Outlook for 2011-12

Support for the president, Ellen Johnson-Sirleaf, and the ruling Unity Party (UP) has dissipated over corruption scandals and a perceived failure to deliver tangible improvements in living standards. A cabinet reshuffle in November was an attempt to put a fresh face on a weary administration. However, unless the opposition parties maintain one of the newly formed cross-party alliances and rally behind a single presidential candidate, the UP and Mrs Johnson-Sirleaf are likely to prevail in elections in October 2011. The Economist Intelligence Unit forecasts real GDP growth of 7.3% in 2011, rising to 8% in 2012 as investment in the mining sector increases. Liberia will continue to run a large structural current-account deficit because of the heavy UN presence, which accounts for the majority of imports.

The political scene

Although the president emphasised the need for a clean slate in a November cabinet reshuffle, many officials retained their existing jobs or were simply reshuffled to other ministries. The president used her annual message to the legislature as an opportunity to set out the key aspects of her forthcoming election campaign and highlight the achievements of her UP-led government. The National Electoral Commission has begun preparations for a referendum on August 23rd to amend four election-related aspects of the Constitution. Villages in the north-east of the country are struggling to cope with the influx of an estimated 40,000 refugees fleeing unrest in Côte d'Ivoire.

Economic policy

The IMF has concluded its fifth review of the country's economic performance as part of the extended credit facility, enabling the disbursement of US$6.8m. The government's prudent macroeconomic policies, balanced budget and continued efforts to promote structural reforms were all praised by the Fund, as was the reaching of completion point under the heavily indebted poor countries initiative. A more downbeat assessment was delivered in the latest report by the UN Panel of Experts on Liberia, which suggested that although progress has been made in improving the regulatory environment governing natural resources, implementation constraints still hinder its operation.

The domestic economy

A Russian-owned mining company, Severstal Liberia Iron Ore, has more than doubled its estimate of iron ore at its Putu mine to 2.37bn tonnes.

Foreign trade and payments

The government has concluded a US$78m deal with the Cavalla Rubber Corporation relating to the rehabilitation and redevelopment of a rubber plantation in Maryland county in south-eastern Liberia.

Land area

111,370 sq km

Population

4.1m (IMF mid-2010 estimate); an estimated 350,000 Liberian refugees live in the subregion as a result of the civil war

Main town

Monrovia (capital) 1.1m (2010 estimate)

Climate

Tropical

Weather in Monrovia (altitude 23 metres)

Hottest month, March, 24-32°C; coldest month, July, 22-27°C; driest month, January, 30 mm average rainfall; wettest month, July, 996 mm average rainfall

Language

English (official) and 16 other languages, including the lingua franca "Liberian English" (Creole)

Measures

UK imperial and US systems

Currencies

Liberian dollar (L$) = 100 cents, and US dollar (notes); Liberian coins and notes trade at a large discount against the US dollar, fluctuating according to the security situation and cash shortages

Time

GMT

Public holidays

January 1st; February 11th (Armed Forces Day); March 12th (Decoration Day); March 15th (birthday of J J Roberts, the first Liberian president); Good Friday-Easter Sunday; May 14th (National Unification Day); July 26th (Independence Day); August 24th (Flag Day); November 8th (Thanksgiving Day); November 12th (National Memorial Day); November 29th (birthday of the late president, William Tubman); December 25th-26th (Christmas)

Official name

Republic of Liberia

Form of state

Unitary republic

Legal system

Based on 1986 constitution

National legislature

National Legislative Assembly (NLA), consisting of the House of Representatives (lower house, 64 seats) and the Senate (upper house, 30 seats)

National elections

October 11th 2005 (presidential and legislative elections), followed by a second-round run-off on November 8th 2005 to decide the winner of the presidential election; next national elections due in October 2011

Head of state

President; currently Ellen Johnson-Sirleaf

National government

The head of state and cabinet of ministers

Main political parties

Congress for Democratic Change (CDC); Unity Party (UP); Alliance for Peace and Democracy (APD); All Liberia Coalition Party (Alcop); National Democratic Party of Liberia (NDPL); United Democratic Alliance (UDA); National Patriotic Party (NPP); True Whig Party (TWP); Liberia National Union (LINU); National Reformation Party (NRP); National Vision Party (Natvipol); and the Progressive Democratic Party (Prodemp); Liberty Party (LP); New Deal Movement (NDP); the Liberia National Union for Democracy (LNUD)

