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Chapter 3: The Economy

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 counter-cyclical 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 in chided 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.

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