SOLUDO VS IWEALA: The Pot And The Kettle, By Henry Boyo

Renowned Economist, Mr. Henry Boyo

The office of Dr. Ngozi Okonjo Iweala, the co-ordinating Minister of the Economy has promptly responded to the content of a recently published article titled “BUHARI Vs JONATHAN – Beyond the election.”

The article which was written by the former Governor of the Central Bank, Chukwuma Soludo, as an attempt to proffer solutions to our severe social and economic challenges simply echoed the prevailing popular sentiments regarding the failure, of President Jonathan’s Economic Policies, to improve the lot of our people.

However, although Soludo’s contribution does not contain any fresh mind boggling revelations on the incompetence of the current Economic Management Team, his glowing reference to the economic performance during Obasanjo’s era should ordinarily be sweet, comforting notes to Ngozi who was the leader of the Economic ‘wizards’ who were largely seconded from their responsibilities with the IMF and World Bank to rejig the Nigerian economy;

nonetheless, Soludo’s latter day condemnation of the “terrible policy choices” made by the Honourable Minister in her second coming in Jonathan’s administration, probably stung madam Minister as a betrayal of espirit des corps. Consequently, the Iron Lady quickly fired back in a Press release; in her response, Dr. Iweala noted that “It is a sad day for Nigeria and the Economics profession that someone like Soludo, a former CBN governor, should write such an article.

If Soludo wants to regain respect, he should return to the path of professionalism. He certainly needs something to improve his image from that of someone whose sojourn into national economic management ended in disaster for the banking sector.”

It is not clear when the Honourable Minister, realised that CBN’s management of monetary policies was a disaster; the question is, did she ever bring her reservations about the potential adverse impact of Soludo’s mismanagement to President Obasanjo, and if not, why did she choose to simply keep mute despite the potential magnitude of devastation that a predictable tsunami could cause to the banking sector? Was such reaction the Honourable Minister’s best expression of her patriotism?

Curiously, those of us who expressed concerns on the shenanigans of Soludo’s management of the banking subsector were quite simply ignored until the bubble burst in 2008/9, despite the Governor’s unflinching assurances to all and sundry that the Nigerian banking sector was immune from the economic crisis that engulfed everywhere else worldwide.

Latter events have shown that Soludo’s acclaimed banking consolidation and market regulations were all founded on quicksand and Okonjo Iweala is apparently clearly now more appreciative of the fact that Chukwuma’s reckless brand of banking regulation and supervision, ultimately, led to “massive accumulation of bad debts, (which) meant that our banks were ill-positioned to deal with the global financial crises when it hit. In fact, the banking sector was brought to its knees and required a massive bailout by Nigerian taxpayers.”

It has not been verified if Soludo was a covert beneficiary of the rot he knowingly induced in the banking sector, but according to Iweala, it was evident that “there was very little separation between the regulators and the regulated.” Thus, Soludo unwittingly or knowingly sustained a relationship that “is clearly a violation of a key requirement of central banking success.”

Iweala holds that the regulatory lacuna led “to infractions in corporate governance as loans and other credit instruments running to hundreds of billions of Naira were extended to clients without following due process, and several of these loans could not be paid back.”

So, according to Ngozi “Soludo’s singlehanded mismanagement of the banking sector led to an incredible accumulation of liabilities that will cost taxpayers about N5.67tn (over $36bn) to clean up.” Sadly, future generations will inherit this debt.

The Honourable Minister also noted that the amount “constitutes the bulk of Nigeria’s contingent current liabilities’ which were decried as profligate in Soludo’s article.”

Conversely, Chukwuma’s article paints a completely different picture which portrays the erstwhile CBN Governor as the brain behind an exemplary and also socially and economically progressive Economic Management Team. Nonetheless, the public will recognise such perception as false. Indeed, the Economic strategies of the current administration are clearly a continuation of the strategies that typified the Obasanjo era.

All the uncomplimentary features that Soludo observes in the current regime are infact amplified derivatives of Soludo/Iweala fiscal and monetary strategies between 1999-2007.

For example, the fiscal tradition of comparatively modest annual capital votes against increasing humongous recurrent consumption, prevailed in that era;  Okonjo Iweala has loyally followed the same trajectory, such that almost 90% of total spending in 2015 will be devoted to plain consumption with a paltry vote of 10% for infrastructural remediation; regrettably, education budget has hardly exceeded 15% since 1999, despite UNESCO’s best practice recommendation of 26% of annual budgets.

Furthermore, CBN’s current monetary framework adopts the same template that Soludo inherited from his predecessor; for example, the oppressive system of placing government deposits for zero returns, while government embarks on regular borrowings from commercial banks with extreme rates which distort resource allocation was a permanent feature of Soludo’s monetary strategy, despite the needless cost and the attendant heavy accumulation of loans which are ultimately stored away as idle funds.

Similarly, the present administration continues to battle with the oppressive burden of surplus cash which the former CBN Governor also sweated unsuccessfully throughout his tenure to mop up. Curiously, still no one appears concerned on the unending source of systemic surplus Naira despite its abiding adverse consequences on the level of inflation and the capacity of small and medium enterprises to thrive and create more jobs.

Furthermore, CBN’s anti-social strategy of deliberately creating dollar scarcity after suffocating the market with freshly created humongous Naira values is actually responsible for increasingly weaker Naira exchange rates even when reserves are fortuitously bountiful; curiously, Lamido Sanusi kept faith with this same strategy and Emefiele has also become a loyal apostle.

Sadly also, cost of funds to the real sector has remained well above 20%, the same oppressive rates that constrained industrial growth during the Soludo years as CBN Governor; inexplicably, also, over N40bn contributed as levies from banks’ profits under Soludo were returned by the Governor to the same banks because CBN could not come up with an acceptable strategy for disbursement!

Yet, inspite of considerable evidence of impunity and controversial deals while CBN Governor, Soludo has surprisingly elected himself as our saviour.

Save the Naira, Save Nigerians!!

Henry Boyo is a respected Nigerian columnist. He writes profoundly on economic issues