President: Ellen Johnson-Sirleaf

Vice-president: Joseph Boakai

Key ministers

Agriculture: Florence Chenoweth

Commerce: Miatta Beslow

Defence: Brownie Samukai

Education: Othello Gongar

Finance: Augustine Ngafua

Foreign affairs: Toga McIntosh Gayewea

Health & social welfare: Walter Gwenigale

Internal affairs: Harrison Kahnweah

Justice & attorney-general: Christiana Tah

Labour: Jeremiah Sulunteh

Land, mines & energy: Roosevelt Jayjay

National security: Victor Helb

Planning & economic affairs: Amara Konneh

Public works: Samuel Kofi Woods

Transport: Willard Russell

Central Bank governor

John Mills Jones

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The president, Ellen Johnson-Sirleaf, will remain firmly in control of the government, but her popularity will decline over corruption scandals and stagnating living standards. Mrs Johnson-Sirleaf is a strong leader who has significant international support for the rebuilding of post-civil war Liberia. Her government faces an immense task in consolidating peace and democracy, as well as in the reconstruction and development of the economy. Support for Mrs Johnson-Sirleaf has lessened since she came to power because of her perceived failure to deliver tangible improvements in the standard of living. A cabinet reshuffle at the end of 2010 was an attempt to put a fresh face on a weary administration. Patience with the government is also wearing thin because of the lack of progress in curbing fraud or prosecuting those accused of graft. Mindful of this, the government will give the appearance of stepping up its efforts, prioritising judicial reform and improving the implementation of existing mechanisms, although high-level prosecutions are unlikely.

The presence of a peacekeeping force, the UN Mission in Liberia (UNMIL), will remain crucial for the maintenance of stability. The mandate of the 8,000 military personnel has been extended to the end of September 2011 and no drawdowns are planned before the elections in October 2011. The UN is concerned about the capacity of local forces to take over from UNMIL, although reports that violent crime has fallen suggest that there has been some progress in the army and police force. However, there are concerns about the threat to regional stability. Although more than 100,000 former combatants have been disarmed, many who lack an alternative livelihood will be tempted to form or join regional militias or take up looting and banditry. These risks have been heightened by unrest in neighbouring Côte d'Ivoire following a disputed presidential election, with reports that former members of two Liberian factions, Movement for Democracy and the National Patriotic Front of Liberia, based in the north and east of the country, have been recruited by Ivorian forces. A coup attempt by former army personnel remains a risk, although the UN troops would be able to counter such a move. UNMIL forces are highly unlikely to be withdrawn if Liberia is deemed to be facing any immediate major security threat.

The ruling coalition will be in a strong position to contest the next national elections, planned for October 2011, although the opposition will provide a formidable challenge if they can overcome individual ambitions. The popularity of Mrs Johnson-Sirleaf, who will seek a second term with her current vice-president, has been damaged by allegations of corruption in her administration, though she still retains significant support. Her ruling coalition was also boosted by the merger in mid-2009 of her party, the Unity Party, with the Liberia Action Party and the Liberia Unification Party. The consolidation of political parties highlights the gradual maturation of the political process and has also been evident among the opposition.

The opposition alliances are currently fragile and it is unclear if they will hold for the elections. The largest opposition party, the Congress for Democratic Change (CDC), led by George Weah, the runner-up in the 2005 election, formed an eight-party alliance in August called the Coalition for Democratic Change. In October the leadership of the CDC and the Liberty Party, led by Charles Brumskine, who came third in 2005, announced plans to merge. However, this was cancelled because of grass-roots opposition and disagreement between the party leaders, who both wanted to be the new grouping's presidential candidate. Overall, the Economist Intelligence Unit believes that despite recent pledges, in-fighting within the opposition parties owing to personal ambitions may well scupper the chance of a strong compromise coalition presidential candidate. We therefore expect the opposition vote to be split and forecast that Mrs Johnson-Sirleaf will prevail in the elections, returning as president with her party increasing its representation in the legislature.

