Transcript

Washington, D.C.
March 18, 2008

MS. MBOTO FOUDA: Good day everyone. I'm Lucy Mboto Fouda from the External Relations Department of the IMF and I would like to welcome all of you to this conference call on Liberia. Before I introduce the speaker, I wish to remind you of a few recent developments regarding the Fund's relations with Liberia. As you may recall, the Executive Board of the IMF last Friday approved a set of important measures designed to complete the steps necessary for Liberia to fully normalize its financial relations with the Fund after more than 2 decades of protracted arrears to the institution. As a result of that normalization, the Board approved financial support of about $952 million. The Board also agreed in principle to support Liberia's decision under the Heavily Indebted Poor County (HIPC) initiative. I wish to mention that the IMF Board's decision on the HIPC decision will be made available to the public later today after the World Bank's Executive Board's discussions on Liberia.

This conference call will be conducted by Mr. John Lipsky. John Lipsky is the IMF's First Deputy Managing Director. Mr. Lipsky has among other responsibilities within the Fund to overview the work of the institution in Liberia. Mr. Lipsky will offer a few opening remarks and then he will be happy to take your questions. But before we get to that, let me just remind you of one more point. A video clip of Mr. Lipsky on the Fund's Board decisions on Liberia was posted under embargo early this morning on our Online Media Briefing Center for your convenience. The contents of this conference call and video clip will be strictly under embargo until 3:30 p.m. Washington time today, which is 1930 GMT. I wish to offer some apologies for not being able to post the joint press release on the HIPC decision early this morning as planned. We will do so as soon as the World Bank Board's discussion on Liberia is over. Without taking too much more of your time, I would like to now give the floor to Mr. Lipsky.

MS. LIPSKY: Thank you, and thank you all for joining us here today. I'll make a few remarks and I'll be happy to take your questions.

Of course, we are very pleased. This has been an historic week for both the Fund and Liberia. We have been able to clear the long-standing arrears of Liberia to the IMF and the Fund is also able to provide significant new financial resources to support the Liberian government's reform programs, and at the same time Liberia has reached a key milestone in its campaign to have its external debts reduced to sustainable levels.

The IMF has been supporting efforts to rebuild the Liberian economy following the civil conflict in that country which had a devastating effect on its infrastructure. As I am sure you aware, many people fled the country, corruption became rampant, and there were barely any resources left for the national government.

When President Johnson Sirleaf took office in early 2006, the Fund quickly agreed on a reform program with the new authorities and it has been implemented effectively. As you can imagine, given the starting point, it has not been easy. Nonetheless, and happily, the Liberian people have already begun to reap real benefits from the reform programs. Economic growth rates have rebounded, investment is picking up strongly, with this confidence in the much more favorable outlook, donors have provided substantial resources to help the rebuilding process, and the United Nations was able to end the sanctions that limited timber and diamond exports. Government revenues now have more than doubled and the government now pays its wages and it pays its suppliers on time, which is quite an accomplishment from where we were just a few years ago.

However, given the circumstances of the preexisting very large arrears, the Fund's support for the new government has had to be limited to providing substantial technical support. We have simply not been in a position to be able to provide financial support because of the outstanding arrears that in fact had been building up since the 1980s. Following a sustained fund-raising effort over the past year from its members, the IMF has been able to garner the resources necessary to finance comprehensive debt relief for Liberia. With the participation of 102 of our member countries, the funds have allowed Liberia's relations with the Fund to be normalized. This week using these funds raised from member countries, Liberia was able to clear its arrears to the IMF, and in response, the Fund's Executive Board agreed to restore Liberia's voting rights that had been suspended as a result of the buildup of arrears, as well as restoring Liberia's right to make drawings under the Fund's financing facilities.

