The Liberian People’s Party, has sharply reacted to the assertion of Mr. Samuel P. Jackson, a Liberian economist whom it said supports and has been showering praises on the Coalition for Democratic Change led government for its handling of the economy especially measures taken to stabilize the exchange rate which has been floating against the United States dollar and has caused economic uncertainties in the country.
In a press release from the party and signed by its Chairman J. Yanqui Zaza, the party said during an interview with the Liberia News Agency(LINA Panorama) held on October 18, 2021, Mr. Jackson praised the government for its economic policies, stating that the appreciation of the Liberian currency would allow money exchangers to get more US currency, and Liberian exporters will get more US dollars than they got yesterday for the same goods and services adding, it is true that a few business owners are capitalizing on the exchange rate to make huge profits, but that is what capitalists do.
The party stated that the appreciation of the Liberian currency would allow money exchangers to get more US currency, and Liberian exporters will get more US dollars than they got yesterday for the same goods and services adding, it is true that a few business owners are capitalizing on the exchange rate to make huge profits; but that is what capitalists do.
LPP laid the foundation on how policymakers manage exchange rates among which according to him include but not limited to changes in government spending or taxation, changes in the money supply and attempts to increase production to address economic issues such as the exchange rate.
“In a simple explanation, what factors increase the value of the Liberian dollar? They are: the increase in the US currency by selling more exported goods, the increase in the US currency by borrowing more US dollars and the increase in the US currency by seeking donations from those who can give US dollars, etc,” the party said
The opposition political party said alternatively the government can reduce the printing of new banknotes or withhold some quantity of the Liberian currency from the market, thereby, reducing the Liberian currency on the market. It added that Mr. Jackson did not discuss any factors influencing the exchange rate.
“Although Mr. Jackson didn’t comment, the Liberian People’s Party addressed the wrong fiscal policy (cut in spending) and ill-advised monetary policy (high-interest rate) of President George Weah’s administration within two separate press releases. In its August 24, 2021, publication, the LPP stated that while it “accepts the theory and practice that government can cut spending, however, the huge cut of USD $33M as reported within the 2021 National Budget will affect government operations and reduce cash in-take for businesses such as newspapers, office equipment, and supplies stores, gasoline stations, restaurants, local farmers, etc”, the release noted..
As some of its policy options to solving the exchange rate problem, LPP said that on August 30, 2021 it called on Liberian Lawmakers and stakeholders to encourage President George Weah to end the practice of offering attractive interest rates (20%) to commercial banks (CB). The party reasoned that Commercial banks, seeking higher returns on their investment, would reduce lending money at a 12% interest rate to businesses since they can earn more interest income by buying the government’s promissory notes offering a 20% interest rate.
“Page # 47 of the Central Bank of Liberia 2020 Annual Report stated that “… the total unredeemed T-Bills and T-Bonds for the review period stood at L$7.53 billion and US$65.93 million… in various tenors (2-weeks, 1-month, 3-months, 6-months, and 12-months).”
“Why did our country introduce the use of two currencies in Liberia in the first place? The International Monetary Fund stated that it was due to the shortage of cash to finance programs and the need to reserve cash for an emergency, including the practice to keep reserves to be used in maintaining and supporting monetary policy”, the party said..
Summing its analysis, LPP said that the government should add the Liberian dollar when a government is broke or when the local currency appreciates in value but sadly the government withheld Liberian currency away from the market, thereby, reducing the quantity.
“Our economic advisers reduced spending when it cut the budget. Also, it reduced Liberian currency on the market when it offered a 20% interest rate for government promissory notes”, it stated.
Further speaking on the rationale of the government action, the party said “Interestingly, why did the government take away additional cash from the market in exchange for promissory notes offered to commercial banks when it reduced the money it usually pumps into the market by cutting spending?”, the release asked rhetorically.
It said moreover, the LPP holds the view that money borrowed from the commercial banks would not have reduced the quantity of money on the market if the economic team had included proceeds from the sales of the promissory notes as cash in-take-in and increased government spending while referencing See page # XXIV of 2021 Budget.
“Assuming for the sake of the argument that Mr. Jackson might not believe that the cut in spending and the reduction of cash from the banks did not reduce the Liberian exchange rate however, the economic records of Liberia do not show that Liberia received additional US currency which is the other factor that reduces the Liberian exchange rate”, it said.
LPP said additionally, records show that Liberian currency was valued at L$19B on March 31, 2021 (L$41B minus L$22B currency outside of the banking system) adding that the Central Bank of Liberia 2020 Annual Report, signed on March 31, 2021, has information on what it called the total “Broad Money” and the total Liberian currency.
“On pages # 39 and # 40, the Report shows that “Total Broad Money” was L$127B, Liberian currency was L$41B, and that L$22B was outside of the banking system.
“So, the Central Bank of Liberia (CBL) records show that L$19B was within the banking system, but, signs suggest that , our economic advisers appear to be keeping the Liberian currency away from the public, hence, the shortage of the Liberian currency”, the party noted.
The party further questioned the basis on which Mr. Jackson praised the government in handling the exchange rate issue. “Let us review this assertion by visiting the numbers within the National Budget and sales of promissory notes to commercial banks. The budgetary experts cut spending and did not re-allocate the savings to finance other programs? Additionally, where is the cash from the proceeds of the sales of government promissory notes? Again, our analysis shows that national budgetary experts did not include the cash received from domestic creditors within the National Budget as cash in-take”, it noted.
In order to mitigate the adverse impact on the economy and the economic hardships on the people induced by such policies, the LPP recommends the three policy options among them are to restore the cut in spending, end the sales of promissory notes at 20% to commercial banks and include within the National budget proceeds of the sales of promissory notes.