Foreign Relations of the United States, 1951, The Near East and Africa, Volume V

NAC Files: Lot 60 D 137: NAC Documents

Memorandum by the National Advisory Council Staff Committee to the National Advisory Council

confidential
NAC Document No. 1090

[Washington,] January 15, 1951.

Subject: Proposed Export–Import Bank Credits to Liberia¹

Problem

The Export–Import Bank has requested the National Advisory Council to approve consideration by it of credits not in excess of $5 million to the Republic of Liberia for financing the cost of approved highway improvement and construction projects directly related thereto (NAC Document No. 1084²), including expenditures for technical personnel other than those to be furnished by the Liberian Government or the Technical Assistance Program.

Background

The Republic of Liberia has applied to the Export–Import Bank for credits totalling $10,046,000 to assist in financing:

(a) a hydro-electric plant (including transmission and distribution systems);

(b) a water supply and distribution system and a sewage disposal system for the capital city of Monrovia; and

(c) a highway development program and related construction projects.

This application is an outgrowth of discussions initiated by Liberia as far back as 1944, of subsequent studies by the United States Economic Mission to Liberia, and of State Department discussions with the Export–Import Bank over a year ago. The Bank is of the opinion that the hydro-electric, water, and sewage projects require more detailed engineering and economic investigation by Liberia before they can be properly appraised.

At this time the Export–Import Bank is prepared to consider financing up to $5 million of projects selected from the over-all road expansion program, as well as services required for study of the other projects. This program has been prepared in close cooperation with the United States Economic Mission. Liberian plans for use of the proposed loan are being coordinated with the program for providing surveying, planning, and supervisory services being projected for Liberia under the Technical Assistance Program. Also, it is understood that the Export–Import Bank would be prepared to permit utilization of a portion of the loan funds to defray the cost of providing additional technical personnel if this should be necessary for the successful execution of the highway projects. The proposed loan is to be used to cover local as well as foreign costs of the proposed projects. It should be noted, however, that these road projects are part of a total development program to be undertaken in Liberia, which will involve substantial expenditures on the part of the Liberian Government for maintenance and feeder roads.

The only possible source of private financing for the Liberian Government would be under the terms of a loan contract which was negotiated with the Firestone Rubber Company in 1936. Under this contract Liberia was entitled to borrow a further $2.5 million from the company, but the conditions of this contract included a provision that Liberia would not borrow from any other source without Firestone’s consent. For a variety of reasons, which appear to be valid, Liberia does not desire to borrow under this contract. Instead, an agreement has been made to liquidate the outstanding balance of something less than $600,000 before the end of 1953, and Firestone is understood to have waived its control over borrowing from other sources.

Discussion

It is believed that the financing of highway construction represents perhaps the best possible utilization of loan funds for development of the Liberian economy. It is expected that such highways will contribute both to expanded production and exports of such important commodities as rubber, timber, cocoa and oil kernels and to the supply of consumption goods needed by workers employed in these industries, as well as contributing in a more general way to accelerated development of the Liberian economy from the longer-run point of view.

It is roughly estimated that at least $1 million but not more than $2 million out of the $5 million total cost of the projects will represent direct purchases of equipment or materials, such as highway construction equipment, steel and cement, in the United States or Europe. It is hoped that a substantial but unknown portion of the needs for road building equipment can in fact be supplied out of such equipment available from other completed construction projects either in Liberia or French Africa.

Ability to Repay

The ability of Liberia to repay a dollar loan is determined by the balance of payments of Liberia and by the budgetary position of the Liberian Government. Given the fact that the U.S. dollar is the circulating currency in Liberia, and the complete absence of a capital market in the country, this becomes a question of the revenues and expenditures of the Liberian Government.

The total revenues of the Liberian Government for calendar 1950 are estimated at $3.8 million, of which $2 million was from duties on imports. These receipts are expected to be increased, perhaps by as much as $3 million during the next two years, as a result of new arrangements for the payment of an income tax by the Firestone Company and increases already experienced in the price of rubber on world markets. Even over the longer-run, it is probable that Liberia’s public revenue annually will be at least $1.5 to $2 million more than at present. On the expenditure side, it should be noted that the Technical Assistance Program which the United States Technical Cooperation Administration is currently working out with the Liberian Government involves the annual allocation of 20 percent of its revenues for the duration of the program beginning with fiscal 1950–51 to finance other development programs out of its own resources. This will involve an allocation of $1.0–$1.3 million of the 1950–51 revenues to the Technical Assistance Program, and the agreed loan repayments to the Firestone Company will amount to approximately $200,000 during each of the next three years.

Since a substantial budgetary surplus has been realized in recent years, it seems reasonable to anticipate that the Liberian Government can carry the debt service burden of this loan.

Proposed Terms

The terms envisaged for this loan by the Export–Import Bank are 18 years maturity and 3-½ percent interest. Although interest will accrue from the date of disbursement, it is anticipated that there will be a six to twelve months grace period before payments covering interest and amortization of principal begin.

Conclusion

Consideration by the Export–Import Bank of the proposed loan to the Republic of Liberia would appear to be desirable. It would, of course, be understood that extending the loan would carry no commitment concerning the granting of licenses for equipment and materials from United States sources.³

1. Negotiations in Washington regarding the proposed Export–Import Bank credits to Liberia were being conducted on the Liberian side by the Liberian Commission (described in the editorial note, p. 1274). For previous documentation on negotiations regarding the proposed loan to Liberia, see Foreign Relations, 1950, vol. v, pp. 1706 ff.
2. Not printed.

3. Attached to the source text was an “Action Sheet” containing the following “Recommended Action”:

   “The National Advisory Council advises the Export–Import Bank that it approves consideration by the Bank of credits not in excess of $5 million to the Republic of Liberia for financing the cost of approved highway improvement and construction projects. It is understood that these credits will bear interest of about 3-½ percent, with maturities in the neighborhood of 18 years.” National Advisory Council Action No. 449, January 16, indicates that the quoted recommendation was unanimously adopted by the Council through a telephone poll completed on January 16. (NAC Files: Lot 60 D 137: NAC Actions)