Why CBN is now worse than an invading army - Odilim Enwegbara
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| Odilim Basil Enwegbara |
It all started when Chukwuma Soludo became the chief banker of Nigeria. Gussied up within the fanciful precincts of mathematical equations within textbook theories, the Central Bank of Nigeria began to be run as if it were a neo-liberal academic institution. So IMF-styled was the CBN that its monetary policy couldn’t be more idealised in neoliberal monetarist specification. And from then on, banking in Nigeria turned into a Ponzi scheme.
Emerged from Basel II-forced consolidation, the banking industry was turned upside down. Especially with self-regulation, the search for the newest financial innovation became synonymous with fraudulent banking. And with such a leeway, our banks entered into some strange secret marriages with some western financial mafia, pretending to be financial institutions. Without anyone overseeing what was going on in the sector, questionable funds that infiltrated into the sector turned local banks into monsters obsessed with bottom-line at all costs.
The presence of such an international conspiracy, the economy’s main foundation, supposedly held by our banks, was trembling. As these financial vultures feasted, so did the country’s banking industry degenerate into broad-day financial robbery, dispossessing and misdirecting investments into unproductive sectors of the economy in ways that turned the country into a dumping ground for foreign goods.
As national debt owed to banks sharply rose from N428bn in 2008 to N3.390bn in 2012, representing 94.04 per cent of our domestic debt servicing in 2012, we now come to the painful reality that once directly defrauded by IMF-led western creditors, a new set of western creditors acting behind our banks has emerged in this extra-expensive interest rate regime. And as partners in crime, the government prefers the unheard-of high rates to borrowing at either London Interbank Offer Rate (LIBOR) or the US Treasury Bonds rates, given their benchmark offer rates are the most competitive international debt instruments.
That Amschel Mayer Rothschild was right in 1832 when he proudly said, ‘’The man who controls Britain’s money supply controls the British Empire…” could be demonstrated by who today control our money supply for they also control our economy.
Understandably, in this connivance, every beneficiary resists a monetary policy that either tends to reduce interest rate, even though one of the highest in world, or devalue the naira so as to stop pricing real sector firms out of business. After all, resisting lax monetary policy regime is the only way these partners-in-crime could continue to maximise arbitrage opportunities as hot money investors. Was it not the same tight monetary policy promoting foreign arbitrage seekers that led to the sudden pullout of unheard-of $12bn from our stock market in 2008 as a result of the global financial crisis that brought such ruinous cost on the economy? Certainly, it’s foreign financial hit men and women who are being dispatched by their home governments to our country in the false name of foreign investors.
That for the seventh consecutive time, the Monetary Policy Rate remained at 12 per cent, shows how deceitful the CBN monetary policymakers could be when they told furious Nigerians that high rates are needed for price stability and inflation fighting. But what were their explanation for the huge damaging effects such a monetary policy regime has on the nation’s economy, particularly on real sector firms that are credit starved? Or, did they know that the charter of the US Federal Reserve Board defines the US central bank’s first responsibility as ‘’conducting the nation’s monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates’’? Of course, why should they care given their independence and free riding position in the country?
The question we’ve to ask ourselves is: Where is that country in the world that focuses its entire monetary policy simply on attracting foreign investors at the detriment of domestic investors, who supposedly should be the real drivers of the economy? In other words, why focusing our entire monetary policy energy on foreign investors, when we should be focusing it on promoting domestic investors, given it is their doing well that attracts their foreign counterparts? We all know that no genuine foreign investor will invest in an economy with more structural competitive disadvantages despite blind fighting of inflation.
Is our fighting inflation at all costs not telling us that Washington’s currency war against Beijing for continuously devaluing the yuan is a misplaced war, even when Washington believes devaluing the yuan continues to make Made-in-China products cheaper in the US and Made-in-America expensive in both countries? Is it not by mistake that the IMF, insisting on the devaluation of the naira during the Structural Adjustment Programme in the 1980s and 1990s, when the West needed our government to discourage imports so as to conserve more foreign exchange for servicing our bogus debts to the West that it’s now insisting on the blind defence of our currently overvalued naira? Or isn’t the IMF pursuing a western “devil may care and survival of the fittest” imperialist agenda?
