876.10/1–2353
Memorandum of Conversation, by Alexander J. Davit of the Office of African Affairs
Subject:
- Tax Proposals of the Steadman Report.
Participants:
- Mr. R. F. Steadman—TCA Consultant
- TCA/NEADS—Mr. O. W. Meier
- TCA/NEADS—Mr. C. R. Hill
- AF—Mr. N. Feld
- AF—Mr. A. J. Davit
- ED—Mr. D. Smith
A meeting with Mr. Steadman was arranged in order to review his [Page 503] report and discuss its use by President Tubman in the latter’s recent speech to the Liberian Legislature.1 Mr. Feld inquired as to why Mr. Steadman had felt it necessary to couple tax recommendations with the study on fiscal controls.
Mr. Steadman explained that he had felt it necessary to incorporate tax proposals in his report to gain acceptance of his fiscal control recommendations by President Tubman. Mr. Steadman stated that his previous experience has clearly indicated the extreme difficulty of having executive heads of governments even in the United States accept fiscal control recommendations without supplementing those proposals with suggestions for raising revenue. In light of the unsympathetic Liberian view toward the position of Financial Adviser as created by the Firestone Loan Agreement, which advisers exerted restraining pressures on expenditures, he felt it imperative to supplement his views on fiscal operations to gain their acceptance. Steadman stated that the use of this approach to Tubman had apparently been so successful that Tubman had complimented him as being the first American who had worked primarily for the interests of Liberia. Steadman stated that, although he had not recently reviewed his suggestions, he believed them to be fundamentally sound. He stated further that he had attempted in his report to draw President Tubman’s attention to the necessity of developing a consistent policy toward investment, one that would apply uniformly and without discrimination to foreign and local investors.
Mr. Feld and Mr. Davit drew Mr. Steadman’s attention to the fact that a major objective of Point IV was to develop a favorable climate for investment; unfortunately, the manner in which Tubman publicly announced the tax proposals coupled with recent actions by the Liberians (e.g. newspaper articles, revision of agreements, etc.) had created the danger that Liberia’s reputation as a country attractive to foreign investors could suffer in financial circles. Mr. Davit remarked that Steadman’s view of developing a consistent policy did not appear to be emphasized sufficiently in the report. Because of increasing pressures for additional revenues there is a possibility that President Tubman may grasp at the tax proposals for short-run gains and forget the [Page 504] broader important concept Steadman had hoped to encourage. Davit expressed the belief that Steadman’s view to the effect that the potentialities of Liberia had been clearly demonstrated was probably over optimistic; Steadman conceded that his statement had been “too strong”. Davit added that the “reasonable terms” for investing in Liberia to which Steadman referred in his report might have been amplified in light of the view concerning proven profit potentialities and Liberian pressures for greater revenues.
In reply to queries on the suggested “excess profits tax” Mr. Steadman indicated that he had offered this proposal merely as a suggestion and believed it fair in light of his recommendation that such a tax not be applied until very high returns had been realized by the investors. He added that various modifications could be made to this proposal and suggested that tax exemption for five years might be considered a reasonable incentive but emphasized the view that 99 year tax free concessions were most certainly out of order. Concerning the protective tariff proposal Mr. Steadman said he had in mind only such simple industries as soap manufacture, furniture manufacture, etc., in total not numbering more than ten or a dozen activities; he concurred he might have been more specific on this item by limiting the proposal to a protective period of five and not more than ten years. Mr. Steadman noted that Tubman’s suggestion for increased income tax, 3% emergency tax on imports, and $1 tax on each adult for building schools did not originate with him. He concurred in the view that the $1 tax on each adult was regressive and a type he recommended be minimized. Concerning the 3% emergency tax he noted that this tax did not fit in with his recommendation on simplification of customs duties. Although he was not opposed to increasing duties, he felt a multiplication of special taxes should be avoided.
Steadman felt it pertinent to emphasize that in order for Liberia to develop roads, education, hospitals, etc., revenues were essential, a consideration which he stated, must be remembered when discussing measures necessary for the development of a favorable climate for investment. He expressed the view that the entire area south of the Sahara was “ripe” for development; however, he was unable to name specific areas of activity in Liberia which were so obviously outstanding that investment incentives were not necessary. He concurred that Liberian policy would have to take into consideration policies toward investment in other nearby areas or else Liberia might not be able to compete for risk capital.
Mr. Meier observed, in connection with the development of a favorable climate for investment and the importance of social capital developments, that probably a review of U.S. Government attitudes toward economic development in all of Africa as well as Liberia might be in order, particularly since projects in African areas were to be financed [Page 505] not through grants but loans. He expressed the view that long term loans (50 years or more) were necessary for such developments but were not granted under present lending policies.
Mr. Meier suggested that Mr. Steadman write to President Tubman with a view toward emphasizing the importance of developing a consistent policy toward all investors as well as cautioning him as to the timing and implementation of the various tax proposals. Steadman said he would write Tubman in that vein. Mr. Smith suggested that in addition to the points already discussed Mr. Steadman emphasize the need for honoring existing agreements with investors, and that when modifications were contemplated such changes should be mutually agreeable.2
- Steadman’s “Report on the Fiscal System of the Republic of Liberia” was dated July 11, 1952. Steadman had been expected to explore the possibility of setting up a mechanism to help Tubman develop a well-conceived budgetary program something on the order of the Bureau of the Budget. Then he was to aid in devising a procedure to review governmental expenditures to assure their efficient application for the proper purposes. This was to be in line with the General Accounting Office. The Department of State was upset that he had submitted his more ambitious recommendations in draft form to President Tubman prior to its having had the opportunity to examine and criticize the proposals. Tubman’s speech, incorporating Steadman’s suggestions, was made at the opening session of the legislature on Nov. 26, 1952. Aside from the Department, Firestone was also displeased by the thrust of Tubman’s address. Larabee indicated this at a meeting designed to ascertain the response of American business interests which was held on Dec. 23. (876.11/12–2352)↩
- On Feb. 6, 1953, Steadman wrote President Tubman: “Although present tax rates are by no means onerous, I judge from conversations in Washington following my return from Liberia that there is concern in certain quarters in America that a continued series of tax adjustments and concession re-negotiations might create an atmosphere of mistrust and so discourage that inflow of capital and private enterprise which would be mutually beneficial to the Liberian economy and to investors and entrepreneurs”. His letter and his report may be found in AF files, lot 58 D 459, “Steadman Report on Financial Situation in Liberia”.↩