, more Liberian dollars to exchange at the Governor's Discount Window for "Market Women." The cycle continues and eventually, the Governor and his CBL run out of U.S. dollars. This is the next point.
CBL Depletes Liberia International Reserve
These market women now expects regular inflow of U.S. dollars from the Discount Window for U.S. Dollars. But CBL does not have continuous inflow of U.S. dollars, as there are limited export to support all of Liberia's foreign currency exchange needs. Some have to step in to assist Liberia. The International Monetary Fund was created in 1945 to specifically assist countries stabilize their economy by providing foreign exchange support. But it is not a 'free lunch.'
IMF has been supporting the foreign exchange of Liberia by putting in more money into Liberia's reserve. Until the Governor's loan schemes and his U.S. Discount Window for Market Women, IMF was happy with the steady growth in the foreign reserve position of Liberia. President Ellen Johnson Sirleaf too was happy, as she has in each State of the Nation Address boasted of the growing foreign reserve, except neither the President or the Governor has admitted that it is IMF that has been adding up the money for Liberia.
In recent times, IMF has monitored the account and see a bad precedent being set, with daily depletion of the foreign reserve to support the Governor's loan schemes and ill-fitted monetary policy. IMF concluded its review of Liberia on 20 September 2013. IMF reported this in the Mission Report:
“Program implementation has been challenging in some areas. Reserves declined below the agreed targets in June, in part due to higher sales of foreign exchange by the Central Bank of Liberia (CBL) in the context of the depreciation pressures. In this context, the authorities and IMF staff reached agreement, ad referendum, on a package of policies that would allow the government to strengthen its buffers to address external shocks and to improve public financial management. In particular, the authorities indicated that they were committed to (i) rebuilding reserves and strengthening U.S. dollar and Liberian dollar liquidity management, including through improving the functioning of the foreign exchange auction and continuing to issue CBL bills."
At the recently ended, World Bank and IMF meeting, Finance Minister and the Governor were invited by IMF in a private room to read the "riot act." IMF told Minister Konneh, as the Chief Economist and CFO of Liberia, to rein the excess of the Governor's loan scheme. IMF believes that the depreciating exchange rate between the Liberian and U.S. dollars in recent times is directly linked to the loan schemes and Governor's Discount Window. Do the math: Less foreign reserves to support the high demand for U.S. dollars for imports means more inflation.
Deficit Spending Has Returned, Adding to Inflation
Government spending can cause inflation, as it crowds out private investment as it increases nominal interest rates and consequently inflation. This is due to government and business people competing for loans. Until Liberia achieved HIPC, Liberia Government was not allowed to borrow and spend. Liberia was required to have a 'balanced' budget. Since HIPC, Liberia has started borrowing to finance deficit spending, without a strong export based to support the spending. After completing their mission, IMF wrote this on 20 September 2013:
"Total revenue including grants exceeded the projections, though core revenues fell short of the program targets. Total spending was above the program, owing in part to higher current spending. Externally financed capital spending was below the government targets reflecting implementation bottlenecks and delays in approving and distributing last year’s budget. As a result, the overall fiscal deficit for 2013 amounted to 1.6 percent of GDP, some of which was financed by the use of deposits."
Deficit spending in itself is not consider a 'bad thing' if it is spent on things that improve the long term productive capacity of the country, such as capitalized assets, health and human capital development. The question is how much of the deficit spending was spent on recurring line items (gas coupons, per diem, allowances, salaries, etc) and how much was mismanaged, wasted and misappropriated through various corruption schemes, especially when such deficit spending affects everyone through inflation rates.
Corruption Induced Capital Flight
Liberia is ranked the most corrupt country by Transparency International. President Ellen Johnson Sirleaf labeled corruption 'public enemy number one." Some Liberians are fed up with the high level corruption that they have called for the President's resignation. In no small measure, corruption is not a victimless crimes. It hurts everyone even the corrupt, as every penny stolen is one less penny available for public works and social services for all Liberians. But what has not been discussed is the impact corruption is having on the level of inflation in Liberia, caused by the depreciating Liberian dollar against the U.S. dollar.
First, unlike any period in Liberian history, it seems rather evidence that supermajority of key decision makers in Government and business in Liberia today have a significant of their family interests in America, Europe, Ghana or elsewhere in Africa. For so many, this situation is not a voluntary decision as it was the war that pushed so many into living a new life elsewhere. But the hope was that after sometime, people who are holding top Government position would gradually moved their families back to Liberia. After 10 years of celebrated peace, we see no sign of that. In fact anecdotal evidence suggests that those few officials who took their families to Liberia are sending them back to U.S.A, because of either poor infrastructure or the high cost of tuition to send their children to the best schools, including ACS.
In the 1980s, President Doe too realized the corruption induced capital flight and demanded that all those who want to continue working in his regime must turned in their "green card." I was a young person at the time, but I still remember the debate.