Liberia's good relations with the outside world are expected to remain strong, as Mrs Johnson-Sirleaf has earned considerable goodwill among donors, creditors and investors. In return, her government is under pressure to improve accountability and transparency significantly. Donors have deemed progress so far to be good, and external funding will rise in the light of the debt relief granted under the heavily indebted poor countries (HIPC) initiative in 2010. Significant technical, financial and military support underlines the close relationship with the US, but Liberia also receives strong support from many other governments, including China, as well as from multilateral institutions. The security situation in the subregion-which is vital to stability, given that porous borders allow insecurity to be exported quickly-is expected to remain precarious. There will be a strong risk of instability in Côte d'Ivoire spilling over into Liberia following the disputed November presidential election, which has already led to over 300 deaths. There is, in addition, ongoing concern over the prolific crossborder movement of arms and mercenaries, particularly given the influence of international drug cartels in the subregion.

There are unlikely to be any major policy changes ahead of the elections in October 2011 other than those announced in the recent budget, and the president will focus on signing large-scale deals in the extractive industries. The budget for fiscal year 2010/11 (July-June) was ratified by the legislature in October and included a cut in the income and corporate tax rates, which took effect in January. A tax amnesty will run from July 2010 to March 2011, intended to settle long-standing arrears and improve compliance. Overall economic policy will continue to be guided by the country's extended credit facility (ECF) with the IMF, which expires in March 2011 and is likely to be replaced by a successor programme with the Fund. Following the attainment of completion point under the HIPC initiative in mid-2010, the IMF estimates that debt will be cut sharply, to around 15% of GDP. The focus of the ECF will switch to improving economic governance and bank supervision, managing public expenditure, fighting corruption and maintaining macroeconomic stability. On the spending side, the priority will be rebuilding key infrastructure-particularly restoring the electricity and water supply to the capital, Monrovia, and repairing roads and bridges, as well as upgrading the main ports, with infrastructure spending boosted by allocations from three recent supplemental budgets.

The spending power of the Liberian government will improve over the forecast period as higher exports boost customs duties and the government returns to borrowing on financial markets. The government has operated a cash-based balanced budget since the end of the civil war, in line with a policy of implementing strict fiscal discipline, thereby preventing any increase in the public debt. The country reached HIPC completion point in mid-2010. This will be fairly revenue-neutral in the medium term; it will enable the country to borrow from international markets, although no more than 2% of GDP per year, according to an agreement with the IMF. Donors will also offer more concessional financing; however, some of this borrowing will be used for the resumption of debt-servicing from the end of 2011 onwards (net repayments on multilateral debt were zero in recent years as debt relief was being negotiated). Revenue will also be helped by new investment in the mining sector that will result in higher revenue from export tariffs, although tax holidays and lag times before profitability will limit revenue in the early years of these projects. There will be a fall in domestic revenue resulting from a cut in the top corporate and income tax rates from 35% to 25% in January 2011.

On the expenditure front, a large proportion of the budget for 2010/11 is earmarked for restoring and improving public services such as health, education, security and the justice system, which will include increasing salaries and a new minimum wage for civil servants. In addition, civil-service employment will increase by 6,000 as the government employs more teachers and health workers to implement its programmes in these priority sectors. Reconstruction and development programmes will still be funded and managed largely by donors, whose multi-million-dollar budgets dwarf those of the government. The government is expected to maintain a deficit of less than 1% of GDP in 2010/11, before a return to global financial markets in 2011/12, to fund its ambitious reform programme, leads to a larger deficit, financed mostly by concessional external borrowing.

