A Governance And Economic Management Assistance Program

(Liberian Government Position on LEGAP)

The Perspective
Atlanta, Georgia
July 23, 2005

Nevertheless, there is growing concern both within Liberia and among Liberia’s development partners that rapid and sustained progress in putting the Liberian economy on an even keel and toward the all-important goal of poverty reduction remains elusive. All stakeholders recognize that there have been many false starts, largely due to indecisiveness and lack of accountability, which have fostered a culture of mismanagement and corruption, and the virtual breakdown of institutional capacity. The situation has also precipitated donor fatigue, leading to a crisis of confidence, both at home and abroad .

The Economic Governance Action Plan (EGAP) proposed by the Secretariat of the development partners was an outgrowth of such a crisis. The government and people of Liberia accept its basic philosophy; that not only is the status of economic management untenable, but dramatic steps are urgently needed to pull Liberia back from the precipice of economic collapse, with all the ramifications for social and political stability.

This emergency plan is, therefore, a reflection of a shared conviction. Accordingly, the EGAP has been used as an important resource, identifying specific actions as a basis for moving forward. It is a homegrown program that has gone through the consultative process and is broadly supported by the Liberian people. There can be no substitute for ownership, which is now generally accepted by development practitioners and policy makers, as a sine qua non for successful development assistance. The lesson of experience shared widely in the international community is that domestic ownership of country programs has done more to ensure success than any amount of conditionality imposed from the outside. History is not on the side of turning the clock back.
The government believes that competent Liberia personnel, the proper utilization of technical assistance and a renewed political will to adhere to transparent procedures, and to overtly fight corruption, coming together in a concerted manner, is the key to putting Liberia on a new course. This is the operational approach of the plan.

This is a robust plan. It‘s central objective is to strengthen the capacity of Liberian institutions to take responsibility for reversing decades of economic mismanagement. This is the only course that will lead to irreversible reform. Others can help; but the job must done by Liberians. It is in this context that the government has put forth this plan, asking for the support of Liberia development partners.

The Framework

The plan takes a strategic forward-looking approach, with a perspective beyond the few remaining months of the NTGL. It is the hope of the NTGL that the government coming out of the ensuing general and presidential elections will also subscribed to this plan. It is an integrated strategy built on four key pillars:

A bold emergency financial management program, which should be the linchpin for restoring the confidence of development partners;

A program for integrating good governance into improved local capacity to deliver services and strengthen public administration to support development;

An agreed framework for aid delivery, focusing on donor harmonization and mutual accountability; to ease the way for the incoming administration to garner support.

Strengthening of the RIMCO framework, including the Secretariat, to be a more effective forum for discussion and consultation between development partners and the Government of Liberia. This will obviate the need for the creation of other structures which will likely lead to inefficiencies, given limited capacity in the country.

The plan envisages a stepped up role for the World Bank and the International Monetary Fund (IMF), in the context of a renewed commitment of the Liberian authorities. All stakeholders should agree that a more proactive role of the World

Bank Group and the African Development Bank Group would be of immense help in keeping the focus of the recovery effort in Liberia on growth, development and poverty reduction in keeping with the commitment of the Government to the millennium development goals (MDGs). In this connection, the Bank’s office in Liberia should be strengthened over the next few months.

Regarding the IMF, the strategic importance of its seal of approval on fiscal and monetary management cannot be overemphasized. Sound fiscal and monetary management and growth and poverty reduction are intertwined. In lieu of this fact Government is committed to doubling its efforts to improve relations with the Bretton Woods institutions by taking swift actions to improve resource management. In turn, the international community should encourage timely decision by the Executive Board of the Fund to de-escalate remedial measures that would lead to the lifting of suspension of Liberia’s voting and related rights, as well as put Liberia on course for debt relief and financial assistance from the Fund, and other multilateral institutions. An important sign of de-escalation would be the opening of a Fund office in Monrovia, staffed with a Resident Representative with the requisite experience in dealing with issues faced by post conflict countries.

I. The Financial Management and Accountability Program

A. The financial management and accountability program includes five aspects:

Ensuring effective expenditure control and monitoring

The existing cash management system has not been effective. It is a weak accounting framework and an exercise that pays little attention to the economic rationale for its existence. The main objective, therefore, is to marry an effective accounting system with the broader economic perspective of improved delivery of social services. Procedures for taking account of the views of the sector ministries and agencies will be part of the process. The Cash Management Committee will revert to its formal name “ The Economic and Financial Management Committee”.