Another key point this week is that Liberia as a result has reached the so-called decision point under the HIPC or Heavily Indebted Poor Countries initiative. This is the first concrete step toward achieving broad-based debt relief that will cover all of Liberia's creditors including bilateral and private creditors. Just to give an idea here, the outstanding stock of Liberia's debt amounts to about $4.7 billion. That's about $1,200 per person for Liberia, and as you can easily understand, most of this debt is simply unpayable and it just has to be forgiven if Liberia is to be able to move forward. In our view, Liberia could reach the conclusion of this HIPC debt relief process in only 2 or 3 years, so it is very important at this point that Liberia's other creditors including bilateral and private creditors agree to provide debt relief consistent with this HIPC initiative. The IMF itself intends to go beyond the requirements of this HIPC initiative. We are going to provide full debt relief on an amount equivalent to the arrears that were outstanding prior to last week's Board meeting. And Liberia also will be able to begin receiving this relief on payments to the Fund immediately. At the same time, as you already heard, the Fund will be providing Liberia with substantial new financial resources on conditional terms under our so-called PRGF, Poverty Reduction and Growth Facility, equivalent to about $50 million over 3 years.

But we need to be realistic. Debt relief is a huge and important step but it's not a panacea. In fact, as you are probably aware, Liberia has built up arrears and has not been making significant payments on its huge debt for many years. Therefore debt relief itself will not free up many resources directly. However, the program should be an important step in capitalizing private investment and financial support from the donor community and we encourage donors to ensure new support on concessional terms. The Liberian government will also need to work closely with the legislature there. Recently proposed legislation to establish an independent anticorruption commission will be important in cementing the vision of zero tolerance for corruption that is a hallmark of the government's policies. These and other reforms included in the reform program more generally will help to ensure that the poverty reduction strategy of the Liberian authorities is implemented as planned. The net result is that challenges for Liberia still remain immense but we have made some very important steps forward in enabling Liberia's reintegration into the global economy after a long period in the wilderness. The Fund's staff and management will continue to support Liberia in every way we can to build on the significant progress made to date to bring strong and sustainable growth and investment to Liberia. Thanks very much. I'd be very happy to take any questions you might have now.

QUESTIONER: Good morning, Mr. Lipsky. I was curious to know why the Fund decided to release the $900 million in one go to Liberia, leaving $52 million over 6 installments. I was just curious why that happened.

MR. LIPSKY: The primary requirements were to clear the entire arrears and so the bulk of the amount, that immediate amount, was the amount necessary to completely repay the bridge loan that helped clear the arrears and reestablish their ability to draw. The additional amounts represent new financing of additional monies. In other words, the bulk of the financing had to come immediately because under our procedures and regulations, we cannot make new lending to members with arrears outstanding.

QUESTIONER: May I have a follow-up on this one? One of the issues in Liberia has been the government's capacity, believe it or not, to spend. What has the Fund done to improve that to make sure the budget flows actually get down to the people?

MR. LIPSKY: That is a very good question, but the answer is a very long one in this case. We have been providing technical assistance to improve the budgetary process itself, to design and implement effectively a tax program, to ensure the efficiency of spending programs, to help control the flow of cash and cash outlays, to develop legislation, to reform the financial sector; the list could go on and on.

QUESTIONER: Specifically on that question because Liberia had a surplus, one would want to know why a post-conflict country actually has a budget surplus. I know some of the issues. I've visited Liberia several times and there has been broad criticism against Johnson Sirleaf saying why does this country have a surplus at such a stage of its reconstruction...

MR. LIPSKY: I don't think this is going to be an ongoing problem. This is a country that has very great needs and there is no policy of running a perpetual surplus. The issue of course is that some of the revenues we're talking about represent aid inflows and other resources that need to be spent either for specific purposes or need to be spent efficiently and effectively and that's essentially what's happening here. In other words, we're working along with the World Bank and others to help the Liberian authorities develop control methods and means of spending effectively and prioritizing spending, so again I wouldn't view this as some kind of an intentional policy in running a perpetual surplus.

QUESTIONER: You mentioned that there wouldn't be a huge amount of net new money coming from this debt relief because Liberia hadn't been paying its debt for quite some time. How much of brake do you think the debt has been on private investment and donor investment and what kind of inflows do you think we can anticipate? You cut out very, very briefly when you were explaining how long you thought full debt relief would take. I wonder if you could just go over that point very quickly.