Liberia's monetary policy is ineffective, and the management of the Central Bank of Liberia (CBL) has been specifically targeted for reform under the IMF's guidance. Given the high degree of dollarisation in the Liberian economy (the US-dollar component of the total stock of broad money was estimated at 67% in mid-2008) and its open nature, the exchange rate-along with other fiscal policy measures-has been identified as the main mechanism through which monetary imbalances affect price levels. The CBL's monetary policy will therefore aim to minimise exchange-rate depreciation to help to control inflation, for which it will need IMF support to raise the level of foreign-exchange reserves and help exchange-rate stability. Local currency in circulation will increase as the economy grows and civil-service salaries and other government payments are regularised, but this will be a slow process. The recapitalisation of the system will continue and the minimum capital requirement for commercial banks will be increased slowly from US$10m at the end of 2010. The CBL will work on the introduction of a domestic Treasury-bill market in 2011, as the government plans to start borrowing now that it has received HIPC debt relief. Efforts to strengthen the banking system are continuing, with civil-service salary payments in rural areas to be made directly, prompting six of the country's eight commercial banks to open branches up-country.

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After rebounding to an estimated 6.3% in 2010, economic growth will quicken over the forecast period, driven by higher agricultural output, which accounts for more than 60% of GDP. Earnings from the country's largest export, rubber, will remain high, helped by strong international prices as the recovery in the global automobile industry holds up. Activity in the extractive industries will increase, helped by substantial investments following the signing in 2010 of many large concessions that had been delayed because of the global slowdown, including the launch of the US$2.6bn Bong Mines operation. In particular, we expect an improvement in output during the second half of 2011 with the first shipments of iron ore from the operations of an international steel company, ArcelorMittal. Growth in manufacturing will be limited by competition from cheaper imports and unreliable electricity and water supply. Investments in palm oil and timber will start production, albeit at modest initial levels, and activity in the forestry sector will gather momentum. Overall, real GDP growth is forecast to pick up to 7.3% in 2011, before accelerating to 8% in 2012 as a result of increased investment activity.

After it remained steady in 2010, we expect inflation to increase in 2011 before moderating in 2012. World oil prices-a large factor in previous Liberian inflationary surges-will increase in 2011, and global food prices, the other main determinant, are expected to rise at an even faster rate. IMF support will help to contain further downward pressure on the currency and, aided by the high level of dollarisation in the country, this will help to restrain inflationary pressures. However, supply bottlenecks owing to poor transport infrastructure will remain structural sources of inflationary pressure. We expect inflation to average 10% in 2011 before falling oil and food prices lower this to 7% in 2012.

Liberia will continue to maintain an exchange-rate system that is free of restrictions on payments for current and capital transfers. However, although the official currency is the Liberian dollar, the US dollar will also continue to be legal tender. The IMF classes the L$:US$ exchange rate as "other managed", meaning that the authorities intervene to influence the direction of the exchange rate. However, it is not really used as a policy tool to improve competitiveness because of the high dollarisation of the economy. High levels of import demand against low export earnings and limited foreign-exchange reserves will maintain downward pressure on the currency. We therefore forecast that the Liberian dollar will average L$74.2:US$1 in 2011, slipping to L$77:US$1 in 2012.

Liberia runs a structural current-account imbalance as a result of the large UNMIL presence, which, according to the IMF, accounted for more than 50% of imports in 2009, and this will remain the case over the forecast period. Trade will continue to expand after recovering in 2010. Rubber constitutes well over one-half of exports, and commodities will continue to dominate export earnings, which will rise as large mining projects begin production. Import costs will increase in 2011-12 owing to capital imports for large investment projects. External debt repayments will be negligible until Liberia resumes debt-servicing at the end of 2011. Inflows of transfers will remain high owing to strong donor funding for the reconstruction of infrastructure and humanitarian assistance. Other than the UNMIL activity, fluctuations in the trade deficit will be the main determinant of the current-account balance, and we forecast a slight narrowing in the current-account deficit as the rise in export growth outpaces demand for inputs for reconstruction.

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After surprisingly ordering the entire cabinet to take "administrative leave" in November (December 2010, the political scene), the president, Ellen Johnson-Sirleaf, appointed a new cabinet within weeks-to little fanfare. After dismissing the cabinet, Mrs Johnson-Sirleaf left on official visits to Ghana and the US, and set about naming a new cabinet only two weeks later. Although it left the country without ministerial leaders for two weeks, the move was aimed at strengthening the government in the period leading up to elections in October 2011. The president emphasised the need for "a clean slate" in order to build the most effective team to contest the elections. Somewhat diluting this narrative, while she named replacements to some key positions, many officials retained their existing jobs, including Kofi Woods as minister of public works, Augustine Ngafua as minister of finance, Amara Konneh as minister for planning and economic affairs, Brownie Samukai as minister of defence and Florence Chenoweth as minister of agriculture.

