QUESTIONS FOR ALAN GREENSPAN 16012006

Our people say that when a child has washed his hands clean, he can be allowed to eat with elders.  In the same vein, when a ‘neophyte’ domestic banker impresses the International Banking Community with his enthusiasm and will to bring about monetary and economic change in just three years or so, then such a star would get the recognition of his peers.  The news release confirming the forthcoming visit of our own indefatigable Central Bank Governor to the shrine of his outgoing United States counterpart, Mr. Allan Greenspan, the Chairman of the Federal Reserve Bank in Washington D.C. was published last week.   The media campaign that the visit “is part of Soludo’s exchange of ideas with, and recognition by his peers around the world, coming shortly after that with Melvyn King, the Governor of the Bank of England in October 2005”.  

In particular, the news release continued “… The CBN Governor may want to learn from the success of the FED (the US Central Bank) under Greenspan leadership in sustaining non-inflationary growth in the US economy in the past one decade!”  Well, given the domestic Nigerian economic scenario where inflation and liquidity seems to be wreaking havoc on Soludo’s best laid plans, it is a sign of our man’s humility that he knows he has to seek for help, and there is probably no other better teacher to provide tutelage to our Professor than the United State’s Mister Greenspan, whose credentials in the area of macroeconomic management are indeed intimidating and legendary; if anyone can explain the causes of the contradictions between our government expectations and the results of our monetary and economic policies, it will be Mr. Greenspan!  

However, we are reminded that sages of Greenspan’s caliber are often cultured enough to respond to specific questions and may not volunteer opinions or solutions to questions which remain silent!  It would be expedient, therefore, for our own CBN Governor to approach the oracle with specific and unambiguous inquiries.  I hope that the eminent Professor would not mind if simple Nigerians request that our Governor will return to Nigeria with answers that will reconcile some of the contradictions in our economy, particularly with regard to exchange rates and interest rates.  Incidentally, in this regard, the media also published the euphoria surrounding the South African dollar reserves exceeding $20bn last week.  The reports indicated that the current gross reserve base put the South African economy in the comfort zone of about 4 – 5 months import cover and ensured that the local currency, the rand would remain stable at about 6 rand to the dollar; we recall that the rand had actually exchanged for about 15 rand to the dollar less than three years ago, when the reserve base was not so buoyant.  This information must be very worrisome for our own Central Bank Governor, as the Nigerian economy and exchange rate structure has behaved differently from the South African experience without any justifiable reason.  For example, our exchange rate hovered around N80=$1 during the despotic years of 1993-8, inspite of our pariah status in the international community.  Meanwhile, our foreign reserves at that time was a paltry $5bn, which was barely enough for six months imports.

However, as at January 2006, Nigeria now has net foreign reserves of over $25bn after deduction of the $12.4bn payable to the Paris Club for ‘questionable’ debt relief, and our reserves will cover our import bills for over 20 months; but lo and behold our naira rate remains resistant at N129=$1.  This surely is an anomaly, especially when crude oil prices enjoy premium rates above $60/barrel and a prospect of earning over $40bn from the estimated daily production of 2.5m barrels per day for the year 2006.

Our Professor would be well advised to bring this contradiction to the attention of the internationally acclaimed banker, who helped to grow the US economy since he became Chairman of the Governors of the Federal Reserve System in 1987!  

That Mr. Greenspan is a Guru in monetary matters is not in doubt, as Chairman of the Governors of the Federal Reserve System since 1987, his commitment to low inflation and conservative monetary policies made his name a byword for economic restraint.  His leadership of the FED has been widely credited with sustaining the growth and prosperity in the American economy during the 1990s.  Our own Professor should drink from the Greenspan fountain and discover how the Fed Reserve rate was kept below 5% for the better part of 18 years and US Federal government never borrowed at over 6% through the instrument of bonds and treasury bills.  These appear to us in Nigeria as utopian targets; what with our CBN Minimum Rediscount Rate (MRR) constantly hovering around 14% and our own government borrowing back its own money at rate s in excess of 17%, and in competition with the real sector for loanable funds!  We hope Mr. Greenspan will explain why the US economy could not have grown and would have remained stunted if commercial and industrial lending rates constantly exceeded 20%, as such rates are inimical to serious industrial enterprise and growth.  

Our own Professor may never have had cause to borrow at these cut-throat rates and may be forgiven for not recognizing this as a major factor for industrial collapse in Nigeria!  Inspite of the problems and contradictions in the Nigerian economy and the attendant severe hardships visited on millions of households throughout the country, the sterling qualities of our CBN Governor continue to shine to distant shores and following the visit to Greenspan, Prof Soludo will stop over at the prestigious London Dorchester Hotel to be formally presented with the double awards as the most outstanding Governor of the Central Bank in the world, and in the African region in 2005!  Good for him, but what about an award also for the long suffering Nigerian masses, who have been at the receiving end of various failed economic experiments, including SAP initiated by both past and present governments in the last 30 years, who needless to say, also attracted international encomium.  

Interestingly, Soludo has not managed like Greenspan to work any magic on the Nigerian economy inspite of the publicity given to his reforms, and the structurally defective NEEDS blueprint.  However, his peers in the club of international banking may also want to learn from the Professor how past and present Nigerian CBN Governors have gotten away with economic policies, which pauperize the people in the face of increasing wealth; but then again they may not care to ask our Chief Banking Officer, so long as their bread continues to be buttered on the right side by such policies!  If the truth be told, the solutions that Soludo is searching for in faraway lands are in fact replete and blowing in the wind in his backyard, but then, why deny the team of supporting government delegation their travel allowances and estacodes!! Nonetheless, I will continue to maintain that salvation of our economy will come, and contradictions between expectation and the result of government macroeconomic policies will only disappear when the CBN stops converting the monthly distributable dollar revenue into naira before sharing, and adopt the instrument of dollar certificate for a more harmonious macro economic climate.  This recommendation from a well-meaning Nigerian is proffered free of charge; it may receive more attention when proffered by expatriate consultants at a fee in excess of $1bn