LIBERIA: CURRENT ECONOMIC PROBLEMS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001500220033-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 21
• Document Creation Date: December 16, 2016
• Document Release Date: December 27, 2004
• Sequence Number: 33
• Publication Date: March 1, 1968
• Content Type: IM

 Clf/oEt2-/ l/f F,
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Secret
DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
Liberia: Current Economic Problems
Secret
ER IM 68-31
MARCH 1968
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WARNING
This document contains information affecting the national
defense of the United States, within the meaning of Title
18, sections 793 and 794, of the US Code, as amended.
Its transmission or revelation of its contents to or re-
ceipt by an unauthorized person is prohibited by law.
GROUP 1
EXCLUDED !11OM AUTOMATIC
OONNOIIAOINO AND
0117L ANSIE)CATION
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
INTELLIGENCE MEMORANDUM
Liberia: Current Economic Problems
Summary
Liberian officialdom is currently deeply con-
cerned with the country's pressing foreign debt
servicing problem, and the question of stretching
out debt payments is almost certain to be raised
during President Tubman's late March visit to
Washington. Liberia fears it will be unable to
meet the scheduled payments over the next few years
with the revenues it now ex ects.
i eria cou increase 1 s r e
new taxes, by efficiently collecting those already on
the books, and by renegotiating concession agree-
ments. It is far from certain that the government
would do all this, or that if it did the resultant
revenues would be adequate to service the debt.
In any event, the currently scheduled payments are
quite onerous in terms of Liberian revenues. The
total national budget, for example, is considerably
smaller than that of Arlington County, Virginia.
The $17.9 million payment due next year is equiva-
lent to about 40 percent of the government's antic-
ipated current revenues, and Liberia hopes that it
can be reduced by about $3 million and that subse-
quent payments can also be adjusted.
In 1963, Liberia was successful in having its
foreign debt rescheduled, with the aid of the IMF,
in return for undertaking to introduce a number of
Note: This memorandum was produced solely by CIA.
It was prepared by the Office of Economic Research
and was coordinated with the Office of Current
InteZZigence.
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fiscal reforms that would have controlled current
spending and increased current revenue to assure
adequate funds for debt servicing. Few of these
interim the prices of rubber and iron ore, Liberia's
major exports, fell below expectations and govern-
ment revenues dropped.
Liberia's foreign debt now totals almost
$200 million, more than one-half of it owed to
the US Government. Much of the rest is high-
interest, relatively short-term loans which have
tizing and have contributed little to economic
development. Economic growth has occurred, but it
is almost entirely attributable to private foreign
investment.
The monetary economy -- consisting largely of
rubber plantations and iron mines built by foreign
capital -- has grown rapidly over the past 15 years
and is expected to continue to expand, although at
a slower rate. The oligarchy which runs the
country has benefited handsomely from its share of
the profits. Government expenditures have also
grown rapidly but have had relatively little impact
on economic development. The level of public
health, education, and services to peasant agri-
culture remains one of. the lowest in Africa. Most
of the population is still in the subsistence
sector and largely untouched by the money economy.
Although there is considerable room for expanding
food production to cover domestic consumption,
obstacles are numerous. Liberia's small potential
local market also hampers expansion of manufacturing
and processing industries.
While lower debt payments and additional aid
would ease the immediate financial problem,
Liberian revenues for the next few years are likely
to cover only current expenditures, and the amount
available from government sources for development
would be almost nil. Development funds would
foreign aid. Even if such funds become available,
Lam-
h
t
e
rigid oligarchy which has demonstrated little real
willing to alter existing economic patterns that
work to its financial advantage.
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The Nature of the Economy
Pne4..dent Tubman
1. The million-plus inhabi-
tants of Liberia are ruled
by an oligarchy of 20,000
Americo-Liberians, descended
largely from freed American
slaves who were settled
along the coast in the early
1800's. Their culture and
customs are patterned after
those of the ante-bellum
American South; their con-
servatism is perhaps even
greater than that of their
model. Together with their
spokesman, President
William V. S. Tubman (first
elected in 1944), they hold
all the major government
positions, control almost
all the domestic wealth of
the country, and derive
their substantial incomes largely from their posi-
tions or connections. Their control is pervasive
and exercised formally through the True Whig Party,
which has been in power continuously since 1878.
With the help of several thousand foreign experts
and managers, they run the modern economy. The
consistent dominance of this small elite has re-
sulted in a political stability unusual for Africa,
which has in turn attracted considerable foreign
investment.
