Before Soludo's Replacement – Daily Independent Editorial

No Comments » February 8th, 2009 posted by // Categories: Nigeriawatch



FEBRUARY 8, 2009
Before Soludo’s Replacement

The plot thickens by the day, with increasing speculations about the non-renewal of the mandate of the Governor of the Central Bank of Nigeria (CBN), Professor Chukwuma Soludo, for another term in office. This will be a key decision for the President Umaru Yar’Adua administration. It is a decision that will and should not be taken lightly.

The backdrop to the decision, whichever way it is resolved, will centre around the current state of the economy, the health or otherwise of the nation’s financial services sector and, of course, the future direction of the economy, given the current worldwide financial meltdown with many of the major economies moving into recession. Nigeria’s economy as of now is clearly in a precarious position. The infrastructure deficit caused by the absence of the political will to diversify the country’s earnings base means that the fundamentals simply do not add up. This reality must be faced by the nation’s political elite and is a far cry from the self-glorification and complacency often associated with some members of the elite.

Soludo’s often touted reform of the banking sector must be located within the context of the performance of the real sector of the economy. The decision to increase the capital base of the financial services sector, in particular the banks, was clearly a step in the right direction.

However, the jury is still out on the efficacy of the ‘Soludo solution’. As far as the real sector is concerned, consolidation has clearly not impacted with the positive resonance expected. The wave of factory closures and de-industrialisation can only lead to the conclusion that the banks have not, post-consolidation, played the pivotal role envisaged as the engine room to drive the real sector and with it job creation and increase in living standards; nor have they narrowed the widely noted disconnect between the questionable profits of the banks and the collapse of the real sector.

There is, moreover, widespread unease that these ‘profits’ are more the machination of creative accounting than reality. Partial confirmation of this perspective can be seen in a recent report by the Nigeria Deposit Insurance Corporation (NDIC) which gave a solid pass mark to only two banks, said six were ‘manageable’ and 16 in a wobbly state. No amount of self pats on the back can hide a widespread discomfiture about the true state of the health of the banks. For a start, achieving a statutory capital benchmark ought to go hand in gloves with solid risk management and sustenance of proven capital adequacy ratios. It would appear that accounting systems, records and logs are still far from transparent.

For this reason among others, this newspaper is in full support of the position that a separate Financial Services Authority should be created by the Federal Government. Such a body operating its full writ throughout the financial services sector should be empowered with the technical skills and the capacity for full, rigorous no-holds-barred regulation and supervision of the state of health of the entire financial services sector. If there is one lesson which must be learnt from the current global finance calamity, it is that the days of light-touch regulation are over! A clear beneficial aspect of accepting this position is that the CBN will now concentrate its attention on monetary policies, inflation targeting and interest rates. It would be of immense help if it pursued a rigorous watch on government spending. In this area, there is widespread feeling that the bank has capitulated in the face of profligacy. Light-touch regulation is so discredited now that there is an urgent need to go back to the days of full rigour. Pretending that everything is okay could turn out to be an act of cruel deception. The time to act with all vigour is now.

Soludo was a principal actor in the economic team of the ancient regime. Many of the assumptions of the Olusegun Obasanjo era are now being questioned. For one, in view of the fact that there is a time value of money, it simply does not make sense to have piled up money which should have been spent on tackling the country’s infrastructure and social deficit in the vaults of foreign banks. Worldwide, it is now accepted that the old gods have failed. There is a move away from the faded assumptions on which much of economic action over the last 30 years have been based. From Barack Obama’s ‘plan for reconstruction and regeneration’, to Gordon Brown’s economic stimulus and bail-out interventions, one trend is clear, as the French President Nicholas Sarkozy will put it: there is a need for a ‘rupture’ with the past. Those who have been at the forefront of bandying faded slogans and been the focal point of the now discredited positions might care to consider their continuing relevance.

The search for a new governor, that is if one is being carried out, must be predicated on merit, experience, as well as expertise and intellectual and professional preparation. This cannot be the time in this particular arena for political calculation and geo-political balancing. The crises we face are far too profound for such indulgences.

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