19th February 2018
Samura Credited for Saving Sierra Leone from the Global Financial Crisis!
By El-Hajj K. B. Bangura (22/11/17)
The APC government will be remembered for saving the country from collapse during the Global Financial crisis about eight years ago.
Thanks largely to the ingenuity of Dr. Samura Kamara, the unassuming APC presidential candidate who was the Finance Minister from February 2009, the year Sierra Leone was saved. Dr. Kamara controversially succeeded David Omashola Carew (October 2007 - February 2009), who paved the way for the nation’s financial survival. (Photo: Dr. Samura Kamara, has partial credit for putting finishing touches in 2009).
Reports say during those bleak years, the Sierra Leone Commercial Bank, the Rokel Commercial Bank, the Post Office Bank, the Sierra Leone Telecommunications SIERRATEL and good number of other government institutions were bailed out in 2009.
A good number of economists (myself included), have considered the 2007 - 2008 financial crisis also known as the Global Financial Crisis - to be the worst after the Great Depression of the 1930s.
It began in 2007 with a crisis in the subprime mortgage market in the US, and developed into a full-blown international banking crisis with the collapse of the investment bank Lehman Brothers on September 15, 2008 - this was the period when the ruling All People’s Congress Party took power through the ballot box.
Excessive risk-taking by banks such as Lehman Brothers helped to magnify the financial impact globally. Massive bailout of financial institutions and other palliative monetary and fiscal policies were employed to prevent a possible collapse of the world financial system. The crisis was nonetheless followed by a GLOBAL ECONOMIC DOWNTURN - for which Sierra Leone is part of the Global World. The European debt crisis, a crisis in the banking system of the European countries using the euro, followed later.
Impact on the Economy:
According to John Weeks of the School of Oriental & African Studies, University of London in his famous publication, THE IMPACT OF THE GLOBAL FINANCIAL CRISIS ON THE ECONOMY OF SIERRA LEONE:
- The quantity of diamonds export dwindled slightly and prices by about five percent (US$ 99 million);
- Rutile export value dwindled due to the loss of a dredger, but recovered in 2010 (US$ 38 million);
- Bauxite production collapsed to zero because of the suspension of production (US$ 29 million);
- Cocoa export declined and prices dwindled slightly (US$ 11 million);
- Fish and shrimp exports remained the same with a nine percent rise in price (US$ 2 million); and
- Coffee exports remained the same with a ten percent fall in price (US$ 1.5 million)
Crisis Management started with the containment of liquidity pressures through liquidity support, guarantees on bank liabilities, deposit freezes, or bank holidays - Sierra Leone Commercial Bank, Rokel Commercial Bank, Post Office Bank, SIERRATEL and a good number of government institutions were bailed out.
This containment phase is followed by a resolution phase during which typically a broad range of measures (such as capital injections, asset purchases, and guarantees) were taken to restructure banks and reignite economic growth.
It was intrinsically difficult to compare the success of crisis resolution policies given differences across countries and time in the size of the initial shock to the financial system, the size of the financial system, the quality of institutions, and the intensity and scope of policy interventions.
The policy responses during the 2007-2009 crises episodes were broadly similar to those used in the past large financial institutions could have resulted in the failure of other systemically important institutions, either directly by imposing large losses through counterpart exposures or indirectly by causing a panic that could generate bank runs. This prompted large-scale government interventions in the financial sector (including pre-emptive measures in some countries).
The ruling All People’s Congress Party ended up solving the crisis. Stay tuned on the twin shocks of 2014 - Ebola and fall in our export commodities.
Given that the crisis started in U.S. subprime mortgage markets, financial exposure to the United States was as key propagation mechanism of the crisis.
Courtesy: El-Hajj Khalil B. Bangura, Master of Science Economics