The George Weah administration inherited a terrible economy, which amongst other things expressed itself in the galloping decline in the value of the Liberian Dollar against the United States Dollar. The exchange rate persistently depreciated causing rapid and sustained increase in the general cost of living underpinned by skyrocketing prices of essential commodities. Concord Times’ Lyndon Ponnie reports on how the nascent Liberian Government robustly intervened to halt a devastating situation in the country.
Deputy Minister for Fiscal Affairs at the Liberia Ministry of Finance and Development Planning, Mr. Samora Wollokolllie, told Concord Times in an exclusive interview recently that the devastating shocks in the economy of Liberia prompted the convening of both the Economic Management Team (EMT) chaired by the President of the country, and the Technical Economic Management Team (TEMT) chair by the Minister of Finance and Development Planning.
He disclosed that as part of efforts to resuscitate the economy, several meetings were held from which discussions arrived informed the decision by President George Weah to reduce tariffs on 2,500 commodities on the Liberian market so as to ease the financial constraints on the citizens.
Mr. Wolokollie indicated that the Coalition for Democratic Change (CDC) Government was able to analyze issues appertaining to the depreciation of the exchange rate, identified the causes, and proffered remedial measures.
He added that this analysis fed into President Weah’s decision to ask the CBL to infuse US$25 million of the country’s reserve to stabilize the exchange rate, and by extension the general price level.
According to Mr. Wolokollie, the Technical Economic Management Team (TEMT), chaired by the Minister of Finance and Development Planning again convened and formulated a strategy for immediate actions.
On July 17, 2018, he explained that the TEMT commenced the implementation of several policy measures which include short, medium and long-term measures, covering monetary and fiscal policies as well as policy measures by the Ministry of Commerce.
According to him the measures included stepping-up intervention in the foreign exchange market (i.e. FX auction or direct mopping exercise), sustaining monitoring and enforcement in the foreign exchange market, issuing various regulations, introductions of additional monetary policy instruments (i.e. Standing Deposit/Credit Facility SDF/SCF, issuance of CBL bills/notes), pricing and price regulation, and effecting payments by currency split, etc.
Mr. Wolokollie explained that as part of efforts to improve the balance sheet of the commercial banks in terms of the level of non-performing loans (NPLs) and promote confidence in the system, the Government, working with the commercial banks and the Central Bank of Liberia, reached a decision, which was approved by the Debt Management Committee (DMC) to pay-off all outstanding GoL direct and indirect obligations, the latter which he pointed out, was associated with pre-financing of various Government projects in the past.
The total obligations, according to the Mr. Wolokollie, amounted to US$65 million which he indicated will be paid through the issuance of a long-term Treasury bonds for a seven-year period in coupon payment.
Wolokolie stated that this arrangement will enable the banks to discount the instruments in international financial markets or to potential investors, which will boost liquidity in the domestic banking system.
In addition, he added that the arrangement will provide the Government the fiscal space to borrow from the domestic banking system, and by extension, facilitate the development of the domestic financial markets to support domestic resource mobilization for financing of important domestic projects.
He further disclosed that the Government has been able to work with petroleum importers in the recent past to address the looming petroleum shortage crisis and hike in petroleum prices.
It is worth noting, he said, that the TEMT has been meeting more frequently to assess and discuss the State of the Economy and respond to evolving issues critical to the economic stability.
Report on the Utilization and Impact of the US$25 million Foreign Exchange Intervention
Mr. Wolokollie disclosed that the Central Bank of Liberia, working with the TEMT intervened in the foreign exchange (FX) market through direct intervention with the total amount of US$15 Million from July 17-October 26, 2018 as part of the US$25 Million advanced to the Government of Liberia (GOL) from the Gross International Reserve (GIR).
According to the senior finance ministry official, since the commencement of the direct intervention strategy, the CBL mopped up a total amount of L$2,303,363,898.00, representing 59.4 percent of the L$3.88 billion of currency outside banks (COB) initially targeted. The United States Dollar equivalence of the amount mopped up as at October 26, 2018 is US$15 million, reflecting 60.0 percent of the US$25 million earmarked for the Intervention.
Deputy Minister Wolokollie indicated that US$2 million was sold through a special auction to Total Liberia Incorporated on October 30, 2018 at the previous day buying rate of L$156.5709/US$1.00 with a total Liberian Dollar of L$313,141,800.00 purchased. This according to him brings the total Liberian Dollars purchased from the interventions to L$2,616,505,698.00 which is equivalent to US$17 million.
Recent report released by the independent forensic investigation team funded by the United States government says discrepancies have been discovered in the CDC government US$25 mopping up exercise on the money market.
“Kroll was not provided with documentation setting out how the USD MopUp Exercise was structured or implemented, or which organizations were targeted by the CBL,” the report says.
