Countries of the World/COUNTRYS.BIN/dp/0220/02202.txt

Text File | 1991-06-25 | 35KB | 535 lines

$Unique_ID{COW02202}
$Pretitle{238}
$Title{Liberia
Chapter 3A.   The Economy}
$Subtitle{}
$Author{Donald P. Whitaker}
$Affiliation{HQ, Department of the Army}
$Subject{sector
government
economy
percent
economic
development
growth
million
commercial
monetary}
$Date{1984}
$Log{Rubber Plantation Worker*0220201.scf
}
Country:     Liberia
Book:        Liberia, A Country Study
Author:      Donald P. Whitaker
Affiliation: HQ, Department of the Army
Date:        1984

Chapter 3A.   The Economy

[See Rubber Plantation Worker: A rubber plantation worker tapping a rubber
tree]

     In 1983 Liberia's economic health reached the lowest point it had
experienced in over two decades. External factors had contributed in a major
way to the development of this situation, and they were expected to exert a
continuing influence over any revitalization of the economy during the 1980s.
Much of the underlying cause stemmed from historical features that had led,
with the cooperation of the Liberian government, to the development and
virtual control of the modern sector by private foreign capital. In addition,
for various economic and political reasons, there had been a failure over an
extended period to develop competent, knowledgeable economic planners and
managers and effective indigenous institutions through which they could
function. Although somewhat improved, this condition still prevailed in 1984.
Not until late in the 1970s had there been a realization that improvements in
living standards would not occur by the diffusion of benefits from
foreign-dominated economic activities. More vigorous efforts were being made
to participate in economic decisions affecting Liberia, but by then world
economic conditions were rapidly deteriorating. The government's struggle to
cope with their effects in Liberia was not successful, and the plight of the
economy by the end of the decade had reached a crisis stage. Formidable
obstacles to recovery still remained in mid-1984.

     Structurally, the economy exhibited a major division into traditional and
monetary sectors. The former, mainly an agricultural subsistence economy
comprising a majority of the population, followed traditional patterns of
production based largely on upland rice culture. The monetary economy was
further divided into an enclave sector, consisting primarily of foreign-owned
concessions that functioned relatively independently, and a Liberian-managed
national sector. Overall, the monetary economy accounted for roughly 80
percent of the gross domestic product.

     The modern economy rested-as it had since its emergence in the decade
before World War II-on a narrow base of production and export of commodities
by the enclave sector, which in 1984 consisted of iron ore, rubber, and forest
products. Direct production and consumption linkages between the sector and
the national economy were limited, the operations in the enclaves being
mostly vertically integrated with those of the international companies of
which they were subsidiaries. The performance of the enclave sector was
vital, however, to development of the national economy in the form of the
budgetary revenues it contributed and the wage employment it provided.

     The economy was characterized by a strong orientation toward external
trade, an extremely open economic system that placed virtually no restrictions
on foreign trade and international payments, and a general absence of
distinction between domestic and foreign-owned enterprises. It was vulnerable
to changes in world commodity demands and prices and particularly to any
slowdown in the economies of the industrialized nations. The susceptibility to
external forces was heightened by reliance on the United States dollar; owing
to the lack of currency-issuing powers, the Liberian central bank was
prevented from implementing effective countercyclical monetary actions.

     These features led to a deepening depression in the late 1970s as the
cost of oil rose and international recession reduced demands for Liberia's
exports. The situation was worsened by actions of the government of President
William Richard Tolbert that saddled the economy with heavy foreign debt
service requirements. The military coup of April 1980 was followed by a
further marked deterioration as business activity declined. A drop in foreign
investor confidence had already led to a substantial flight of capital, and
early wage and personnel policies of the People's Redemption Council, headed
by Master Sergeant Samuel Kanyon Doe, greatly increased public expenses. The
council quickly stated its intention to maintain the free enterprise system,
however, and policies adopted up to mid-1984 had upheld this commitment. The
downward trend in the economy continued to accelerate in the first years of
the military government, but during 1983 the cumulative effects of extensive
aid from the United States and the International Monetary Fund, as well as
corrective measures undertaken by the government, appeared to have slowed
somewhat the rate of decline. Nonetheless, the short-term prospects for a
resumption of significant economic growth did not appear promising in
mid-1984.

     Although private enterprise was the predominant form of economic
activity, over time-and particularly during the 1970s-a variety of public
corporations and autonomous government agencies were established. Ranging from
intended profit-making commercial operations to regulatory activities and
social capital development, the agencies increased in number after the
military coup by the takeover of certain enterprises that had belonged to
ousted government officials. The public enterprises were planned to support
certain national objectives, which included production for both local
consumption and export, increased employment, and the supplementation of
government revenues. Only a few attained profitability, and by the early 1980s
the entire sector was in serious trouble and a major drain on government
finances. Eventually, the military government decided to sell certain units to
interested private buyers, to seek joint private equity participation in
others, and to retain those having special functions in the public sector. By
mid-1984 a number of the confiscated enterprises had been returned, but only
preliminary action appeared to have been taken to dispose of others.

Overview of the Economy

Economic Growth

     The natural resources on which Liberia's modern monetary economy was
founded included a large amount of agricultural land well-suited for the
growing of export-oriented tree crops, particularly rubber, coffee, cacao,
palm oil, and coconuts. In mid-1984 the land-to-population ratio of the
subsistence economy did not provide a threat to expansion of the commercial
tree crop area. Additionally, forest resources, both for internal needs and
for export, were extensive; with proper management they were considered
capable of sustained harvesting for a relatively indefinite period.

     Of major importance were the country's iron ore deposits. These are a
nonrenewable resource, however, and although a number of still-unexploited
deposits remained in 1984, concern existed over depletion of higher grade ore
bodies. Other minerals played only a minor role; their value and any from the
possible discovery of commercially exploitable hydrocarbons (for which
exploration was under way in 1984) could not be counted on to give a
significant impetus to economic development in the near future. Untapped
hydroelectric resources, however, constituted a factor of considerable
importance.

     Development of Liberia's modern sector, which has been integrated into
the world system, started only in the late 1920s. Much of the long delay
stemmed from the ascendancy of the True Whig Party a half-century earlier
and the negative attitude toward change and the parochial interests of its
governing elite. Changes in the world economy associated with the expanding
industrial revolution, growing trade competition, and depressed commodi