The Central Bank of Liberia has had two controversial issues since the
1999 law repealing the Act of the National Bank, and the Act creating
the Central Bank of Liberia. The first revelation was about the
excessive Board of Director fees, for example, $56,000 paid to Cllr
Sie-A-Nyene Yuoh in 2002. The second is the current debate about the
disbursement of loans to small-sized businesses, allegedly disbursed by
the Chief Executive Governor, Dr. J. Mill Jones to prepare himself for
the 2017 presidential election.
If Dr. Jones has successfully put the disbursement of small-sized loans
to rest, the US $8 million dollar lent to the Government of Liberia in
2013 and the L$17,000.000,000 reported on the 2012 Balance Sheet as
Loans and Advances lent to the Government of Liberia, in clear violation
of the 1999 Act might post serious problem.
The Act establishing the Central Bank of Liberia, with few exceptions,
prohibits the Central Bank from lending loans and advances to the
Government of Liberia. Specifically, Section 41 (1) (a) states that the
Central Bank of Liberia, “…Except in accordance with Section 32 (b),
Section 32 (c) and Section 42, shall not, directly or indirectly make
advances to or acquire the notes, bills, securities or evidences of debt
of or guaranteed by, the government, its institutions, agencies and
local bodies…” Also Section 41 (5) states that, “At no time shall the
aggregate principal amount disbursed and outstanding on Central Bank
extentions of credit to the Government of Liberia or its agencies and
instrumentalities, including the aggregate value of financial
instruments acquired pursuant to Section 42 exceed the equivalent of ten
(10%) percent of the average of the Government of Liberia’s ordinary
revenue…”
More so, the exceptions [Sections 41 (i.e., Section 32 (b) and 32 (c)]
do limit the Central Bank to purchase only publicly traded securities
that has a maturity period of 90 days. Meaning, only short-term loans or
securities that are sold publicly, and repaid within three months are
exempt from Section 41 (a).
In violation of Section 41 (1) (a), the Government of Liberia did not
sell securities publicly in exchange of the US $8 million it received
from the Central Bank to finance the rehabilitation of the Greenville
Port, according to the International Monetary Fund Report. Neither, did
the accumulation of the debt of L$17,363,251,000 by the Sirleaf
Government, as per the Balance Sheet of the Central Bank, did meet the
requirements of the 1999 Act of the Bank.
For a better view of the loan transaction between the Central Bank of
Liberia and the Government of Liberia, let us analyze the 2011 and 2012
Balance Sheet signed by Dr. Jones and Board Governor John Bestman and
audited by Pricewaterhousecooper, LLC.
Before we review the Balance Sheet, let us discuss what is the foreign
excess reserves (excess cash reserves) and whether the Government owns
the $238 million deposited in foreign banks. One of the functions of the
Central Bank mandated by the 1999 Act states that the Bank shall “hold
and manage the foreign reserves of Liberia, including gold.” Better yet,
a statement from one of the Bank’s Annual Report implies that Liberia
is the owner.
“The Bank net Foreign Exchange Reserves for the year ended December 31,
2013 was US$262.73 million up from US$238.97 million in 2012. The
increase of US$23.76 million was mainly due to increase in the holdings
of Special Drawing Rights (SDRs) through loan disbursements by the IMF
under the Extended Credit Facility (ECF) program.”
Now, let us come back to loans and advances offered to the Sirleaf
Government. The note above the Balance Sheet states “All amounts in
thousands of Liberian dollars.” Therefore, the L$17,363,251,000, when
converted to the US dollar, will be US $248,046,442 at the end of 2012.
Equally, so the 2011 balance of L$14,596,789,000 is equaled to US
$208,525,557. These loans and advances in 2011 and 2012 are in violation
of the 1999 Act of the Central Bank, Sections 32 (b), 32 (c), Section
41 (5) and Section 42.
I guess President Ellen Johnson Sirleaf government and Dr. Jones
Central Bank discovered a way of making each entity look good. On the
one hand, the Sirleaf government did use the loan from the Central Bank
to make up the shortfall in the revenue projection. And on the other
hand, although usurping the functions of the commercial banks, the
Central Bank did increase its profits by generating interest income from
lending money to the government that it did not own. In its 2011 Annual
Report, the writer said, “…the budget was based on interest income on
loans and advances to GoL, interest on placements abroad as well as
service fees and commission…”
Interest income is generated from money owned. So, if the Central
Bank’s Equity was L$9,844,326 (L$40,674,853, representing total assets
minus L$30,830,524, representing total liabilities), where did the Bank
get the additional L$8,000,000 from in order to lend it to the Liberian
Government? Was the L$8,000,000, a portion of the deposits, for which
the Central Bank was a custodian and a fiduciary? If yes, did the
Central Bank undermine its fiduciary responsibility?
Besides the issue of violating the 1999 Act, the use of
deposits-amounts set aside to stabilize the financial market-is against
the very principle for establishing the Central Bank of Liberia.
Predictably, the Central Bank would use commercial banks’ deposits to
stabilize the market, if unfavorable economic conditions erupt,
including a run on the bank.
Alternatively, let us assume that the Central Bank did use portion of
the Liberia’s US $262 million foreign excess cash reserves, the most
likely scenario, to lend the L$17,363,251,000 to the Sirleaf Government.
Wouldn’t such a loan lending practice undermine the business sector
that is involved in lending and borrowing? This is because once the
Central Bank becomes a participant in lending and borrowing, it would
become a formidable competitor, rather being a regulator as mandated by
the 1999 Act.
Alarmingly, the Liberian Government budgetary documents did not show
the loans and advances received from the Central Bank as non-tax
revenue. And, also the budget did not record loan payments and interest
expense payments as cash outlays.
The lawmakers and prominent Liberians should encourage President
Sirleaf Government to end asking for loan from the Central Bank, and the
Governors of the Central Bank should follow the 1999 Act of the Central
Bank.
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