A technical Secretariat is necessary to support the EFMC. However, while Government is not opposed to expatriates as members of the Secretariat, it is opposed to it being entirely staffed by foreigners. It supports a mix of qualified national and international personnel on the Secretariat.

To ensure the effectiveness of these bodies, clearly mutually agreed and defined TORs should be developed and used.

2. Revenue enhancement

This will ensue from reforming key loci of revenue generation. The
following are part of the reform agenda:

Government will make an immediate request to the IMF for technical assistance to begin work on the establishment of an independent revenue authority ( Liberia Revenue Authority). A report should be completed at the earliest. For the intervening period, Government will strengthen the technical capacity of the Ministry of Finance to deal with both fraud and tax avoidance and to improve conditions of service for staff. Accordingly, the following steps will be implemented: The Legislature will be requested to pass a bill mandating the centralization of all revenues under the authority of the Ministry, and that all revenues be deposited into government accounts at the Central Bank of Liberia (CBL). Such legislation will have specified penalties for non con-compliance.

The management of the National Port Authority, Forestry Development Authority, the LPMC, the Liberia Petroleum Refining Corporation, and Roberts International Airport will be restructured by awarding management contracts, outright privatization or joint ventures on a competitive basis to competent firms to de-politicize their operations and make them efficient and viable. Safeguards will be written into management contracts to ensure that if foreign firms are awarded contracts, qualified Liberians will be hired in management positions.

The revenue collection role of the Bureau of Maritime Affairs will be separated from its operational functions. Accordingly, the Ministry of Finance will take exclusive control of all matters relating to maritime revenue, with said ministry being the interlocutor between the government and the company given the concession to manage the maritime program. There will, therefore, be no question regarding the consolidation of maritime revenue with other government accounts at the central bank, or the centralization of authority over such revenues. Furthermore, the company managing the program will be subject to periodic, independent audits initiated by the government. The Government may require support from its development partners for this activity.

The Bureau of State Enterprises is the statutory agency established by the Government to provide technical guidance to and monitor the performance of sate-owned enterprises. This agency will be reinvigorated to carry out this mission. In this direction, technical support from development partners to enhance the capacity of the BSE in the pursuit of its mission will be needed. .

3. Complementing improvements on the expenditure side with improved
budgeting procedures

The present system, whereby the Budget Bureau remains a separate entity apart from the finance ministry, lends itself to inefficiencies. Such problems have been difficult to eradicate, even under the cash management committee. The capacity of the Bureau of the Bdget needs upgrading. Strengthening of capacity of both the Ministry of finance and the Bureau of the Budget, will among others, entail the development of an Integrated Financial Management Information System (IFMIS), and more realistic allotment procedures. Foreign and Liberian experts will be given appropriate authority to develop and oversee procedures consistent with the imperative of making the budget an effective instrument for implementing government programs.

4. Procurement and Contract Award Procedures

Support will be provided to the Contract and Monopolies Commission (CMC) to strengthen its compliance role and to empower it to review concessions, contracts and licenses. To emphasize the Government’s commitment to transparency in the granting of concessions and licenses as well as revenue flows associated with natural resource extraction, the NTGL will join international initiatives in this area. Conformity of Liberia with the requirements of the Kimberley Process Certification Scheme is also considered essential.

Budgetary Support

Agreement on the part of the international partners to provide directs financial support to the Liberian budget, including for recurrent expenditure. This could start in a limited way, and progress as the process of management improves. Such budget support will be very important for the road map for donor engagement after the assumption of office of a new government, and it would be a powerful signal to the new administration as to the benefits that can accrue from good economic governance.

The underlying point in all of this is that the development partners should support a budgetary paradigm that permits the requisite “fiscal space” for infrastructure and social investment. The present $80 million budget financed solely from domestic revenues, is severely constrained in this regards, and the budget situation is likely to be so in the foreseeable future.

B. Institutional Framework

A reformed RIMCO will be the instrument for spearheading this program. With the Chief Executive as the head of RIMCO, which also includes key cabinet officials, the implementation of the emergency plan would have the stamp of Liberian ownership. Final authority for spending and budgetary matters must remain with the Liberian authorities. For their part, the development partners must help to keep the focus on responsible stewardship of public resources and support the development and strengthening of local capacity to carry out this task, including providing appropriate technical assistance.

