- Aloysius Tarlue was nominated by Pres. George Weah as executive governor of the Central Bank, after the “age-related” retirement of Nathaniel Patray. Below is the text of the speech given by Tarlue at the beginning of his confirmation hearing.
I am privileged and honored to meet with this august body for the confirmatory proceeding of my appointment as executive governor designate of the Central Bank of Liberia. I greatly appreciate the opportunity to meet with you and to participate in this constitutionally mandated process of vetting. You have been kind enough to allow me the time up front to make an opening statement, and I believe it would be appropriate for me to use this time and opportunity to briefly outline what I believe are the roles and responsibilities of the Central Bank of Liberia, and how these functions would be carried out under my leadership.
I am deeply honored and humbled that His Excellency, Dr. George Manneh Weah, president of the Republic of Liberia, has nominated me to serve our country in another capacity, having served as chairman of the Liberia Electricity Regulatory Commission.
My appointment comes at the time when there are structural, macroeconomic and external challenges facing our country, with the grace of the Almighty God, the tasks at hand are not insurmountable.
I would first like to speak to my professional qualification and experience, and then submit my vision for the Central Bank of Liberia.
I hold a Bachelor`s degree in political science and a Master’s in Public Administration with emphasis on Public Policy from Kean University, New Jersey, United States of America.
Mr. Chairman and distinguished members of the committee, I have had more than 17 years of solid policy drafting and review and quality compliance experience, enforcing standards in five global financial institutions, mainly in the United States.
I worked for J.P. Morgan Chase, the largest bank in the United States and the sixth largest bank in the world, with a net asset of US$2.2 trillion dollars. I worked for BNY Mellon NA, Deutsche Bank NA, Merrill Lynch and HSBC Bank NA.
Chairman Dennis and distinguished members of the committee, I approach this task with a clear understanding that monetary policies are not necessarily in short supply at the Central Bank of Liberia. I submit that the key challenge that continues to undermine our monetary policy implementation is the lack of effective enforcement of regulatory and compliance measures. Weak safeguards framework at the CBL continues to be a key problem.
Investigative reports issued by the Presidential Investigative Team, the USAID-hired Kroll and the IMF staff assessment, consistent with the Article Four Consultation, outlined a range of weak controls at the CBL. These problems range from lack of controls for reserves management, monitoring of foreign exchange inflows to and outflows from the CBL, poor currency operations, regulatory effectiveness and weak internal audit as a result of limitation of procedure and internal controls and or failure to comply with control measures and procedure.
The team recommended a review of the Standard Operating Procedures, banking supervision and internal controls of the CBL to curb the possibility of abuse of the money supply of the nation, and as well enhancing the efficiency and productivity of the CBL.
The independent review undertaken by Kroll Associates also identified weak controls and discrepancies at every stage of the process for controlling the movement of banknotes into and out of the CBL during the independent review.
Specifically, the investigation pointed to non-compliance with the legislature’s approval for printing new banknotes; the procurement and contract for new bank notes printing; the shipping of new banknotes to Liberia; the delivery of new banknotes to the CBL, and; the movement of funds within and out of the CBL’s vaults.
The IMF assessment also pointed out serious lapses in the CBL control mechanisms.
Mr. Chairman and members of the Senate Committee on Banking and Currency, I will first want to quickly review where we are, and then lay out my vision for a Central Bank that is re-branded and repositioned to help tackle the current economic challenges we face.
Honorable Chairman and Distinguished Committee Members, as I proceed with my brief presentation to you, kindly permit me to shed some light on my vision before touching on the current monetary policy initiatives of the Central Bank of Liberia.
My vision, as governor, will be to rebuild confidence in the CBL and the banking sector as a whole in the next five years. This will be done through reforms aimed at improving governance, ensuring technical soundness in policies, and achieving financial sustainability of the CBL, and above all, ensuring that the CBL is focused on carrying out monetary policies that seek to keep inflation low, stabilize the exchange rate, as well as ensure that Liberia has enough foreign exchange buffers.
Related to improving governance, a key priority will be to promote the independence of the Central Bank. The Central Bank Act will be reviewed and amended, if necessary.
Internal audit and control functions will be strengthened. Key policy decisions will be made and implemented with the approval of the Central Bank Board of Governors.
In relation to ensuring technical soundness of policies, we will strengthen the research department of the Central Bank so that policy decisions are informed by proper analysis and evidence. We will ensure that the CBL is focused on carrying out monetary policies that seek to keep inflation low, stabilizing the exchange rate, and ensuring that Liberia has enough foreign exchange buffers.
We will promote the soundness of the Banking sector by strengthening the CBL’s supervision functions – Currently non-performing loans in banks are well above the 10% threshold.
