After freeing itself from a civil war, Liberia is now freeing itself from another major impediment to its development: a mountain of foreign debt. Little more than a year ago, Liberia’s foreign debt totaled $4.9 billion, equivalent to 700% of Liberia’s national income. This basically means all Liberians would have had to work for seven years without eating drinking or consuming anything just to pay off their debt to foreign creditors (and this is excluding the interests due during these seven years).

The country has chosen another path and embarked on a series of steps for which the support of creditors is indispensable.

The first step was taken when the country reached decision point under the “Highly-Indebted-Poor-Countries”-Initiative in March 2008. Liberia was originally named as HIPC-eligible but, due to its 14-year civil war, progress was limited. Under the leadership of President Ellen Johnson-Sirleaf, Liberia worked with major creditors to clear past debts, and at the same time creditors built in flexibility for Liberia in allowing a Staff-Monitored Programme of the IMF to count towards the requirement that countries demonstrate a track record of working with the international financial institutions. Although there were costly delays, the flexibility of the IFIs has offered essential support to Liberia at a turning point in its political and economic history. This first step only affected government-to-government debt.

This debt buyback is a second important step to ensure the economic viability of the country. As around 25% of the debt of Liberia was held by private creditors (hedge funds for a large part), it was essential to tackle this category of debt as well. With the financial support of the Worldbank and bilateral donors, Liberia has bought back the commercial debt that it owed to private creditors.

The third step, which has yet to be taken, is the completion point under the Heavily Indebted Poor Country (HIPC) Initiative. Liberia’s foreign debt is now down to $1.8 billion (still standing at around 250% of its national income). Most of this remainder will be cancelled when Liberia reaches its Completion Point. The creditors and above all the Worldbank, should continue to be flexible. They are setting and interpreting the triggers, which will decide when Liberia reaches decision point. One year has now passed since Liberia reached decision point. This means the minimum time any one HIPC country has to stay at decision point level is now over.

Therefore, the buyback is a good reminder to allow Liberia to take the third step and to rid itself of a debt burden that impedes the development of this increasingly stable post-conflict country.

Andreas Huebers

Thank you again for all the work you all have done to help move Liberia’s debt cancellation forward. There have been some questions about the future use of this debt cancellation money. I want to provide with you some facts and figures.

First, in order to qualify for the HIPC (Heavily Indebted Poor Countries) debt cancellation process that Liberia has now entered, a country must establish a track record of macroeconomic stability and must have a national poverty-reduction plan. That Liberia met these two requirements so quickly after such a prolonged period of conflict (their 14-year civil war) is a testament to their early success and the leadership of President Johnson Sirleaf.

Second, debt cancellation has proven to be an effective means of delivering poverty reduction. Some success stories:

• In 2005, Nigeria spent $750 million of $1 billion in debt relief through a tracking system (the “virtual” poverty fund) that monitored and tracked the flow of funds to poverty-reducing activity and evaluated its impact. This money was directed to education, health and infrastructure projects.
• For every dollar freed up from debt services, African governments have increased social spending by twice as much.
• Overall expenditures on poverty reduction in all HIPC countries increased from $14.8 billion (9.3% of GDP) in 2005 to 16.7 billion (10.2% of GDP) in 2006.

Below is a chart that graphically depicts the impressive increases in poverty-reducing expenditures in countries that have past “completion point” in the HIPC process.

-Josh Lozman, ONE Vote ‘08 Policy Director

As Steve Radelet reported here on the ONE Blog on Monday, after a 18 month delay, the IMF is finally moving ahead with debt relief for Liberia!

Yesterday, the director of the IMF’s External Relations Department issued a statement::

“We have received a large volume of emails on this topic, so this letter is being posted because it is impossible to respond to each message individually….Their strong support to the cause of debt relief contributed to the broad donor support that made this financing possible.”

Jubilee, DATA, the Center for Global Development, Foreign Policy In Focus, and U.S. Conference of Catholic Bishops did incredible work keeping up the pressure, and ONE members sent tens of thousands of emails pushing the IMF for this action.