2. In Africa, Liberia is viewed as a
protege of the United States, and American interests
dominate the economy. US investment totals about
$350 million and is probably surpassed in Sub-
Saharan Africa only by US investment in the
Republic of South Africa. American-owned banks
handle most financial transactions; a wholly-owned
subsidiary of the First National City Bank of New
York acts as the country's central bank, and
Liberia uses the US dollar as its currency. About
3,500 Americans work or live in Liberia, and more
than one-third of them are connected with US
government activities. More than one-half of the
1,500 ships registered under Liberia's flag of
convenience are American owned. The United States
is also Liberia's major trading partner and by
far the largest source of aid.
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4. The modern sector of the economy consists
largely of four iron mines built and run by
foreigners, four rubber plantations in production
financed largely by American firms, a few Americo-
Liberian rubber farms, and the government establish-
ment (see Figure 1). Together, rubber and iron ore
operations account for about 90 percent of the
country's exports, directly provide more than 25
percent of government revenues and indirectly much
of the rest, and employ more than 55 percent of
the wage earners (see Figure 2). Output has grown
rapidly since World War II. In the 15 years
between 1951 and 1966, estimated gross national
product increased between 5 and 10 percent a year.
Government revenues more than tripled over the
period. This growth can be attributed almost
wholly to the influx of private investment, which
now totals about $550 million. Employment on the
rubber plantations, and to a lesser extent in the
iron mines and in government services, has brought
about one-third of the population at least partly
into the monetary economy. Nevertheless, almost
all skilled and semi-skilled positions, including
even wholesale and retail trade, are held by
foreigners.
5. Since 1962, iron ore exports have become
the most important source of foreign exchange, and
investment in mining over the past decade has fueled
most of Liberia's growth. In 1964, for example,
* Including about $60 million in Export-Import
Bank loans to raining companies.
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 RANGE
!ROt)rtsp( 11\GOOPRICH /T
--'A 5 ~~ Y'ilata
LIBERIA
PRINCIPAL ECONOMIC
ACTIVITIES
RUBBER PLANTATION
IRON MINE
International boundary
National capital
-T Railroad
Road
9 25 50Miles
0 :t5 50 _r
I Iometers
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OOUNOARY REPRESENTATION IS
NOT NECESSARILY AUTHORITATIVE
Harper
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F_ igure
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LIBERIA: ESTIMATED DISTRIBUTION
OF THE WAGE LABOR FORCE, 1967
Services
TOTAL: 104,000 PERSONS
iron mining accounted for about a fourth of esti-
mated gross domestic product (GDP). Exports have
risen rapidly in voli"me but the world price has
dropped steadily since 19ti0 (see Figures 3 and 4).
Liberian iron ore sold for ;6.40 per long ton in
1966, for example, compared with about $11.90 a
ton in 1960. Consequently, although output has
grown fast enough to keep the value of exports
rising despite declining prices, Liberia's over-
all earnings from iron mining have fallen far
below its expectations, and this is the root cause
of much of the country's current financial difficulty.
6. Iron ore prices are not expected to
recover over the next few years but the total value
of exports will probably continue to rise because
output is slated to expand. The Liberian American-
Swedish Minerals Company (LAMCO),* the largest
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LIBERIA: IRON ORE EXPORTS, 1959-66
INDEX
700.-
LIBERIA: EXTERNAL TRADE, 1959-66
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LAMCO Inon One Loading Bin. in the N,imba Mounta.in4
producer, recently completed a $57 million pelle-
tizing plant which should bring Liberian exports
to about 20 million long tons this year. The
company also expects to begin feasibility studies
for another mining site in the near future.
7. The three mining concessions,* each owned
50 percent by the Liberian government, and the
Liberia Mining Company (LMC), controlled by Republic
L.ibe,tian Mining Company's Ikon One Mine
in the Bom.i H.ittz
* LAMCO, the German Liberian Mining Company
(DELI MCO ), and the National Iron Ore Company (NI OC ).
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Steel, all pay half their net profits to the
Liberian government. They repatriate most of the
remainder, however, and are currently servicing
sizable loans with a relatively rapid payoff so
that their net contribution to the economy is
considerably smaller than the value of their out-
put might suggest.
8. Rubber is the only important agricultural
export. From the mid-1920's until the early 1960's
and the opening of the iron mines, the Firestone
plantation was the single most important economic
factor in the country. The volume of rubber exports
Fi,teStone Rubber-P/Loce-sing Pkant
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has risen fairly rapidly over the past decide, hut
as in the case of iron ore, the world price has
fallen drastically. In 1967, for example, the
world price for natural rubber averaged about 18
cents a pound, less than half the 1960 price.
9. Production is expected to continue to
increase as new plantings of high-yielding stock
begin to bear. Two new plantations, including one
owned by the US Rubber Company, will come into
production within the next several years. More-
over, Firestone, B.F. Goodrich, and the African
Fruit Company all have sizable acreages in trees
that are not yet producing. (For data on rubber
production in Liberia during 1960-67, see Table 1.)