Regarding achieving financial sustainability of the CBL, we will undertake a strategic and functional review of the CBL’s operations. The CBL is currently incurring operational losses due to various inefficiencies, including a bloated workforce, which the budget cannot sustain.
If the CBL cannot fix itself, I believe it cannot help fix the country`s monetary challenges.
Under my leadership, the main objective of the Central Bank of Liberia would be to regain and then maintain price stability. By this, I mean reducing the rate of inflation to single digits over time. This is necessary because the poorest and most vulnerable Liberians earn and spend primarily in Liberian dollars. What this means is that over the last two years, when inflation was running at an annual rate of about 30 percent, the poorest Liberians lost more than half of their purchasing power. This created great hardship among those least equipped to deal with it and, indeed, affected every poor and vulnerable person in the country. From a policy perspective, therefore, it is clear that the pro-poor agenda can only succeed if it has as a central goal: the reduction in the rate of inflation.
Restoring Public confidence in the CBL and the banking sector
Ladies and Gentlemen, it is clear that confidence in the banking system and in the CBL itself has eroded quite drastically. And I believe that no amount of policy crafting and announcement will prove effective unless depositors trust that when they take their money in the bank, the money will be safe and that they will get it back anytime when they want. Just anytime.
On the other hand too, commercial banks need to have the confidence also that when they take their money to the CBL, their deposits will be safe and that they can get their money whenever they want it. Just anytime.
Distinguished Ladies and Gentlemen, how do we regain the confidence? For us to win back the confidence of depositors, and by large the people of Liberia and international partners, the CBL must strengthen its safeguard mechanisms and effectively enforce regulations and controls. Weak safeguards framework at the CBL continues to be a key problem.
Economic Environment in Liberia
The Liberian economy is facing serious economic challenges that have significant impact on the population and the impact is particularly devastating on the majority poor population. These challenges are attributed to several factors, including the weak external sector performance in 2018, causing low foreign exchange inflows amidst high import payments requirement. This translated into a sharp rise in the exchange rate leading to high inflation.
During the same period, the economy also faced major fiscal challenges, as revenues could not keep pace with fiscal expenditures including the high government wage bill amidst the need for implementing PAPD priorities.
The withdrawal of the United Nations Mission to Liberia also affected private business entities including the housing and retail sectors as well as loss of jobs to Liberians. This resulted in a general slow-down in the economy.
It is in this context that the GDP growth rate for 2019 is estimated at 0.4 percent. This is a significant revision from an earlier projection of 4 percent. The projection for 2020 shows signs of recovery with a GDP growth of 1.6 percent. The successful implementation of an IMF supported economic program will be essential for this recovery.
Objective of the Central Bank
The main monetary policy of the CBL is to ensuring price and financial sector stability as well as an effective and efficient payments system. In turn, this policy objective will support the achievement of Pro-poor Agenda for Prosperity and Development.
Exchange Rate Policy
The exchange rate of the Liberian Dollar to the U.S. dollar and other international currencies is a major instrument to maintain financial stability by curbing currency depreciation and containing inflation in the economy. Therefore, the exchange rate policy will remain a managed floating exchange rate regime. This is aimed at promoting broad stability in the exchange rate, maintaining the value of the Liberian dollar, and building the foreign exchange reserves of the country to protect the economy against negative external shocks.
The real value of our currency has in recent times been eroded by the high inflation rate in the country that has reached 30 percent in recent months. This has exerted pressure on our poor population as the real value of their earnings has been significantly reduced. The CBL policy objective is to reduce the inflation rate to single digits in 2020.
In Liberia, lending rates have averaged 12.4 percent. High interest rates will push lending rates up and in turn lead to high cost of goods and services. In fact, in a normal circumstance interest rates should be higher than inflation rate. Clearly, there is a macroeconomic imbalance in the economy, and this should be addressed. The priority for the CBL is to ensure that interest rates come down and commercial banks should pass on lower lending rates to their customers. This will help to reduce the cost of goods and services in the country.
Major Reform Areas of the Financial Sector
I recognize that the challenges that Liberia is facing require concerted efforts from all stakeholders in the country. This also requires support from our development partners. There are several areas that need to be reformed in order to tackle our challenges decisively. Some of these challenges are within the control of the CBL while others are beyond but together, we can address them. Allow me to mention a few issues that need to be addressed urgently:
Strengthening Bank Supervision
There is need for strengthening CBL’s capacity to monitor and supervise the functioning of all financial institutions in Liberia. This is to ensure that the law and relevant regulations are followed and enforced. The objective is to ensure credibility and bring out confidence in the financial sector in the country. Therefore, the CBL will strengthen its capacity in bank supervision. This will entail working with commercial banks to achieve credibility of our financial institutions consistent with international standards. This has an impact on investor confidence.
