Economy and Debt Relief
"As long as we have huge debt over our heads, Liberia can’t get the help we need to jump-start our development."
—Siatta Scott Johnson, co-director and Liberian resident
When other nations began to industrialize in the 19th century, Liberia’s agricultural base proved to be less economically viable. By the 1870s, the country had started to take high-interest loans from the U.S. and European nations, including Germany. When Liberia supported the Allies against Germany in World War I, Germany responded by bombing Monrovia, crippling the Liberian economy.
In 1926, the U.S.-owned Firestone Tire and Rubber Company acquired a rubber plantation in Liberia, with the support of the U.S. government. The agreement stipulated that the company could lease one million acres for 99 years at an annual rate of six cents per acre, and that any natural resources found on the land would belong to Firestone. Liberia also accepted a five-million-dollar loan from Firestone to pay off old debts. In recent years the company has been charged with human rights violations from sources including the United Nations, employing children and other poverty-stricken workers in virtual slavery.
Liberia has relied on foreign financial assistance since its inception. As trade deteriorated in the region, debt accumulated. Due to years of recession and war, the country’s total external debt rose from U.S. 537 million dollars in 1980 to more than three billion dollars in 1998. This additional lending merely served to prolong Liberia’s economic crisis.
Debts and Debt Relief
By 2007, Liberia’s debt to the International Monetary Fund (IMF), the World Bank, the African Development Bank and other creditors amounted to more than 4.5 billion dollars, amounting to 3,000 percent of the country’s annual export earnings. Yet even after Liberia fulfilled the IMF’s economic and policy requirements for debt relief, the IMF insisted that Liberia clear the $800 million in arrears, or interest and penalties, that it owed before it could begin the debt cancellation process.
President Johnson Sirleaf and many lawmakers and international organizations appealed for debt relief, claiming that most of this debt was accumulated illegitimately during the dictatorial Samuel Doe regime and that payments were not made due to 14 years of civil war. With an unemployment rate of close to 85 percent—the second highest in the world—the nation remained too impoverished to participate in debt repayment. Three out of four Liberians live on less than one U.S. dollar a day, and Monrovia has remained mostly without running water and electricity for nearly a decade.
In February 2007, the U.S. government promised to cancel the 358 million dollars in debts incurred by Liberia’s past regimes. In November 2007, an even more significant victory for the Johnson Sirleaf administration and Liberia occurred: The IMF announced that it would cancel 842 million dollars of Liberia’s debt, securing funds from its own reserves and donor countries.
Such debt relief allows the Liberian government to concentrate its resources on development and poverty reduction. Liberia’s infrastructure is slowly being rebuilt and revenues are increasing slightly. But in order to sustain itself, Liberia must also maintain strong investments for long-term, as well as short-term, economic growth and security.