The new appointees include the ministers of foreign affairs, post and telecommunications, internal affairs, labour and the national investment commission, but many of these have either served the government previously in different capacities or occupied other positions in the country's political scene. The new chairman of the national investment commission, Natty Davis, served as chief of protocol in the transitional government and was closely associated with the former interim president, Amos Sawyer, and the new foreign affairs minster, Toga McIntosh Gayewea, a confidant of the president, was briefly minister of planning immediately after the 2005 elections, before leaving to work for the World Bank. The appointment as internal affairs minister of Harrison Kahnwea from Nimba county, who, like Mr Gayewea, worked with the former president Charles Taylor, highlights the efforts by Mrs Johnson-Sirleaf to strengthen her political base in Nimba (the largest county after Montserrado by population), where her support is currently very limited.

The new labour minister, Jeremiah Sulunteh, replaces a former solicitor-general, lawyer and political activist, Tiawon Gongloe, who is one of the few former ministers to have publicly criticised the president's decision to replace the cabinet. Mr Gongloe reportedly refused an offer to become minister of post and telecommunications on the basis that he lacks suitable qualifications for that position, and suggested that the president's mass dismissal reflected an autocratic style of governing, in keeping with "imperial presidencies" of the past. He also claimed that the move inadvertently strengthened the impression of the pervasive nature of corruption in the country, undermining the integrity of those who were honest and diligent. Mr Gongloe's comments highlight the extent to which the action of the president was motivated by political calculation as much as administrative efficiency. The new minister for post and telecommunications is Frederick Norkeh, who, unlike most of the other appointees, is relatively new to the political landscape.

Mrs Johnson-Sirleaf used her annual message to the legislature as an opportunity to set out the key aspects of her forthcoming election campaign and highlight the achievements of her government, led by the Unity Party. This followed on from last year, when the annual speech served as a platform for her to announce that she would stand for re-election. This year the president promised a drop in taxes in a classic re-election strategy, with personal and corporate taxes reduced to 25% and customs duties on selected items, including vehicles, cut in half. She also listed her administration's legislative achievements and agenda; 14 out of 25 bills submitted by the executive in the past year were passed by the legislature, another 11 are under committee review and five further bills from previous years were also enacted into law. Legislation still pending includes the Code of Conduct for Public Servants, crucial to efforts to address corruption, and the Children Protection Act, while eight new bills will be presented this year, including legislation relating to national insurance, education reform and public pensions.

Mrs Johnson-Sirleaf suggested that the country stands at a crossroads in a crucial election year, implying that only her re-election can ensure continuation of the peace, stability, economic growth and gradual improvements in quality of life that her administration has promoted since it took power in 2006. She went on to make a lengthy assessment of the progress made by the government in various areas to back up this claim. These ranged from the restoration of the country's international standing and improvements in security, through the reconstitution of the armed forces and police, to the important economic achievements of her administration. Mrs Johnson-Sirleaf emphasised the country's strong economic growth rates, which recovered to an estimated 6.3% in 2010, up from 4.6% in 2009, claiming that Liberia was among the 20 fastest-growing countries in the world. She referred to the healthy budget, the increase in foreign-exchange reserves, the almost total relief from the country's US$4.9bn debt and the US$16bn of investment attracted by her administration over the past five years.

The president also listed major infrastructural improvements in roads, healthcare, education and water provision, with 24-hour pipe-borne water expected to reach more than 700,000 residents in the capital, Monrovia, by May 2011, and water and sanitation facilities also being extended to various regional towns and cities. While supporters of the government lauded the courage and patriotism that drives the president's vision, her critics were highly sceptical, particularly given the lack of tangible progress on the provision of basic needs to most Liberians. This debate over the substance of the president's grand claims about both existing achievements and future plans will only intensify as the October elections approach.