Credit reference system
Liberian banks are faced with the challenge of high nonperforming loans averaging 9.6 percent and low profitability. This has a knock-on effect on interest rates that banks will charge on financial products. In turn, this leads to the high cost of borrowing in the country. It will be necessary that the CBL work with other stakeholders to institutionalize a credit reference system in Liberia to curb against irresponsible borrowers.
Liberia’s financial sector is shallow and dominated by the banking sector that accounts for at least 85 percent of the sector’s total assets. It is common knowledge that most small and medium enterprises face challenges to access credit from these banks. Therefore, it is necessary that tailor-made financial institutions should be provided space to serve SMEs. The CBL should fast track the development of a policy and regulatory framework on specialized lending which will include SMEs in the key sectors of the economy including agriculture, manufacturing, and services.
The economy is currently faced with a huge shortage of cash and this is in part because there is minimal use of modern digital payments system in Liberia. The CBL will work with banks, other financial institutions, and mobile phone companies to enhance financial inclusion. This will promote efficient payment systems at a reduced cost. This will also lead to the transition to a cash-lite economy.
Independence of the CBL
It is imperative that the independence of the CBL is guaranteed if key reforms in the financial sector in Liberia are to be fully achieved. The CBL Act should therefore be repealed and enforced to ensure that the CBL can carry out its statutory responsibilities in the public interest.
Improving Business Environment
Liberia has not fully recovered from the impact of the civil wars. The Ebola Crisis also did not help the country’s course to recovery. Poor road infrastructure and the high cost of electricity are major obstacles to doing business in Liberia. Therefore, the CBL will work to support the government to improving the business environment in the country. In particular, by improving access to finance as well as improving and strengthening rule of law and governance in the financial sector. We must recognize that the private sector is an engine for growth and Liberia cannot continue its over-reliance on public sector for job creation and to grow our economy. Specifically, sectors like agriculture and manufacturing will be prioritized.
Relationship with the Fiscal Authority
Honorable Chairman and Distinguished Committee Members, as I come to the end of my presentation, I wish to state that the monetary and fiscal authorities need to work together in an environment of mutual respect and consultation. This collaboration is necessary in order to promote effective policy coordination to engender macroeconomic stability and sustainable economic growth. In this regard, the CBL will uphold its mandate under the law and create a forum for regular consultation and coordination between the CBL and the Ministry of Finance both at the policy and technical levels.
In addition, the CBL cannot be effective without stronger collaboration with other key economic management institutions and stakeholders in the country. Therefore, we will strive to strengthen these working arrangements. In particular, Liberia Revenue Authority; Ministry of Commerce, Financial Intelligence Unit, and commercial banks and other financial and non-bank financial institutions. These are important for the sharing of information and maintaining an effective liquidity management system in the economy.
Collaboration with development partners
We must accept that Liberia alone cannot address or tackle all these challenges alone. Strengthened engagement with development partners is important for our shared success. To this end, the CBL will closely work with partners including the IMF, African Development Bank, and the World Bank to roll out some of the initiatives aimed at improving the financial sector in Liberia.
Hon Chairman, there is the need for collaboration with our partners in all facets of our banking endeavors. The CBL will have to leverage the partnership of the international partners to help capacitate the CBL to put in place the appropriate measure of controls. We intend to work with IMF, World Bank, African Development Bank, the Federal Reserve of the United States, European Central Bank, and the Asian Development Bank.
The current government of Liberia and IMF program is the best starting point. I fully support the program and the work of the CBL team’s effort in the ongoing negotiation with the Central Bank.
Working with my colleagues on the board and in management, we will make sure that the CBL meets all of its commitment under the program, a key part of which is to adopt an effective monetary policy to bring down inflation and promote macroeconomic stability, improve governance and internal controls at the Bank, and strengthen the financial capacity of the Bank, including building the Gross International Reserves.
Hon Chairman, Distinguished Ladies, and Gentlemen, I will be firm and a listening leader; fair and objective, make decisions based on the best available evidence and ensure equitable treatment of all; promote dialogue with all our stakeholders through frequent engagements and consensus building; and uphold compliance with the law, rules and principles of good governance. I will regularly consult with the National Legislature on issues of the common good of our country and above all the aspirations and expectations of the people of Liberia will be my utmost obligation.
I look forward to a fruitful exchange during today’s hearing, not only to answer your questions but also to hear your views.
Thank you for your attention.
Featured photo courtesy of Jefferson Krua