It’s not a bad day – when we get proof that our voices are being heard, and that our actions are truly making a difference for the poorest people in this world.

Read the full statement on the IMF site.

-Virginia Simmons

To all,

The IMF has finally come up with its financing arrangements, after 18 months of pushing and prodding. This is not yet debt relief – it just allows Liberia to now (!!) start the process. But is the big first step.

Thanks to all. You folks really were a big piece of this. It is amazing, but they really did need to be whacked over the head in public to go and get it done!

Thanks!

-Steve Radelet, Center for Global Development

More info in the IMF 11/12/07 press release:
“IMF Managing Director Dominique Strauss-Kahn Announces Financing Milestone on Debt Relief for Liberia”

Yesterday, President George W. Bush announced the 2007 recipients of the Presidential Medal of Freedom, the Nation’s highest civil award.

Among the 7 recipients is Liberia’s President Ellen Johnson Sirleaf.

From the White House’s press release:

Ellen Johnson Sirleaf has helped heal a country torn apart by conflict through perseverance, personal courage, and an unwavering commitment to building a more hopeful future for her homeland. The first woman elected president of an African nation, she has worked to expand freedom and improve the lives of people in Liberia and across Africa.

Importantly, last week tens of thousands of ONE members took action urging the IMF to provide Liberia the debt relief the institution owed the country 18 months ago. More info on that here and here.

We often use our voices to tell our elected officials to support anti-global poverty legislation that is months or even years in the making. But today is different. Today we can take action on a critical international situation ripped from the headlines.

As the Financial Times reports:

The International Monetary Fund faced harsh criticism on Thursday for failing to meet its commitment to write off $800m in debt owed by Liberia, as Ellen Johnson-Sirleaf, the country’s leader, met US president George W. Bush in Washington.

And from the BBC:

Forgiveness of the old debt would allow the IMF to issue new development loans.

Correspondents say it is widely agreed that Liberia’s arrears should be paid off, but there is still some wrangling about the financial details.

This broken promise of debt relief threatens the future of Liberia, a country struggling to make democracy work after a bloody civil war, and lift its people out of poverty.

Send an email to the International Monetary Fund today and tell them to keep their promise and forgive the debt.

Today, Liberia is on the right path. In 2006, Ellen Johnson-Sirleaf became the first African woman to be elected a head of state. She is an expert on development—she worked for the World Bank and UN Development Program—and on Liberia’s recent troubled history, having been jailed twice and driven into exile for opposing a repressive government.

It is an outrage that 18 months have passed since the IMF committed to writing off Liberia’s debt. Send a message to the IMF and let them know that as a citizen of the fund’s largest donor country—you know that the time for action is now.

-Josh Peck, ONE.org

Development expert Steve Radelet wrote an important piece on the state of debt relief in Liberia on Nicholas Kristof’s NYT blog earlier this month.

Radelet writes:

“Liberia is beginning to rebound from its devastating civil war and the monstrous incompetence of [the country's former Presidents] Samuel Doe and Charles Taylor that nearly destroyed the country.

Liberia is at peace, the economy is growing, democracy is taking root, kids are going back to school and families are being united…Liberia’s “control of corruption” index, as measured by the World Bank, registered the second-largest improvement of any country in the world this year.”

And then he talks about their debt situation:

“Most [of the debt] was borrowed by Samuel Doe in the early 1980s, and has not been paid since 1984. With penalty interest, Liberians today are stuck with the bill: $4.5 billion, equivalent to a massive 3,000 percent of exports, the highest ratio in the world.

The major creditors all have pledged to forgive Liberia’s debts, but the process is stuck at the IMF, where the Board has been debating for a full year how to share the costs of the write-off. A solution seems at hand, but it isn’t done yet, and meanwhile Liberia must wait (if you feel so moved, write this week to the Managing Director of the IMF and ask for fast action to resolve Liberia’s debt crisis).”

You can read the full piece here.

(Note that Liberia’s turn around happened after they elected President Ellen Johnson Sirleaf, the first woman elected head of state in Africa. Radelet closes by saying: “I hate to be a sexist, but maybe we ought to put more women in charge in tough places around the world.”)