The National Electoral Commission (NEC) compiled the voters' register between January 10th and February 6th at 1,780 centres around the country. Voter registration forms part of the preparations for the October elections, which also include the demarcation of electoral districts and a referendum. Preliminary figures released by the commission report that 993,857 voters were registered; of those, around 150,000 of the voter registration forms have been processed so far by the NEC, which reported that around 42% of respondents are female and 58% male. There was a one-day national holiday to facilitate the process, which reportedly led to an appreciable increase in the number registering, although it still fell short of the 1m expected to register out of an estimated 2.1m potential voters.

The NEC's failure to finalise constituencies before the registration has incurred criticism from civil society groups, on the basis that the Constitution requires this process to be completed before voter registration. The inference is that subsequent demarcation may be politically motivated, based on the numbers registered in particular areas. The demarcation delay is because of the difficulties in passing the Threshold Bill, which aimed to adjust the population threshold for each electoral district in line with the changes in population reflected in the 2008 census, and spent two years in the legislature (December 2009, The political scene). There were also widespread allegations of fraud, particularly in relation to double registrations. The registration mechanism, which was based on the testimony of two people already holding registration cards, left the process open to abuse. The result is that many voters are registered in places other than where they reside-something the NEC has stated is not illegal. Despite these concerns, the overall process has been largely considered a relative success.

The NEC has begun preparations for a national referendum on August 23rd to amend four aspects of the Constitution that relate to elections. Both houses of the legislature passed the four amendments in August 2010, but they must be ratified by two-thirds of registered voters in a referendum before they can pass into law. The issues under consideration are relatively straightforward; more controversial changes such as a reduction in the tenure of elected officials and the ending of presidential immunity were removed from the referendum. The issues remaining are: reducing from ten years to five years the period during which presidential candidates must have been resident in the country preceding an election, reflecting the large flows of emigration following past conflicts; moving the election date from October to November in order to avoid the worst of the rainy season; changing the requirement from an absolute majority to a simple one for offices other than the presidency; and raising the retirement age for Supreme Court judges from 70 to 75.

Uncertainty surrounds the trial of Mr Taylor for war crimes and crimes against humanity, after both he and his defence lawyer, Courtenay Griffiths, walked out of the international criminal court in The Hague, Netherlands, in early February. This followed the trial judges' rejection of the defence's final brief, on the basis that it had been filed too long after the deadline set for its submission. The trial is now stalled while the defence launches an appeal for the brief to be accepted. Whatever the outcome of the appeal, the trial is now drawing to a close, with the prosecution having already presented its closing statements and limited funds or appetite for any further delays in the proceedings, which have already lasted over three years. A verdict is expected before the end of the year, with sentencing to follow if Mr Taylor is found guilty on any of the 11 counts, followed by further appeals from either side.

Villages in the north-east of the country are struggling to cope with an influx of refugees fleeing unrest in Côte d'Ivoire. The country is in the midst of a dangerous stand-off after both presidential candidates claimed to have won the second round of the presidential election on November 28th and set up rival administrations. The Economic Community of West African States, along with most of the international community, has sided with Alassane Ouattara. However, as neither side is willing to back down, the risk of the country once more splitting in two, pitting Laurent Gbagbo and the army against Mr Ouattara and the northern rebels, is a distinct possibility. This would be perilous for the region, as porous borders and easy access to weapons means that instability could be quickly exported to neighbouring countries. Nearly 40,000 people have crossed the border into Liberia since December, and have settled initially among villagers, sharing their food from the recent harvest and putting pressure on already limited water supplies and health services. The UN has predicted that the number of refugees could reach 100,000 by April and has started to construct two camps to house existing refugees and newcomers, to ease the burden that has fallen on already vulnerable rural areas.

The Economist Intelligence Unit's 2010 democracy index ranks Liberia 97th out of 167 countries, an improvement of only one place since the previous ranking in 2008, leaving it firmly ensconced in the category of "hybrid regimes". The country's overall score (out of 10) actually worsened marginally from 5.25 in 2008 to 5.07 in 2010, but it edged up the table because of a decline in democracy across the world as the impact of the economic and financial crisis led to a backsliding on previous progress in democratisation. Liberia shares the category of "hybrid regimes" with other African countries such as Sierra Leone, Uganda and Zambia. This ranks it behind other African states such as South Africa, Namibia and Botswana, which are classed as "flawed democracies". Mauritius remains the continent's only full democracy.

