Information about Liberia

The Heavily Indebted Poor Countries Initiative, otherwise known as the HIPC Initiative, is a comprehensive approach to debt reduction launched by the International Monetary Fund (IMF) and the World Bank. It was established in order to make certain that no poor country faces an unmanageable debt burden. The HIPC Initiative works by ensuring cooperation on the part of the international financial community to reduce the external debt burdens of the most heavily indebted poor countries to sustainable levels. For certain heavily indebted poor countries, the HIPC Initiative offers full and irrevocable reduction in debt. Although the need for such an initiative is great, it has failed to meet its objectives in the case of Liberia, a heavily indebted poor country that is currently crippled by insurmountable debt.

For over two decades, Liberia has been overwhelmed with armed conflict and violence. It was only in 2003 that peace was realized in the country, but at the price of 250,000 casualties and hundreds of thousands rendered homeless out of a population of only 3 million. In 2005, the Liberian nation democratically elected a new government; a government that would not only be faced with the duty of rebuilding the country, but also with the task of repaying the $3.7 billion dollars of US in external debt that was incurred in large part during the conflict.

The problem that Liberia currently faces is that not only is it realistically impossible for it to pay this external debt, but the task of working to pay off the debt works to contradict the government’s duty to rebuild the nation. After all, how is it possible for a government to effectively cope with an 80% poverty rate, a 76% illiteracy rate, and an 85% unemployment rate, while paying off an external debt that is equivalent to 800% of its GDP, or 3000% of its exports? Additionally, having to pay back the external debt that was incurred by Liberia’s former violent governments negatively affects the legitimacy of the current government, making it harder for this government to move forward with development projects.

Although it would seem within the mandate of the HIPC Initiative to provide assistance to Liberia, Liberia does not currently qualify for HIPC Initiative assistance. Despite the fact that Liberia is currently under an IMF Staff Monitored Program, it must agree to the conditions of permanent IMF and World Bank programs, and must have developed a Poverty Reduction Strategy Paper (PSRP) in order to qualify. If Liberia does agree to such programs, and is able to make sufficient progress in introducing reform and sound policies through such programs, the international financial community will agree to reduce the debt to an agreed sustainability threshold. At this point, Liberia will receive what is called interim relief, but will still not qualify for the full and irrevocable reduction in debt that the HIPC Initiative offers. In order to reach what is called the completion point, Liberia must establish a further track record of good performance under IMF and World Bank programs, it must implement further key reforms outlined by such financial institutions, and then it must adopt and implement its PSRP for at least one year.

Not only is the process of attaining HIPC Initiative assistance complicated and time-consuming to explain, it is even more complicated and time-consuming to implicate. Potential IMF reforms that could be imposed on Liberia include the stabilization of exchange rates, reform of state-run enterprises, restructuring of corporate tax rates, land reform, and measures to keep inflation low. This could result in the reduction of Liberia’s currency value, the size of its bureaucracy, and social spending on health care, education, and other such institutions. Accordingly, the rates of unemployment, homelessness, and illiteracy are likely to go up for Liberia in the short run, and the popularity and stability of Liberia’s newly elected government will be jeopardized.
Not only are the implementation of IMF reforms and policies likely to be difficult and increase short-term poverty, the completion of the HIPC initiative will be anything but immediate. Zambia took over 10 years to reach the completion point under this initiative, as did Burundi and the Central African Republic. In fact, the fastest country to reach such a point was Uganda, which took 6 years to complete the process. Accordingly, Liberia’s urgent need for instant debt relief will go disregarded under the HIPC Initiative, and the poverty and unemployment that has contributed to this need will in fact increase during the next several years that Liberia will have to wait for assistance.

The HIPC Initiative is a much-needed program for countries such as Liberia that are faced with unmanageable debt. The problem is that the HIPC Initiative is currently failing to provide Liberia with the assistance needed for its development and democratization. If such an initiative is to actually fulfill its own objectives in the case of Liberia, it must itself be made to provide for Liberia’s needs by means of a manageable approach, and must be made to do so today.