>Monday, January 12
Last year Liberia obtained an important debt relief when in March it fullfilled a number of conditions under HIPC which cleared the way for an agreement with the Paris Club. The following month, Paris Club creditors agreed to restructure Liberia’s external public debt of about $ 1.5 billion, 97 percent of which consists of overdue arrears and interest. An important amount was immediately cancelled – over $ 250 million – whereas nearly $ 1 billion was rescheduled although the latter arrrangement also meant that a debt to the International Monetary Fund was replaced by a debt to the United States (see my posts of March 19 and 28).
Following the April 2008 agreement with the Paris Club – a voluntary gathering of individual creditor countries – Liberia had to negotiate with individual creditor countries involved in the deal. The countries comprising the Paris Club creditors of Liberia are Belgium, Denmark, Finland, France, Germany, Italy, Japan, the Netherlands, Norway, Sweden, Switzerland, the United Kingdom, and the United States of America. One of the first countries announcing debt forgiveness was the US. A few days after the April 2008 agreement with the Paris Club the US Government announced it would cancel $ 430 million debt. Other countries followed (e.g. Denmark, Germany, Norway) or even preceded the Paris Club action (e.g. the UK).
Last Friday President Sirleaf told the international press that it will soon have reached agreement with all of its Paris Club creditors. Then it will start commercial debt talks with members of the London Club, she said. Liberia’s commercial debt is estimated to some $ 3 billion.
The Sirleaf Administration is to be congratulated with this achievement. Previous governments, in particular the presidents Tolbert (1971 – 1980) and Doe (1980 – 1990), borrowed irresponsibly. Ironically, Ellen Johnson-Sirleaf was in the Ministry of Finance when some of these loans were contracted, first as a young Assistant Minister (later Deputy Minister) for Fiscal Affairs, then – briefly – as Finance Minister, in 1979, when borrowing skyrocketed due to Liberia’s hosting of the Annual Summit of the OAU, the Organization of African Unity, in 1980.
It is dificult to say who is to be criticised most, borrower or lender. The financiers – in particular governments – often failed to apply objective criteria when granting loans. In a large number of cases geo-political motives proved decisive. IMF and World Bank did not always act differently. Too often, the US Government put pressure on the Bretton Woods Institutions to be lenient. Similarly, private financiers and bankers also put their own interest first when providing funds. To make matters worse, many loans were not for productive activities, others never reached the National Treasury…
The Bretton Woods Institutions and the US Government led the way in the restructuring and cancellation of Liberia’s public debt, sometimes aided by friendly government. The Netherlands e.g. took over part of Liberia’s debt to the IMF and subsequently cancelled it. Will the new Obama Administration break with the past and stop granting loans to countries like Liberia that are not capable of servicing or repaying these loans? At least the current financial crisis has taught us that reckless borrowing and reckless lending go hand-in-hand….