But unlike the days of Tubman, Doe and Taylor's regimes, it seems more stolen money is taken out of the country and invested in America and Europe, or Ghana. A Ghanaian asked me once why Liberians are making investments in Ghana and other countries even when they steal from Liberia. "Why not invest in Liberia," he quizzed me. I told him that Liberians are scare of being exposed for making investments in Liberia. These days everything is put on the Internet. If corrupt money is not coming to pay mortgages, they are being used to invest in USA, Europe and elsewhere for a 'raining day' when they are no longer in office. It is not the Liberian dollars that is being taken out of the country. It is the U.S. dollars that is being stolen from Liberia and banked in other countries, adding to the capital flight problem and consequently the high inflation rate in Liberia.
Second, some have tried to blame the problems on Diaspora Liberians. But it is not just government officials taking stolen U.S. dollars from Liberia. In recent times, I have seen a lot of civil servants coming to America for vacation, bringing in U.S. dollars to spend in America. They tell me "no good place in Liberia to go." These are people who have never been out of Liberia, except in the past few years when they got lucky and secured a position in an agency and are working for the 'bossman.
Third, I have long suspected the "holding cash" problem in Liberia. Because of audits, special investigation and LACC, I suspected that officials and employees of Government who are unable to take large amounts of cash out of the country were holding cash in bank accounts and under 'mattresses." I saw a lot of evidence where people will take hundred thousand U.S. dollars from the bank and put it in the bag and off he went. I wrote the Governor and President Sirleaf about these things. I also saw officials keep large sums of cash in banks, skirting from one account to the next.
Now that LACC is investigating bank accounts, the amounts held under mattress and in private vaults will likely increase. All of these amounts are usually held in U.S. dollars, so are not in daily circulation, diminishing the multiplier effect that it would have by investing the money in export oriented businesses. Holding large sums in mattresses and in private vaults means the money is not in circulation, as it is not available to be lended. Yet again, resulting in less available U.S. dollars on the Liberian market, meaning more Liberian dollar chasing U.S. dollars. This put pressure on the Liberian dollar causing inflation , which hurts Liberians' well being.
CBL Dodged Foreign Currency Payments and Receipts Audits
Because of such discretionary power granted the U.S. Federal Reserve, some U.S. senators argued that it was being abused and so they needed a law that will empower the Comptroller General (also known as Auditor General) to periodically audit not the just financial statements of the Federal Reserve but the policymaking decision. Former Federal Reserve Governor Alan Greenspan cried foul, arguing vehemently that an audit of the policies of the Federal Reserve by the U.S. GAO will undermine the independence of the Federal Reserve. Former Comptroller General David Walker and now Comptroller Gene L. Dodaro fought and ensured that the law was passed.
On invitation by U.S. Comptroller General, a luncheon was organized for me to discuss how GAO could assist Liberia's GAC. At the luncheon, we discussed several issues but more specifically the new law in the USA to audit the policy making of the Federal Reserve and how to credibly audit a Central Bank like the CBL. I got some useful insights. I left USA and went to Ghana and discussed U.S. efforts with the Auditor General of Ghana. The Auditor General of Ghana suggested that, although there are no existing laws in Liberia to audit the policies of the CBL, to use the existing 1972 Executive Law (GAC Act) to start an audit of the Foreign Currency Receipts and Payments, as the Auditor General of Ghana conducts each quarter and report to Parliament the Foreign Currency Receipts and Payments. In 2007, it was the audit of the foreign currency receipts and payments that landed into big trouble the Central Bank Governor of Tanzania, wherein E&Y was contracted by the Auditor General of Tanzania, my good friend John. The Governor was busted wiring $10 million overseas to a bogus company. The Prime Minister resigned because he felt he did not provide proper oversight.
As part of internationally agreed collaborative efforts, I received the audit programs from Ghana for the foreign currency receipts and payments and from GAO the audit program to aid GAC audit the Central Bank of Liberia . I also got commitment from both USA and Ghana to assist me to conduct the first audit of the foreign currency receipts and payments and any audit of the CBL. The Auditor General of Tanzania also agreed and put me in contact with the E&Y auditors who audited the Central Bank of Tanzania. President Ellen Johnson Sirleaf supported the idea to audit the CBL but the Governor fought me tooth and nail and GAC did not ever conduct the audit until I departed Liberia.
A foreign currency receipts and payments could provide a lot of clue but just as the resignation question, we have to wait until 2017? Do these market women and loan scheme benefactors know that in the end the Governor has created more inflation that is hurting them, too? After World War II, Germany no more to runaway inflation. The Germans passed a lot that restricted the power of the Central Bank. Today, Germany is one of few countries with a Rule Based Monetary Policy. The Central Banker in German must maintained inflation without a certain band or he will lose his job.
The Governor has also made downward adjustments in the reserves requirement for local banks to encourage more borrowing. This is good. But we will reach a point where considerable number of household and banks will be in debt and will therefore stop saving and spending to concentrate on paying off the their loan. This will create more poverty because business will have little buyers thus leading to less income, less production and layoff.