10. Partly with Firestone's assistance,
Liberians in increasing numbers have taken to grow-
ing rubber. The Americo-Liberians are usually the
absentee owners of the larger and more successful
farms. Almost two-thirds of the 4,000 rubber
farms cover less than 20 acres and are generally
very inefficient. The quality of their output
tends to be much lower than that on the plantations
and, for many, earnings have fallen below produc-
tion costs in recent years. This is partly due to
inefficiency in tapping and partly to their failure
to replace older trees with new high-yielding
varieties that can produce four to five times as
much latex per tree. In November 1967, President
Tubman announced a price support program for small
rubber produces to be financed through interest-
free loans from the rubber concessionaires. The
program may keep many growers in production, but
it will reduce the incentive to improve their
holdings.
11. Seven or eight small diamond dealers
buy from African diggers and from smugglers who
handle "tourist" diamonds from Sierra Leone and
Ghana. Diamonds, however, account for only about
2 percent of total exports. Coffee is similarly
smuggled in from neighboring territories and
exported as Liberian produce. Only about one-third
of the coffee exported is actually grown in the
country. Coffee exports are likely to drop sharply
because Liberia recently joined the International
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Liberia: Rubber Production
Selected Years, 1960-67
1960 1964 1965 1966 1967 a/
Individual Farms
Cultivated acres
in production 49,000 63,260 69,000
Cultivated acres
not in production 37,000 64,525 63,100
Total acres cultivated 86,000 127,785 132,100
Output (long tons,
dry rubber content) 6,439 8,749 12,628
Concessions
Cultivated acres
in production 68,636 76,890 81,055
Cultivated acres
not in production 27,034 49,440 51,816
Total acres cultivated 95,670 126,330 132,871
Output (long tons,
dry rubber content) 35,751 34,283 37,180
Acres cultivated 1813670 254,115 264,971
Output (long tons,
dry rubber conten v) 42, 190 43-9032 49,808 54,553 60, 250
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Coffee Organization and was assigned a fairly small
export quota which approximates estimated domestic
production. Liberia also produces insignificant
quantities of palm kernels, cocoa, and piass ava
for export. Soils and climate are suitable for a
considerable expansion of agriculture, but the
development of cash cropping has hardly begun.
12. The government establishment, centered
in Monro--ria, is the second largest employer after
the rubber plantations. Government personnel
number about 16,000, and the payroll is the largest
in the country, more than $17 million a year.
Infrastructure an' services are largely confined
to the capital city and its environs and to the
rubber plantations and iron mines. Schools,
medical facilities, roads, and other such facili-
ties are rare outside the productive enclaves and
the capital.
13. Between one-hE,lf and two-thirds of the
population is relatively isolated from events in
the modern economy and depends almost entirely on
traditional agriculture. Rice and cassava are the
staple foods, rice being favored in urban and
plantation areas. Domestic production of cassava
has probably kept up with population growth, but
production of rice remained fairly constant over
the past decade although demand has increased. As
a result, Liberia now imports almost 40 percent
of the rice it consumes. There is little local
incentive to raise output because farmers often
have no way ':o get their crop to rice mills. The
few mills are privately owned by Americo-Liberians
who often impose a milling charge of 25 percent of
the retail value of the rice.
14. There is considerable room for expanding
food production, diversifying cash crops, and
exploiting forest reserves, but obstacles are
numerous. Roads to market are few and poorly
maintained, agricultural credit facilities are
practically non-existent, and peasants lack good
seed, modern tools, and insecticides. Draft
animals are rare, principally because of disease.
Moreover, in many areas, corruption and extortion
on the part of police, army, and tax collectors
provide a positive disincentive to increase pro-
duction.
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15. Peasant agriculture has received very low
priority in government spending. Although President
Tubman announced a crash $2 million development
program in November 1967, principally to promote
rice production, little is likely to come of it.
Significant development of peasant agriculture
awaits considerable investment in infrastructure --
including roads and marketing facilities -- and the
establishment of agricultural credit facilities.
Moreover, real progress would require an end to
the corruption and extortion and the provision of
positive incentives for increased production, none
of which now seems likely.
The Debt Problem
16. Liberia's most visible financial problem
is the burden of repaying its foreign debt. The
principal now totals almost $200 million. Approx-
imately $157 million was incurred by 1963 to
finance a wide variety of projects, including
public buildings, schools, and roads, but relatively
few of them were self-amortizing. Worse yet, many
of the loans were short-term or medium-term at
interest rates up to 10 percent.