President George Manneh Weah in In July 2018, announced that USD 25.0 million would be “infused” into the Liberian economy to “mop-up” excess LRD banknotes in an attempt to address the depreciation of the Liberian Dollar.
At the time the Liberian leader said the infusion of US$25 million into the Liberian economy would help stabilize the exchange rate in the volatile money market.
But when President Weah announced, a number of pundits raised several questions to how will infusion of the millions of US dollars be done to ensure that the bulk of this money doesn’t end up outside of the country’s banking system?
How far will this measure go in reducing the high exchange rate and then translating into the drop in the hike in prices of essential commodities?
To prove the pundits right, the Kroll and Associates Scooping report says “the approach taken by the CBL to implement the USD Mop-Up Exercise, whereby small teams of bank personnel directly purchased LRD banknotes from local businesses and foreign exchange bureaus in exchange for USD notes, created an enhanced level of risk.”
The report spots the “potential misappropriation of banknotes; potential opportunities for money laundering and potential execution of transactions with illegal businesses. Consequently, there is a risk that significant funds were unaccounted for by the CBL, and Kroll therefore recommends that this matter merits further understanding.”
The report also says “CBL advised Kroll that the USD Mop-Up Exercise involved CBL Banking Department representatives undertaking the physical purchase of LRD banknotes from local businesses and foreign exchange bureaus, with the seller being reimbursed for the value of purchased LRD banknotes with new USD banknotes.”
However, the report says “Kroll was not provided with documentation setting out how the USD MopUp Exercise was structured or implemented, or which organizations were targeted by the CBL.”
This latest forensic audit report of the implementation of the US$25 million mop up exercise comes as no surprise to many Liberians, as Finance Minister Samuel Tweah explanation months ago that the first US$15 million of the amount were dished out to money changers in various communities such as West Point and New Kru Town. No concrete records were provided to the public as to who actually received the millions, which were not channeled through the banking system.
Finance Minister Tweah’s US$15 million randomly dished out later turned to over US$17 million in President Weah’s State of the Nation Address in late January this year.
How Foreign exchange intervention was done in the past
Back in July 2018, President Weah said the US$25 million mop up exercise plus other “measures will include, but not be limited to:
An immediate infusion by the Central Bank of US$25 million into the economy to mop up the excess liquidity of Liberian dollars.
A mandate to the Central Bank to provide more effective supervision and regulation of money changers or foreign exchange bureaus.
A mandate to the Central Bank to provide more robust oversight of banks under its supervision.
Conduct a comprehensive review of regulations on the hoarding of both Liberian dollars and U.S. dollars outside the banking system, and provide incentives and safeguards to encourage the utilization of the banking system, including financial instruments,” the President told the nation.
Yet in the Tweah-led mop up exercise that was not seen. The past problem the CDC government said it had set out to solve had little impact. In fact, none of the US$25 million was channeled through the banking system.
In the last Central Bank foreign exchange auction, only US$750,000 of over US$5m CBL June 2018 CBL FX auction went to commercial banks.
The latest independent forensic audit report on the implementation of the US$25 million FX mop up exercise was shrouded in multiple discrepancies.
“Kroll has reviewed documentation that showed an order was placed on July 10, 2018 to draw down funds totaling USD 20.0 million from the CBL’s Federal Reserve Bank of New York account to fund the USD Mop-Up Exercise. The date of the order (July 10, 2018) was made several days in advance of the Board of Governors decree (July 16, 2018). It is not clear if the draw down was made earlier than approval was provided for the USD Mop-Up Exercise.
“Kroll’s analysis of information provided by the CBL identified that LRD banknotes totaling LRD 2.3 billion (USD 15.0 million) were purchased for the USD Mop-Up Exercise between July 2018 and October 2018.”
This Public Report does not constitute a recommendation, endorsement, opinion or approval of any kind with respect to any transaction, decision or evaluation, and should not be relied upon or disclosed as such under any circumstances.
Limitations to Kroll’s work:
“Certain information provided by the CBL in respect of the movements of new banknotes into and out of the CBL vaults was not immediately available, contained inaccuracies and was incomplete.
In order to fully complete the agreed scope of work, Kroll used the four-week period following the initial two-week scoping phase to explore certain issues in further detail to obtain clarity on the key findings set out in this report.”
Key findings identified by Kroll:
“Kroll has identified discrepancies at every stage of the process for controlling the movement of banknotes into and out of the CBL during the Independent Review, including: the Legislature approval for printing new banknotes; the procurement and contracting of Crane AB; the shipping of new banknotes to Liberia; the delivery of new banknotes to the CBL, and; the movement of funds within and out of the CBL’s vaults.”