In this three-part analytical piece, we explore and analyze the Central Bank of Liberia (CBL); specifically, its role, during the Sirleaf administration, in creating the underlying conditions that are steering Liberia down its current path of economic hardship.
We surmise that the Liberian economy was rigged by the Sirleaf administration to ensure the succeeding government did not out-perform her presidency. If the economy wasn’t rigged, then we are willing to concede that the Sirleaf administration engaged in economic malpractice – henceforth, our arguments are mutually exclusive. While these reasons may appear cynical, we ask that you consider the context of our case and view Madam Sirleaf’s behaviors during the 2017 election which led to her public ouster from her political party.
Additionally, one should not ignore Liberia’s record-setting outward remittances of US$449.41 million in 2017. This piece of economic data suggests the Sirleaf administration may have been primed to devalue the Liberian dollar while washing it to US dollars and shifting USD out of the country to Nigeria, Ghana, the U.S., and other places.
The Role of the CBL
Modern central banks not only manage government finances, they provide other essential services to commercial banks. The Central Bank of Liberia holds a monopoly on the issuances of currency – that is, they can create fiat money – a value that comes from the Act that created the Central Bank of Liberia.
At a minimum, the Central Bank of Liberia’s primary role is to stabilize the Liberian economy, create high and stable real growth, together with high employment, stabilize financial markets and institutions, ensure stable interest rates, and maintain a stable exchange rate. Hence, the job of the central bank is to improve general economic welfare by managing and reducing systematic risk. The fact that the Liberian economy is heading towards a recession proves that the CBL has failed in its mandate only months after Madam Sirleaf left office.
The CBL, under the leadership of Ellen Johnson-Sirleaf, failed miserably in these mandates and the CBL under President Weah is falling into the same pit of ineptness – it’s interesting to note that Nathaniel Patry, who heads the CBL, spent over 30 years at the CBL. While this piece isn’t about the lack of innovation at the CBL, particularly the gaps pointed out in the Kroll report – i.e., employees at the CBL are using hand-written notes to tracking LRDs in and out of the CBL – we have to question what changes we should expect from Nathaniel Patry? Considering he spent more than three decades at the CBL and didn’t fix these glaring glitches? Perhaps, Patry is not the right person to correct the gaps at the CBL.
PART 1: Did Liberia’s Former President, Ellen Johnson-Sirleaf, Undermine the Liberian Economy?
For 12 consecutive years, the former President of Liberia, Madam Ellen Johnson-Sirleaf, was well-regarded in international circles as a Harvard-trained economist who reconstructed Liberia’s post-civil war economy and maintained its fledging peace.
During her tenure, Liberia’s budget grew nearly six-fold to $600 million, and by the end of her presidency, the country’s gross domestic product (GDP) increased from $600 million to $2.6 billion. Still, the steep decline in Liberia’s dollar only six months after her departure and the immediate spike in inflation suggests that in her final months in office, former President Ellen Johnson-Sirleaf economic policies were either negligent or may have been an intentional economic strategy to ensure her successor would not outshine her legacy. Madam Sirleaf may have expected her successor to be ill-prepared, unqualified, misinformed or not capable of managing the economic affairs of a developing nation hence the new government won’t have a clue on how to correct the economic downturn and outshine her legacy.
Notably, the unlawful printing of excess Liberian dollars and the one hundred and fifty million dollars ($150 million) jump in the outflow of remittances from Liberia between 2016 to 2017 and its immediate decline to normal levels in 2018 suggests there may have been a coordinated effort by Madam Sirleaf’s administration to destabilize the economy and pillage the country’s coffers. Still, the mop-up exercises by Liberia’s current administration leave a lot of unanswered questions and a lot of blame to pass around.
Economic Malpractice or Economic Sabotage?
During the U.S. Revolutionary War, Thomas Paine, an English American writer, and activist wrote an open letter to British Gen. William Howe to express outrage over the atrocity by the British. He wrote, “You sir, have the honor of adding a new vice to the military catalog, and the reason, perhaps, why the invention was reserved for you is because no general before was mean enough to even think of it.”
Was the new outrage abusing prisoners of war or killing troops that had surrender? No, British General William Howe was printing an excessive amount of currency and flooding the U.S. economy to destabilize the U.S. government.
