4 October 2008
Abuja — The THISDAY Town Hall meeting lived up to its billing yesterday as local and international financial experts as well as participants brain stormed for half the day over the lingering global financial crisis and its potential impact on the Nigerian economy.
Governor of the Central Bank of Nigeria (CBN), Professor Chukwuma Soludo, who was among the top-notch panelists at the event, called for a coordinated and collaborative response to the global financial crisis by governments and regulators around the world, and not the independent attempts being made by various countries to safeguard their financial systems.
The epoch-making event organised by THISDAY Newspaper and sponsored by Oceanic Bank Intern-ational Plc, attracted the crème de la crème in the Nigerian business world and the public sector as well as those from the international finance scene.
Participants at the occasion chaired by Mr. Oba Otudeko, president, Nigeria Stock Exchange (NSE), included Mr. Lawrence Summers, former US Treasury Secretary; Mr. Steve Forbes, chairman/CEO of Forbes Magazine; Mr. Remi Babaola, Minister of State for Finance; Minister of State Energy (Gas), Emmanuel Odusina; president of the Independent Shareholders Association, Sonny Nwosu; Amab-assador Isaac Aluko-Olokun, former Minister of National Planning and member, NEPAD Steering Committee; Dambisa Moyo, Global Economist, Goldman Sachs; Alhaji Aliko Dangote, chairman Dangote Group of Companies; Mr. Fola Adeola, chairman, Eterna Oil and Gas; Mrs Cecilia Ibru, managing director/CEO, Oceanic Bank; Senator Udoma Udo Udoma, chairman, Securities and Exchange Commission (SEC); director general SEC, Musa Al-Faki, among others.
Soludo believed the problem is not for one regulator or country in the world to solve, explaining the situation is critical enough and requires "a collective action" for all nations to tackle head on.
He said so far the attempts made by various government show that a collaborative response is missing and "what we have are free riders (countries) that are waiting for some to take the hard choices to solve the problems and will ride on the tails of the process.
"But I think more than anything else, what has happened to the global financial system should compel leaders and regulators to evolve a new financial architecture that can respond to crisis like this.
"I am not sure the IMF or the Brettonwoods institutions, as presently structured, have the capacity to do so. Consideration therefore has to be given to a concerted effort to stem the crisis of confidence in our financial systems.
Soludo was of the view that more than anything else, the protracted global crisis which has spread like wildfire across major finance capitals is taking its toll, and should "force the world to think long and hard about evolving a new global financial architecture that will coordinate much more effectively especially even more instruments for reinforcements and monitoring."
The global financial crisis has taken with it, three of the largest investment banks in the world, Bear Stearns, Lehman Brothers and Merrill Lynch, as casualties, among many others in the United Kingdom.
While allaying fears that the collapse of these two major banks will have a negative effect on the position of Nigeria's foreign reserves, Soludo stressed that the reserves are safe, assuring that, even locally, there is enough liquidity to withstand the challenges of crashing stock market without any intervention fund.
"But I must also point out two other lingering threats from Nigeria's point of view; one major threat that people call me to ask about is the safety of our foreign reserve. Whether the failure of these banks threatens our foreign reserve and I want to quickly use this occasion to say our foreign reserve are safe and we have been very prudent in terms of where we put them, the institutions where they are - and I think so far - and I believe given the institutions where they are, our foreign reserve remain safe.
"The other crisis which has not manifested yet and we pray it does not is for this crisis to spill over into a currency crisis. So far the US dollars has still managed not to weaken substantially rather it has in fact strengthened against some other currencies.
"I think that is relatively a good news because were this crisis to become a currency crisis and major countries begin to loose confidence in the dollar as a reserve currency, then we might have a new spiral of some other global financial crisis but thank God we haven't got there," he noted.
Further buttressing his confidence in the Nigerian economy, Soludo said, "our banks are sound, the balance sheets are fine, they are still declaring profits and dividends that is unlike what we find in other countries where banks are collapsing, declaring losses and so on and so forth. So our own response must be different.
Soludo pointed out that when people say "assets prices are crumbling we must think through the response that we make, so that in the process of trying to solve a short term problem, we don't endanger the balance sheet of the banking sector ultimately.
"The banking sector stocks in Nigeria dominate the stock exchange, the banks and several of them of also become heavily exposed to the capital market and we therefore have to have a clear balance and try to think through the medium and the long term.
The governor reminded the audience the CBN had taken several actions in terms of liquidity "and I want to say very specifically that the kind of liquidity that we are allowing into the system today is such that I don't really see what else in terms of liquidity requirements that will be needed to move the market forward.
"Our vaults are open, we are free to lend to the market, our discount windows are open, our liquidity ratios are down, our monetary policy rate is down even the cash requirement reserve is down. So I believe that the market is as liquid as it should be in a time like this."
Throwing more light on the issue, Remi Babalola, said there was no need for any intervention fund to mitigate any negative effect as he asked "what are we going to bail out."
According to him, currently, all the banks and major companies that are on the stock exchange are doing extremely well, "that is what the financial statements are telling me."
Instead of the intervention or stabilization fund, he stated that, "We are actually going to make sure that we scale up on our brain work so that we do not have diminishing assets and we are going to enhance the corporate governance level. That is the direction that we are working on.
He hinted that, before the end of October, "drastic measures" will applied to bolster the economy, to the extent of further giving higher levels of confidence to all the operators in the economy.
Meanwhile, the chairman and publisher of Forbes magazine, Mr Steve Forbes who flew into Abuja yesterday morning with the former US Secretary of the Treasury, Lawrence Summers for the Town Hall meeting, while tracing the genesis of the stock market crisis presently rocking the United States, said the country's Central Bank and the Treasury Department are both culpable for the situation that has sent economic heat-waves across the globe.
Forbes said the two financial institutions made the mistake of ordering the printing of too much money four years ago which may have provoked the current financial crisis in the first place.
"The crisis that we see around the world today, I must say has a historical link with the US financial management. I believe the US may provoke things that brought about this situation. First of all, four years ago, the Federal Reserve made a mistake of printing too much money because they under-estimated the strength of the American family", he said.
He said the resultant excess liquidity which the Federal reserves could not convert made possible the global commodity bubble and also created a housing bubble to disastrous proportions in the US.
"That was the first major error. Another error was a weak dollar policy championed by the US government; the mark to market accounting regime which deals with fair value accounting rules; and Fannie Mae and Freddie Mac - both government sponsored enterprises created to sell mortgages to the public that were intrinsically guaranteed by both institutions.
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