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Weak governmental capacity-the biggest barrier to a better democracy

The quality of democracy is compromised by a number of factors. Of greatest concern is the poor functioning of government, which reflects weak administrative capacity and endemic corruption, although the reform process under the president, Ellen Johnson-Sirleaf, is expected to see this improve. The weak judiciary and poor security situation have a negative impact on the score for civil liberties, which otherwise benefits from citizens being fairly free from repression. A political culture that is supportive of democracy and encourages political participation is emerging, but needs more time to consolidate. Liberia scores well for electoral process, given the free and fair nature of the 2005 elections, helped significantly by the international community, which provided voter education and organised and monitored the election.

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Democracy index 2010: Democracy in retreat, a free white paper containing the full index and detailed methodology, can be downloaded from www.eiu.com/DemocracyIndex2010.

Note on methodology

There is no consensus on how to measure democracy and definitions of democracy are contested. Having free and fair competitive elections, and satisfying related aspects of political freedom, is the sine qua non of all definitions. However, our index is based on the view that measures of democracy that reflect the state of political freedom and civil liberties are not "thick" enough: they do not encompass sufficiently some crucial features that determine the quality and substance of democracy. Thus, our index also includes measures of political participation, political culture and functioning of government, which are, at best, marginalised by other measures.

Our index of democracy covers 167 countries and territories. The index, on a 0 to 10 scale, is based on the ratings for 60 indicators grouped in five categories: electoral process and pluralism; civil liberties; the functioning of government; political participation; and political culture. The five categories are inter-related and form a coherent conceptual whole. Each category has a rating on a 0 to 10 scale, and the overall index of democracy is the simple average of the five category indexes.

The category indexes are based on the sum of the indicator scores in the category, converted to a 0 to 10 scale. Adjustments to the category scores are made if countries fall short in the following critical areas for democracy:

• whether national elections are free and fair;
• the security of voters;
• the influence of foreign powers on government; and
• the capability of the civil service to implement policies.

The index values are used to place countries within one of four types of regime:

• full democracies-scores of 8 to 10;
• flawed democracies-scores of 6 to 7.9;
• hybrid regimes-scores of 4 to 5.9;
• authoritarian regimes-scores below 4.

In December the IMF concluded its fifth review of the country's economic performance under the extended credit facility (ECF), enabling the disbursement of US$6.8m (December 2010, Economic policy). Disbursements have now reached US$360.4m out of the total US$367.2m included in the ECF programme, which covers the period from March 2008 to March 2011. The government's prudent macroeconomic policies, balanced budget and continued efforts to promote structural reforms were all praised by the Fund, as was the reaching of completion point under the heavily indebted poor countries initiative. Fund officials praised the government's emphasis on infrastructural development, but called for improvements in implementation through more effective project identification and appraisal and better procurement and cash management procedures, as part of broader efforts to strengthen public financial management.

The Fund also completed the country's Article IV consultation for 2010, which similarly commended the government for satisfactory implementation of the poverty-reduction strategy and various reforms. Along with the praise for macroeconomic stability and fast economic growth, officials also emphasised the challenges in the medium term arising from price volatility in the commodities that constitute Liberia's most important exports, as well as the country's other considerable developmental needs. Officials noted that the planned launch of a market for Treasury bills will improve liquidity management and boost demand for the Liberian dollar, and called for further strengthening of this sector to improve access to financial services. The positive tone of both assessments reflects a generally productive relationship between the current administration and the Fund. This has ensured that the government has implemented structural reforms while enjoying the Fund's financial support as well as debt relief.

