Speech

Rodrigo de Rato
Managing Director, International Monetary Fund
Liberia Partners' Forum
Washington D.C., February 13, 2007

Madam President, Ladies, and Gentlemen. The International Monetary Fund is honored to co-host this forum. I am especially honored to congratulate President Johnson-Sirleaf and her government on their achievements during their first year in office. Together with others in the international community, the IMF is committed to helping Liberia overcome the challenges it faces in moving to a path of strong and sustainable growth and poverty reduction.

As we have heard from the President, two civil wars in a span of 14 years have all but destroyed Liberia's physical and social infrastructure. Children couldn't go to school, and large numbers of adults left the country. As the country's human and capital resources diminished, governance suffered, and the economy's performance weakened considerably. Moreover, Liberia also accumulated unsustainable levels of domestic and external debt.

On taking office, President Johnson-Sirleaf and her administration took swift and decisive action. I especially commend the president for adopting the 150-Day Action Plan, actively endorsing the Governance and Economic Management Assistance Program, and asking the IMF to work with the government to design-and to help monitor progress against-a macroeconomic policy framework to support economic reconstruction.

Through this framework-whose initial underpinnings were established in a staff-monitored program for February-September 2006 and then reinforced in a similar program for 2007-we have already begun to restore the fundamentals needed to spur private sector development which, as emphasized in the government's interim poverty reduction strategy, must become the main engine of growth.

I am pleased to note that the key objectives of the 2006 staff-monitored program-to start rebuilding public institutions, restore trust in public financial management, and to accelerate structural reform in the financial sector-were met. This was achieved despite significant capacity constraints and through the government working effectively with the opposition-led legislature. Early success under the program allowed the IMF Executive Board to agree to lift the declaration of noncooperation, a step that sent a strong signal about the authorities' commitment to sustaining their efforts.

Thanks to the government's efforts, much has been achieved on the macroeconomic front: real GDP growth, supported by continued peace and external financial support, has recovered, and inflation has stayed in the single digits. Improved revenue administration and public expenditure management have helped boost public revenues and stem the accumulation of domestic payments arrears. Liberia's new government also took a big step toward resolving its domestic debt overhang: after verifying its stock of domestic debt, the government has developed a strategy for normalizing relations with its domestic creditors, including the Central Bank of Liberia and Liberia's domestic banks.

Important steps have also been taken to strengthen the central bank and the banking sector : internal management and financial controls at the central bank are improving, and the bank's authorities are taking steps to improve the auditing of its financial accounts. The strong improvement in the financial position of the central bank allowed it to begin rebuilding its net foreign exchange reserves. And to strengthen the banking sector, the central bank also finalized procedures to resolve abandoned and nonoperating banks.

The new government has done much in a short time. But the recovery process has only just begun, and Liberia is going to need the assistance of the international community to achieve the ambitious objectives it has set for itself. The government's medium-term development priorities, as outlined in its recently completed interim poverty reduction strategy, are a key foundation for future discussions with donors and other partners.

The government's interim strategy paper is built on four pillars: enhance national security, revitalize the economy, strengthen governance and the rule of law, and rehabilitate Liberia's infrastructure and basic service delivery. In each of these areas, development of a multiyear framework which details policies and provides a costing of policy interventions, will be important to help secure the support Liberia needs to meet its priorities for poverty reduction.

The new staff-monitored program for 2007, recently agreed between the government and the IMF staff, builds on the 2006 program and is wholly consistent with the government's interim poverty reduction strategy. Staff and management have concluded that the new program meets the standard of a formal Fund arrangement, apart from program financing assurances. Besides aiming to improve economic governance, public financial management, tax and customs administration, and the health of the banking sector, it includes plans to commence implementation of the government's anticorruption and domestic-debt-resolution strategies.

The risks to implementation, unfortunately, are high, given Liberia's persistent capacity constraints and a challenging political environment. But the possible benefits are even higher. Success under the program will help spur private sector-led-growth. It will also allow the authorities to establish the kind of policy implementation record needed to advance Liberia swiftly towards arrears clearance and debt relief, as well as encouraging donors, over time, to shift their financial assistance toward greater provision of budget support.

Which brings me back to Liberia's external debt and, in particular, its arrears to the IMF.

Liberia's external debt is clearly unsustainable, and it is important to make progress in moving Liberia onto the path toward debt relief. The stock of external public debt (most of which has been in arrears for over 20 years) is well above the thresholds of the Heavily Indebted Poor Countries (HIPC) Initiative. Liberia has been in arrears to the IMF continually since 1984; at year-end 2006 its outstanding obligations amounted to about US$795 million. It is important that the IMF be in a position to assist Liberia to normalize its relations with the international community as soon as possible. This underscores the importance of mobilizing the necessary financing for arrears clearance and debt relief for Liberia. Fund management has proposed possible partial use of special internal resources and looks forward to indications that the membership will demonstrate its full support in reaching agreement on an appropriate financing package.

Let me assure you the IMF's staff and management will continue to support the Liberian authorities in every way we can. That includes continued technical assistance in fundamental areas, especially in public financial management and the financial sector, and by help for the authorities in developing a macroeconomic reform plan that allows absorption of financial support from donors, resources that, over time, can be expected to be integrated more formally into the budget.

Again, I would like to commend President Johnson-Sirleaf and her government for their recent accomplishments. The IMF looks forward to continuing its work in helping Liberia secure its foothold in the global economy.