CBL’s Response to the Coronavirus – Woeful at Best

The world is going through an extraordinary period of price fluctuations, border closings, and economic uncertainty due to COVID-19. With the price of iron ore dropping by $30 per dry metric ton since July 2019, the already troubled Liberian economy is going to implode because commercial banks and insurance companies, that are at the heart of the financial system won’t be able to borrow on a short-term basis. With news reports that Liberia has reported its first coronavirus case, we have to take a holistic approach to address the impending health and macroeconomic challenges.

Henceforth, the March 3, 2020 policy statement posted by the Central Bank of Liberia (CBL) is nothing more than a regurgitation of previous comments posted by former CBL governors. The statement isn’t driven by local data, and it looks identical to a 2016 policy statement posted by Milton Weeks.

If CBL Governor Tarlue is simply mirroring the works and policies of Charles Sirleaf, Milton Weeks, and Mills Jones, then one has to wonder if he has the gravitas to lead the Liberian economy out of its weakened state.

While major central banks around the world are cutting rates and pumping capital into their economies through open market operations, particularly with the use of Repos, the CBL is pursuing a monetary policy rate of 30% and pushing the sale of treasury bills, which will lead to a liquidity crunch.

The Central Bank of Liberia, unlike modern central banks around the world, is taking such an apathetic and careless response to COVID-19 that the Liberian economy is bound to move towards a deepening recession. The CBL needs to take a swift interventionist stance by reducing its official interest rates. The CBL is far from ever hitting a zero lower bound; hence, a significant reduction in interest rates, despite inflation, would help the economy.

Moreover, the CBL needs to temporarily reorganize itself as a financial institution – by changing its lending requirements. And, I don’t mean the loan rip-off trick perpetuated by Mills Jones during the months leading to the 2011/2012 presidential campaign. The CBL needs to change the makeup of its balance sheet to counter the looming contractionary shock that COVID-19 is sending through the world economy.

I find it interesting that foreign banks operating in Liberia are bragging to international investors of the enormous profits they are making while reporting liquidity issues in Liberia. How do they get away with these deceptive tactics?

To achieve the level of stability mandated by the Act which created the CBL, Governor Tarlue needs to stabilize the Liberian dollar – not merely against other currencies, but in absolute terms.

Consider this statement, why would any sane person hold on to a depreciating Liberian dollar, especially to store wealth? Create an appropriate investment climate, and you will stabilize the Liberian Dollar. While central banks in the region are moving their economy forward, the Central Bank of Liberia is operating in an absurd round-robin financial structure of failed policies – these apathetic moves will only hurt the Liberian economy.

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