Economic Recovery On Track: CBL Governor Allays Fears
Amidst increasing concerns by the public, including members of the National Legislature about the fluctuation in the exchange rates between the Liberian and United States dollars, and a rise in the prices of basic commodities on the Liberian market, the Central Bank Governor, Dr. J. Mills Jones, on Thursday, appeared before the House of Representatives
to deliberate on the state of the Liberian economy, and to provide information on the intervening monetary policy measures that are being taken by the Bank to address the situation. Staff Writer Peter Fahn followed the presentation of the Governor and now reports.
In his more than three-hour deliberations that included a power point presentation, the Executive Governor of the Central Bank of Liberia, Dr. J. Mills Jones, sought to allay the fears of the public on a number of critical economic issues, including inflation, the exchange rate, depreciation of the local currency against the United States dollar and policy measures taken by the bank to regulate and stabilize the market, and to save consumers and ordinary people from unnecessary economic hardships.
Giving an overview of the economy, Dr. Jones told members of the House that over the past six years, there has been tremendous developments taking place in the Liberian economy, noting that nominal gross domestic product GDP (the monetary value of all goods and services produced in the economy in a year) has increased from USD$ 600 million to over USD$1.8 billion while the national budget has grown from USD$80 million in 2006 to a projected USD$649 million for the fiscal year 2012/ 2013.
He added that the waiver of Liberia’s huge debt burden of USD$4 billion by friendly governments and multinational institutions, including the World Bank, the International Monetary Fund or IMF, the Paris Club, among others, under the Highly Indebted Poor Countries Initiative (HIPC) program is a major breakthrough for Liberia and has helped to stimulate economic growth in the country.
In addition, the Central Bank Governor said new business establishments have risen from 5,000 to more than 10,000; foreign direct investment (FDI) in the economy has doubled since 2006; pointing out that the Bank has been very proactive and influential in stimulating growth in the economy. He also recounted the role of the Bank in executing the government’s signature Poverty Reduction Strategy through micro-finance initiatives.
Dr. Jones said, over the past six years, the CBL has recapitalized the Liberian banking system and improved governance through its vigorous oversight programs and interventions.
The Executive Central Bank Governor’s appearance before the House of Representatives on Thursday was triggered by a communication to the House’s Plenary from Representative Julius Barrian of Montserrado County.
However, Dr. Jones said there is still a need for more investments in the economy, particularly in basic infrastructure, including roads, seaports and cheap, affordable and reliable energy.
“Let us think together on the critical issues of economic transformation. We must invest deeper in the financial sector and channel more resources to the development of human capital,” he stressed.
Commenting on the fluctuation in the exchange rate of the Liberian and United States dollars and an increase in prices of basic commodities, Dr. Jones said the Central Bank has put into place what he referred to as a managed float exchange rate regime, a policy that allows market forces – supply and demand of money on the local market – to determine the exchange rate.
Contrary to suggestions that the Central Bank ought to determine and establish a fixed exchange rate regime, he noted that any attempt to do so could bring about worse and untold economic conditions upon Liberia.
Dr. Jones said such policy is against general economic principles, and has no history of success anywhere in the world. Similarly, he noted, that any attempt by government to institute rigid price control mechanism, such measures could become inimical to the economy. Rather, he said, market forces – supply and demand, which he said, is a general economic concept, should be allowed to set prices and bring about equilibrium in the market.
Dr. Jones who was flanked by senior officials of the Bank, including Deputy Governor Charles Sirleaf, said the CBL routinely carries out auctioning of hundreds of thousands of United States dollars, or millions as an intervening measure to stabilize the exchange rate between the Liberian and United States dollars.
However, he told lawmakers that the operation of illegal foreign exchange bureaux and money peddlers on the streets of Monrovia and other parts of the country, are undermining the Bank’s efforts to stabilize the rate. Consequently, he asked for the support of the Legislature to remove money exchangers who are not licensed from the streets.
He noted further that the current depreciation of the Liberian dollar against the United States dollar and the level of inflation in the economy which is in a single digit, is not worse, contrary to popular belief, than the average rate of inflation in the West African sub-region. He also dispelled the notion that the adoption of a single currency would solve the problems of fluctuation in the exchange rate and inflation in the economy.
Dr. Jones, for example, indicated that though countries including Nigeria, Ghana and Sierra Leone have single currencies, inflation in these countries is high - sometimes in double digits, pointing out that inflation in Nigeria is 12.0%, Ghana 9.1%, Sierra Leone 13.0%, while the current inflation rate in Liberia stands between 7.5 to 8%.
Elaborating on the incidence of increase in the price of basic commodities on the Liberian market, the CBL Governor noted, that as prices of food and petroleum increase on the world market, such development will negatively impact upon domestic prices of goods and services.
Dr. Jones also told members of the House of Representatives that as Liberia seeks economic transformation, create more jobs and advance its development in an effort to raise the living standards of its people, it would be difficult to avoid the incidence of inflation, noting that it is a delicate economic issue.
However, he said, the government through the Central Bank would take every necessary steps in line with prudent economic principles and monetary policies to protect the population against serious repercussions arising from adverse economic developments.
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