The implementation of the Governance And Economic Management Assistance Program will be supervised and monitored by the Economic Governance Working Committee(EGWC) in RWC(Cluster #9) of RIMCO, replacing the current Economic Policy and Development Strategy” Cluster. It will be chaired by either the Minister of Planning and Economic Affairs or the Minister of Finance, and co-chaired by the World Bank or the IMF. Its membership will include the Governor of the Central Bank, the Chairs of the Contracts and Monopolies Commission and the Governance Reform Commission(GRC), the Attorney General and a representative from both the private sector and civil society. The international Community will be represented by representatives of the UN, ECOWAS, AU, EU, US IMF or the World Bank. The Committee’s work program and activities will be coordinated through the RIMCO Support Office(RSO).

The new Cluster #9 - Economic Governance Working Committee(EGWC) – will set up a 3-member Secretariat comprised of one(1) qualified expatriate and two(2) qualified nationals to undertake the day-to-day work and activities of the EGWC. The personnel of the Secretariat will be recruited and vetted jointly by the government and development partners, who will be the support structure for implementing the program. This arrangement will be in effect for 18 months to two years. The development partners will be asked to support this arrangement in the context of strengthening their support for capacity building.

A robust financial monitoring and control system would be helped by the appointment of a General Manager in the Central Bank, who could be an expatriate. It would be up to the board of the Central Bank to determine the duties and responsibilities of the General Manager in terms of enhancing transparency, accountability and efficiency. If an expatriate is hired, there will be a Liberian counterpart to ensure the transfer of skills. The arrangement will be put into effect for a period of eighteen months to two year.

II. Integrating Good Governance Into Improved Local Capacity

In order for reform to have a chance of success over the longer term, the development partners need to support a broad-based capacity building program. The donors will be asked to set up a trust fund to be administered by the World Bank for this purpose. Meanwhile, consultations will be held with the World Bank to determine the possibility of restructuring the resources available under the LICUS grant to strengthen the capacity building effort. In addition, the development partners will be encouraged to support additional funding from the Bank as promised at the time of the donors conference last February. In working toward an integrated package for capacity building, it is important that the priorities of the Government are taken into consideration. RIMCO would be the forum for facilitating the consultation process with development partners.

The areas of focus include, inter alia:

Rebuilding statistical capacity. There is no question that reliable data are the bedrock for effective planning and policy decision. They are also indispensable for monitoring and evaluation of government programs.

Strengthening capacity in financial programming and budgeting, including forecasting ability and the development of medium-term expenditure frameworks.

Creating capacity within the ministry of finance to develop, implement and monitor fiscal policy.

Building capacity for enhanced aid coordination, program design, monitoring and evaluation, especially in agriculture, health and education.

Enhancing capacity in the area of procurement.

Strengthening capacity to develop, implement and monitor monetary policy.

Strengthening capacity of the General Auditing Bureau, the Governance and Reform Commission(GRC), and the Central Bank of Liberia(CBL).

Creating the proper expertise in the Contracts and Monopolies commission(CMC).

Building logistical capacity, including having the requisite materiel, in key ministries and agencies should also be part of the capacity building agenda. Over time, support for civil service reform to ensure adequate compensation to retain trained personnel should be integrated into the plan of action. The Institute of Public Administration should be supported to play the training role it had performed in the past.

The current Civil Service reform program needs additional support and an associated sense of urgency in delivery of results. Moreover, the precursor Civil Service census requires more assistance to facilitate its work and lay the informed basis for effective reform actions. Support of the development partners is required to accelerate the achievement of desired goals.

The government working with the development partners will develop appropriate terms of reference for technical assistance, as well as agree on the vetting process.

Recognition by the development partners that capacity building is needed is belated but laudable. Although government has intimated to them on numerous occasions the pressing necessity to invest in building institutional capacity, very little has been done in the past 18 months toward this end. In fact, some partners have down played or under estimated the capacity needs of the country. There is a direct relationship between strong capacity and good governance in public administration.

