Download questions for greenspan 160106

QUESTIONS FOR ALAN GREENSPAN
BY: LLES LEBA (Email: [email protected] )
Weblink: http://groups.msn.com/RATIONALPERSPECTIVES
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 noninflationary 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.
1
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
SAVE THE NAIRA, SAVE NIGERIANS!
2