What is so worrisome in all this, is how brainwashed we, as Nigerians, have become to the extent that no one is truly speaking up against the current imposition of an IMF-style monetary policy, as most of us did against SAP and the accompanying debt trap. Are we not to blame for allowing these unpatriotic monetary policymakers and the bank connivers to be destroying the economy of this country while opinion leaders in the country look the other way? For how long should we allow fighting inflation at all costs in the presence of high interest rates go on while our real sector firms are driven to their graves and mass unemployment reaches a boiling point?
If this pilfering of our economy goes on because the very managers of our economy, the banks and international financial mafia have succeeded in carrying the media along, have we too been co-opted to the extent of not seeing that the high cost of doing business in Nigeria can neither attract domestic investors nor their foreign counterparts when imported goods continue to be far cheaper as they hardly attract the right tariffs to raise their prices?
But why should western nations practise lax monetary policy and growth fiscal policy, while they insist on our pursuit of tight monetary policy and fiscal austerity? Shouldn’t this negate the fact that it is low interest rate which lowers the cost of borrowing that drives economic growth, ensures wealth and job creation and spurs government tax revenue? Should foreign investors just be attracted given how our infrastructure deficits are overriding every other possible advantage? Or, who are these genuine foreign investors, who simply come to Nigeria with some of the world’s highest costs of doing business?
Isn’t it mind-boggling that neoliberal economists are promoting such a faulty argument that both inflation and prices should be flat in order to attract foreign investors, when in reality, genuine foreign investors (not foreign portfolio investors) like their local counterparts should be seeking low interest rates and the devaluation of naira since they too would from time to time need extra capital as they expand and upgrade their business to become more competitive both locally and internationally?
Shouldn’t attracting both domestic and foreign real sector investors require the overhauling of the country’s fiscal policy, starting with the immediate exit of the World Trade Organisation? Of course, without exiting the WTO, there is no way we should stop fighting to keep the naira stable since the entire economy is highly import-dependent, which means high pressure on the country’s foreign exchange reserves. It is only the exit of the WTO that will allow room for the naira’s devaluation without a run on the same naira. Also, it is only by exiting the WTO that government could either effectively ban or impose high tariffs on imported goods, which could force the present foreign dumpers to either lose our 170 million consumer market or quickly relocate their factories to our country to continue benefiting from the huge market.
Therefore, no amount of propaganda by those in our midst protecting western interests will change the fact that to grow our economy, we too have to do what every developed country did; which is lowering interest rates by allowing reasonable increase in inflation. This is because as an import-dependent economy closes its borders, the gap created by the absence of imported goods will mean product scarcity, which coupled with government financing infrastructure deficit by printing more money, will lead to high inflation, initially. It is such high levels of inflation which a former World Bank Chief Economist, Michael Bruno, estimated to be healthy at between 20 per cent and 40 per cent, that triggers the inevitable scramble by both local and foreign investors. And that’s why high inflation was a commonplace in South Korea in the 1960s, China in the 1980s, and in India in the 1990s.
In other words, as a result of demand-supply disequilibrium and government running a high budget deficit, spending almost on a permanent basis both in the medium and long terms, should always mean high inflation. It is this initial scarcity induced inflation that both domestic and foreign investors rush in to take advantage of while it lasts. But as competition grows, prices will begin to come down and as government revenue increases its deficit financing by printing money is discouraged, leading to gradual inflation reduction.
But for government to undertake this new transformation route, the country should stop the CBN’s flip flop monetary policy. Successfully doing that requires the repealing of the CBN Act of 2007, especially considering that this kind of independence is never given to leading central banks like the US Federal Reserve, whose monetary policy decisions are subjected to thorough Congressional scrutiny, including their Federal Open Market Committee meetings. The CBN’s current closeness to the banks should be curtailed, starting with either outlawing or mandating that the deliberations during the Bankers’ Committee Meetings be made public. It will make sense if we stop appointing the CBN governors and deputies straight from the banks.
Enwegbara is an MIT trained specialist in Finance.