III. Aid Delivery and Improved Donor Harmonization

The Liberian experience in the past several months suggests that this is an area that needs further work in order to improve aid effectiveness and mutual accountability. The revised RFTF concludes that there is “ need to check up on flexibility, on delivery, and to make sure that funds, which have already been committed, can actually flow to the intended purpose”. Although this comes a little late in the game, considering that the $522 million pledged is almost fully redeemed, it shows that there is an awareness that there is a problem.

Going forward, donor harmonization and alignment must be a strategic focus, with agreed modalities to deal with the specific circumstances of Liberia. RIMCO should give consideration to such issues as the utility of having lead donors, joint preparations and the pooling of resources for key sectors, such as infrastructure, agriculture, health and education. Other areas where such arrangements could be helpful include private sector development, the judiciary, and security.

In any event, the goal should be to agree on a harmonization framework geared towards enhancing aid predictability and effectiveness and reducing transactional costs.

The RIMCO Support Office(RSO) should be strengthened to serve as the focal point for coordinating assistance to the country, giving due regard to the importance of country ownership and the need for mutual accountability. Such coordination will involve both financial and technical assistance. The RSO should be strengthened to monitor flows to various clusters, the budget of the government, and NGOs. This should help to put more order into a system where the parts seem not to be operating in a very coherent manner. Questions remain as to how financial assistance is being provided; how programs and projects are decided upon; how priorities were established. Today, RIMCO cannot say with any degree of certainty what has been the effectiveness of the assistance given by the international community.

V. STRENGTHENING THE RIMCO FRAMEWORK

The committee needs to strengthen its oversight role in terms of policy direction and monitoring. It should meet more often to discuss substance, reviewing reports from the various line ministries and clusters. There is no need to circumvent the RIMCO framework by creating parallel structures.

RIMCO would be expected to discuss and endorse the broad policy objectives and operational guidelines of the financial management and accountability program.

A more effective RIMCO will require a strengthened secretariat. This will entail, among others, getting appropriate staffing; appropriate funding for monitoring and evaluation; better coordination with representatives of development partners and implementing agencies.

3. IMMEDIATE ACTIONS TO FIGHT CORRUPTION

Government will transform the existing anti-corruption commission into an independent agency with full prosecutorial powers, by issuing an Executive Order to the effect, followed by appropriate legislation. In this connection an independent prosecutor will be appointed subject to a transparent vetting process. The international community will be asked to provide technical assistance to enhance the investigative and other capacities of this agency.

The appropriate Terms of Reference (TOR) for the Commission, the independent prosecutors, as well as members of the Commission will be developed by the NTGL together with our development partners.

A bill will be submitted to the Legislature that would improve the budgetary process by creating statutory limits on budgetary transfers, and curb extra-budgetary expenditures.

Consistent with Executive Order #4 establishing the Interim Procurement Policies & Procedures, the bill giving statutory authority for the Procurement Policies & Procedures will shortly be submitted to the National Transitional Legislative Assembly (NTLA).

Recommendations of audits of the several agencies are being put into effect:

The Commissioner of the Bureau of Maritime Affairs has been suspended and his deputy dismissed. Their cases have been turned over to the Ministry of Justice for prosecution. A re-organization of the Bureau has also started, with seven employees already sacked for inefficiency.

The Board of Directors of the National Port Authority has been dissolved and a new Board is being re-constituted. The Ministry of Justice and the General Auditing Bureau have been mandated to investigate reports of financial mal-practices and conduct an investigative audit.

Plans are underway to recruit professional accountants as controllers through competitive bidding. This is to ensure that qualified and competent individuals are hired that can provide superior performance and stand up to public scrutiny.

Several agreements entered into outside of the Interim Procurement Procedures, have been cancelled. The agencies involved include the National Port Authority (NPA), the Liberia Telecommunication Corporation (LTC), and the Ministry of Posts & Telecommunication.

Other Medium Term Actions Establishing Effective Judicial Processes to Control Corruption

Renovate and equip existing judicial facilities in the immediate future.

Construct uniform judicial facilities across the country in the medium term.

Train judicial personnel to cope with current and future realities.

Upgrade and maintain a sustainable compensation structure(including the jury system).

Establish anti-corruption machinery(commissions/detection and legal processes.

Research and harmonize the statutory and customary laws of Liberia.

Infuse external and internal legal observers, rather than judges, into the Liberian judiciary process to enhance integrity.

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