A more downbeat assessment was delivered in the latest report by the UN Panel of Experts on Liberia, which suggested that although progress has been made in improving the regulatory environment that governs the exploitation of the country's natural resources, implementation constraints still hinder its operation. The panel has been continuing its investigations into illegal arms trading and the compliance of UN member states with an asset freeze on the former president, Charles Taylor, and his close associates, as well as assessing reforms in the natural resources sectors, including diamonds, timber and other minerals (September 2008, The political scene). The panel says that there has been no progress in freezing the assets of individuals implicated in the conflict, as required under Resolution 1532 (2004). This was highlighted in diplomatic cables from the US ambassador published by the whistle-blowing website WikiLeaks, which mentioned the difficulty the government faces in pursuing this goal given the continued presence in the legislature of individuals named by the UN sanctions committee, including a former speaker, Edwin Snowe, and the senior senator for Montserrado county, Jewel Taylor.

The UN panel claimed that although the government is in compliance with many aspects of the Kimberley Process Certification Scheme, which governs the export of diamonds in order to limit the trade in conflict or "blood" diamonds, it has been slow to take concrete action on recommendations. The infrequent meetings of the Presidential Task Force on the process and the failure to institutionalise this into an oversight committee suggest that this has been a low priority for the government, which has been busy with election campaign planning. Meanwhile, the panel said that natural resource regulation has improved, with legislation promoting more effective governance, management and transparency, though implementation has lagged. There have been reports of non-competitive allocation of concessions and corruption in their allocation, as well as non-payment of taxes by concessionaires and a lack of the required consultation with county and district authorities and affected communities. As with diamonds, the failure to implement all aspects of the regulatory framework suggests insufficient government attention being allocated, with the Panel's report identifying the lack of monitoring capacity as a particular issue.

A Russian-owned mining company, Severstal Liberia Iron Ore, has more than doubled its estimate of iron ore at its Putu mine in the south-east of Liberia following an independent audit. The reserves estimate has been raised from 1.08bn tonnes with an Fe content of 37.6% to 2.37bn tonnes with an Fe content of 34%. This estimate could increase further, as exploration of the deposit has continued and a pre-feasibility study is expected by September 2012, when the capacity of the operation will be known more precisely. Severstal has invested US$30m in the pre-feasibility study following the signing of a 25-year mineral development agreement with the government in September 2010 (December 2010, The domestic economy). It holds a 61.5% interest in the project, with the remaining 38.5% held by a company listed on London's Alternative Investment Market (AIM), African Aura. It is likely to cost up to US$2.5bn to put the project into production, which could begin in 2017. The government is expecting royalties of US$1.6bn in the first 20 years of operation at the mine, which should produce at least 20m tonnes of magnetite concentrate annually.

In another iron ore development, Hummingbird Resources (UK) has contracted a mining company, Petmin, as part of its development of an iron ore prospect at Mount Ginka in Nimba county. Petmin is a multi-commodity mining and processing company based in South Africa, while Hummingbird was established in 2005 in order to explore mainly gold mining opportunities in Liberia. Hummingbird is the largest holder of mineral exploration licences in the eastern part of the country, which cover approximately 9,000 sq km and include predominantly gold deposits as well as its iron ore interests. The company raised £25m (US$16m) in December 2010 through a listing on the AIM stock exchange. The US$2m contract agreement with Petmin includes an initial US$500,000 for the conduct of an aeromagnetic survey, to take place shortly, which will give Petmin a 15% stake in the venture. The remaining US$1.5m is to be invested following the successful conclusion of the first phase, upon which Petmin will hold 50% of the project.

The government has concluded a deal with the Cavalla Rubber Corporation (CRC) relating to the rehabilitation and redevelopment of a rubber plantation in Maryland county in south-eastern Liberia. CRC is owned by SIFCA, a privately owned agro-industrial company that is based in Côte d'Ivoire and active across the region in palm and other oils, as well as rubber, cotton and sugar. The agreement is valued at US$78m, with an initial investment of US$35m, some of which will be used to purchase rubber from local smallholders, and some of which will go towards rehabilitating the existing plantation. The construction of a rubber-processing facility will follow as part of the 50-year concession. Operations are expected to start this year following ratification of the agreement by the legislature. The company has committed to give priority to employing qualified Liberians and procuring from local suppliers, and has given assurances that it will improve local healthcare provision and protect the environment.