17. In 1963, Liberia was faced with an annual
payment of $33.5 million, the equivalent of about
90 percent of government revenues for that year.*
Since it was clearly impossible to pay this much,
the government appealed to the IMF for financial
aid and assistance in rescheduling the debt. As a
result the payments were stretched out over 15 years
and the IMF has provi and-by loans each year
since 1963 The rescheduling was
predicated on a rise in i erian government revenues
and on strict control over current expenditures.
Revenues failed to increase as pro-'lected, however,
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largely because rubber and iron ore prices declined,
thus depressing company profits and income tax pay-
ments. Also, Liberia failed to implement all of the
IMF-sponsored fiscal reforms designed to increase
tax collections. Some reforms were adopted,
although with disappointing results. The govern-
ment undertook to restrain the increase in current
spending (excluding debt service) to 5 percent a
year or less in order to make funds available from
ordinary revenue for debt service, but current
spending in 1965 and 1966 rose by 10 percent or
more each year. Expenditures increased in 1967,
but it is not yet clear by how much.
18. Liberia, however, has generally refrained
from new borrowing from suppliers and contractors.
This type of high-interest, short-term debt led to
the severe financial crisis in 1963. New foreign
debt incurred since early 1963 is largely the re-
sult of refunding existing debt and long-term, low-
interest loans from AID. For example, outstanding
debt to the United States increased about $40 mil-
lion between the renegotiation and the beginning
of 1968. Of this, more than $18 million was AID
loans for such projects as schools, technical
assistance, a sewage system for Monrovia, and the
Public Utilities Authority. Assumption of responsi-
bility for the Port of Monrovia added another $19
million to Liberian debt, although it is to be
repaid over a very long time into a joint US-
Liberian fund for education and culture. The
balance of the increase in debt to the United
States was made up by PL-480 loans and military
assistance.
19. Total debt outstanding increased only
about $34 million since early 1963 to about $200
million. Of this, more than $13 million was owed
to the IMF for stand-by assistance.
20. Liberia apparently met the payment
schedule for 1964 through 1967 which seems to have
averaged about $10 million a year, the better part
of which was interest. These payments were
slightly higher than originally scheduled because
of additional borrowing and were made partly
through using IMF stand-by assistance and a $13.3
million refunding loan from the Export-Import Bank.
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21. According to the current debt schedule,
Liberia is to pay about $6 million more in 1969
than in 1968. The government is now seeking US
support for a second debt rescheduling on the
grounds that it will have great difficulty in
meeting the payments schec9ulara fnr 4-1,,,
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22. Liberian officials predict that rising
revenues from public corporations like the Port
Authority will average more than $2 million
annually through 1973. if this sum were set aside
for debt servicing, it would leave only about $12
million to $13 million to be met from ordinary
government revenue over the next few years. Whether
Liberia could meet the reduced payment levels it
proposes would depend on its budgetary policies,
the levels of rubber and iron ore prices, and on
the amount of financial aid it receives.
23. If Liberia controls current spending
and implements most of the IMF suggestions for increas-
ing internal revenues, it probably can meet the
proposed revised schedules.
Prospects
24. Whatever the outcome of Liberia's cur-
rent efforts to reduce the debt servicing burden,
its overall economic prospects depend on what
happens in the plantation and mining sectors and
on Liberian government policies toward development
of the traditional sector. Perhaps the most crucial
factor is how the government handles its revenues
and expenditures over the next decade or so.
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25. Unless revenues from mining, plantations,
and the rest of the money economy increase substan-
tially -- and this does not seem likely -- the
government will have only a modicum of development
funds from its own resources. Debt reschedulin
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c
ou tree some un s
or investment in in ras ructure e and agriculture.
Without one or both, investment funds from internal
sources would be negligible. Even if a revenue
surplus became available for the capital budget,
there is little assurance it would be so used.
Government spending habits are deeply entrenched,
and so long as the present administrative system is
maintained, current expenditures will tend to equal
or surpass revenues. Development, then, is likely
to become chiefly a function of the amount of
foreign aid or investment devoted to increasing
output.
26. A major government effort to expand
agriculture by integrating the traditional sector
into the monetary economy would probably be the
best route to development. It would, however,
involve a substantial investment in infrastructure,
marketing facilities, and agricultural credit for
the benefit of the farming community at large. But
the ruling oligarchy cannot be expected to make
basic reforms that would adversely affect its own
fortunes, and, to date, it has shown little real
interest in making the kind of effort that could
promote general economic development. There are,
however, an increasing number of young, educated,
tribal and non-tribal Liberians who feel a growing
sense of frustration with the establishment. In
time, these elements are expected to play an
increasing role in the political and economic life
of the country. But change is likely to come slowly.
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