Late last summer, the war-ravaged West African country of Liberia quietly achieved something the United States and many other Western countries have never managed to do: It got rid of its external debt. All of it.
A veteran of the international financial scene, Africa's "Iron Lady" made it her mission to gain international forgiveness of the debt, which by 2007 had ballooned to $4.9 billion, eight times the country's gross domestic product. And Liberia's newly sound financial footing makes the impoverished country much more attractive to foreign investors, who are pumping life into its economy.
"In three years, we met all of the conditionalities, which meant strong fiscal discipline," Ms. Sirleaf told the Monitor in a recent interview in her Monrovia office. "We were able to get that debt off our backs."
Sirleaf counts getting rid of that burden as her greatest achievement as president. And it was no easy task.
The monstrous external bill was a result of more than a quarter century of shoddy governance. Two warlords – first Samuel Doe and later Charles Taylor – controlled the country for much of the 1980s and 90s, when Liberia endured a brutal 14-year civil war. Both Mr. Doe and Mr. Taylor soaked up heavy streams of international aid, but neither ever bothered to make any interest payments.
"The debt just began to explode," says Ben Leo, a fellow at the Center for Global Development, a Washington think tank. "By the time [Sirleaf] came into office, the situation was beyond dire. It was just a complete mess."
How she did it
When Sirleaf became president in January 2006, she knew she had to get the country back on track.
"We couldn't even borrow from local banks to say 'give us an advance to meet salary payments,' " she says. The entire national budget at the time was a paltry $80 million – that's less than the city of Atlanta expects to spend on pensions this year.
"When she came into office … there were literally no desks, no chairs, no pencils, no computers, no functional bathrooms," says Leo. "She had to build from scratch."
Sirleaf – a former finance minister, World Bank employee, and vice president of CitiBank Africa – was in familiar territory when it came to navigating the minutiae of debt relief.
She signed the country up to the Enhanced Heavily Indebted Poor Countries Initiative (HIPC), a program run by the World Bank and the International Monetary Fund that offers debt relief in exchange for compliance with rules on economic governance and institution building.
To help the fight, Sirleaf persuaded many of Liberia's best and brightest who fled to the US or Europe during the civil war to return to Monrovia, a battered city that until recently lacked electricity and running water.
"A range of actors were involved, but President Sirleaf was the cornerstone of the effort," says Leo. "She knows the guts of how [international financial institutions] work bureaucratically, but at the same time she has the gravitas of a head of state."
Sirleaf negotiated a killer deal with hedge funds and other distressed-debt investors: Their portion of Liberia's debt was forgiven at a rate of 3 cents on the dollar. At the time, World Bank President Robert Zoellick called it "the steepest discount we ever had" with commercial creditors.
The final step came in September, when the Paris Club, an informal group of 19 creditor nations, forgave Liberia's final $1.2 billion of debt.
For the three years it was trying to win debt forgiveness, the Liberian government didn't borrow a cent, only spending the dribble of money that came in from taxes. Now, with the loans erased, the government can finally get access to outside cash.
But Liberian Finance Minister Augustine Ngafuan has vowed that there will be no more irresponsible borrowing. The country will never take out a loan of more than 2 percent of its GDP, he said last year, and any borrowed money will go toward infrastructure development.
In the past five years, Sirleaf's administration has lined up an impressive $16 billion in foreign investment from major players like Chevron, Firestone, and ArcelorMittal, the world's largest steelmaker.
Those outside dollars helped boost Liberia's GDP by 6 percent in 2010, which makes the country one of Africa's fastest-growing economies. Growth projection for 2011? 7 percent.
Foreign dollars won't go very far, however, if they're lost to corruption, an endemic problem in Liberia. And if Sirleaf has an image problem, it's on this issue. A United Nations report released last month blamed "legal bottlenecks" for slowing Liberia's fight against graft and called for "increased political will" to tackle the problem. Locals say she has fallen short on promises to oust corrupt officials.
"What else can we do?" Sirleaf asks. She insists that everyone has the right to a fair trial, and that the process of reform will be gradual. Says Sirleaf: "I'm convinced that we are making enough progress in a very structural and systematic way."