MR. LIPSKY: We think that they will reach the HIPC completion point in 2 to 3 years, so quite quickly. Your first question is of course a very relevant one but one that is very hard to answer definitively because, along with the arrears and clearing the arrears, there are many structural improvements occurring that we think would influence the attitudes of private-sector investors. As you heard, this is as thoroughgoing a reform and change as you can imagine. All the reforms will provide a boost to private-sector investment.

QUESTIONER: I'm coming back to the outstanding stock of $4.7 billion. Can you maybe just explain, I know this has been ongoing, how easily do you think that is going to be to write off that debt, do you think specific segments of it are going to be more difficult, and what sort of things, for example, will the private-sector creditors be looking for to write debt off?

MR. LIPSKY: Negotiations have just begun between Liberia and its private creditors so it's a bit early to foresee what might be the difficult or sticking points here. Of course, Liberia would like as thorough as possible a restructuring or renegotiating of this private-sector debt and the specific terms require 80 percent write-off of these relevant debt agreements I believe. At this point we have every reason to be optimistic about the outcome of these negotiations, but I guess I'll say it's just too early to be able to indicate whether there are any particular problems.

QUESTIONER: If you don't mind, just one more talking about the interim debt relief that Liberia gets now. How much is that? Because I know once they do the decision point, they do get an interim debt relief don't they?

Ms. SAHAY: We will continue through until the HIPC completion point, and the interim debt relief from us would be about 15 million per annum from the IMF side..

QUESTIONER: Right, except that in the case of the World Bank, they have actually provided debt relief in the form of a grant up front.

MR. POWELL: Both the African Development Bank and the World Bank have provided their HIPC relief as part of their arrears clearance process in December. Regarding new payments falling due, they've indicated that they will provide budget support in order to finance those payments, which will have the same effect as interim relief so that cash payments won't have to be made during the interim period.

QUESTIONER: There are a lot of new things people are trying out, including the World Bank. The one issue, you did mention the anticorruption commission. But do you feel overall that Liberia has done enough right now to assure investors that they've got corruption under control?

MR. LIPSKY: Liberia has made some dramatic progress and improvement in general, as you well know, and so you'll understand very well the context of what we're talking about today and how important it is. Your question on corruption, that's a very good one. We think of course it's very important that they make real progress and it's important that the anticorruption commission receives broad support from the government and the legislature and at this point, there is little doubt of the seriousness of intent of the government in this area and there can't be a shred of doubt of their intentions. Again, as you're probably aware, the efforts are so broad based, the improvements to date are so comprehensive, all of these will have a positive impact on the flow of private investment. In the medium-term, I'm sure that the success of the anticorruption effort will be an important determinant of the flow over time.

QUESTIONER: Do you think that the restoration of its status within the Fund has much broader implications? Do you think other creditors or donors will now move more easily toward helping Liberia? And that's my last question. I promise.

MR. LIPSKY: Yes, we absolutely think that the normalization of Liberia's status is important to both giving them access to normal financing facilities, but more broadly is symbolic of Liberia's reentry into normal circumstances. You can imagine the difficulties and in many cases, strict prohibitions, on entering into financial arrangements with the country running arrears to the Bretton Woods institutions. So it will have importance in terms of actual relationships with other, both multilateral and bilateral institutions, and will be very symbolic in terms of relations with the private sector.

Let me come back and I want to just add one detail on your anticorruption point. That is that the legislation has not been adopted yet, it's still to be passed, so I should be clear about that. But the president and the authorities, the government, are extremely focused at it. Moreover, there seems to be broad support for this legislation so we're optimistic that it is going to be adopted soon. We anticipate that with the legislation, the authorities will pursue the anticorruption effort with vigor.

MS. MBOTO-FOUDA: Lesley, there is a clarification from our finance department on the figures that were provided to you earlier...

Ms. SAHAY: This is going back to the issue of the interim assistance. I just wanted to clarify that the 15 million that I referred to was in SDR, but it currently translates to US$25 million.

MS. MBOTO-FOUDA: If there are no more questions, we can wrap this up and I would like to thank all of our participants and thank Mr. Lipsky for taking the time to talk to reporters on Liberia today.

MR. LIPSKY: Thank you for your interest and good questions. We hope and expect that the economic environment internationally will stay favorable. This is a case that we will hope will be a sustained success story for years to come. Thanks very much.