When Germany lost its battle for the British isle to Great Britain, Germany resulted in printing excess money to undermine the British economy.
Government officials and economists know that losing control of the printing press of their nation’s currency means losing control of inflation. It is well known that a high rate of money growth creates a high inflation rate. Additionally, the overprinting of a nation’s currency has been used as a weapon in wars and sometimes during peace.
So, how is it that 16 months before the end of her second term, Madam Sirleaf, a Harvard-trained economist, began instituting policies that a first-year economics student knows would cause the Liberian economy to collapse? The answer lies in an analysis of the Kroll Report and evidence compiled from several sources including the Central Bank of Liberia’s annual reports.
Is it possible that the administration of Madam Ellen Johnson-Sirleaf may have printed excess Liberian dollars to undermine the economy of her successor?
Between 2012 to 2013, there was a significant increase in Liberia’s money supply – broad money jumped from 3.1% to 18% – the sharp increase led to an immediate depreciation of the Liberian dollar from 72.50 to 81.88. It appears the administration heard the cries and felt the frustrations of ordinary Liberians and decided to institute a mop-up exercise through the CBL’s monetary policy framework (see Figure 1 & 2).
For the first time, the CBL issued short-term Treasury bills to buy-back excess Liberian dollars – standard monetary policy one would find in modern central banks. Additionally, the CBL decided to reduce its reserve requirement for U.S. dollar deposits to improve US dollar liquidity. These standard policies led to an immediate stabilization of the Liberian dollar.
Contrast these conventional monetary policies with the most recent exercise conducted by the CBL under Governor Patray and one can easily understand what went wrong in 2018 and why the Liberia dollar remains in its devalued state. In 2014, the government of Madam Sirleaf tapered the amount of currency in circulation with a modest increase of only 1.7%.
Evidence from the Central Bank of Liberia shows that by 2016, the Central Bank of Liberia began flooding the economy with excess Liberian dollars.
According to the Kroll report, the CBL ordered new currency totaling 5.0 billion dollars in advance of approval from the Legislators, as mandated by the CBL Act – a clear violation of the Law.
The Report went on to say that “there was no clear or consistent strategy driving the process to circulate new banknotes from inception to conclusion.”
The 5 billion ordered in 2016 was released into the economy; by 2017, it led to a 19.9 % jump in the amount of money in circulation. At the same time, Inflation jumped from around 8% to a whopping 12.5%. It’s important to understand the crux of our arguments.
The source of today’s inflation and devaluation of the Liberian dollar comes from policies instituted under Madam Ellen Johnson-Sirleaf. Somehow, her administration failed to initiate the same buy-back strategies or adjust the reserve requirement to stave off a collapse in the Liberian dollar – notwithstanding, her predecessors weren’t aware of these policy instruments.
In 2017, the CBL, whose mandate was to maintain stable price controls, decided to print an additional 10.0 billion banknotes. However, the printing company went on to print an additional 506 million in new Liberian banknotes in addition to the 10.0 billion requested (this matter is important and requires further investigation). Again, according to the Kroll report, the contract was awarded to Crane AB four weeks before the Legislature got involved.
According to the Report, the CBL injected “new banknotes totaling 10.146 billion into the Liberian economy without removing from circulation (and destroying) the equivalent quantity/value of legacy banknotes.”
Figure 2 shows the negative impact on the Liberian economy as the money supply tripled from 10% in 2016 to 36.9% in 2018. Inflation nearly doubled from 12.1% to 21.27%.
Evidence and analysis from the Kroll Report suggest the Johnson-Sirleaf administration may have sabotaged the Liberian economy to ensure that her successor did not outshine her legacy.
The Kroll Report, the CBL’s Annual Reports, and several orders passed by Madam Sirleaf, including asking that all civil servants be paid in Liberian dollars would make one surmise that anyone succeeding her, albeit, George M. Weah, Joseph Boikai, Alexander Cummings, Benoni Urey, or Charles Brumskine, were destined for economic catastrophe.
In Part II of this series, we will explore the current administration’s mop-up exercise and their failure to adhere to the conventional central bank policy framework or policy instruments.