Francis Ugwoke
31 October 2008
Enugu — Central Bank of Nigeria's (CBN) Governor, Prof. Chukwuma Soludo, yesterday said that countries that will be worse hit in the current global financial crisis are countries that are heavily indebted and aid-dependent, including Nigeria.
Soludo said that the burden of debt and the fact that some countries depend so much on aid from International Monetary Fund (IMF), may not give them the policy space to pursue the 'best policies' that they would wish.
Soludo, who spoke at the 40th Inaugural Lecture of the University of Nigeria, Nsukka (UNN), said that for these developing or poor countries, changes in their policy orientation depended entirely on the orientation of the IMF and the World Bank.
In his Paper titled "Financial Globalisation And Domestic Monetary Policy", the CBN governor said that since many developing countries were lagging far behind the industrialised ones, the question is the appropriate way to leapfrog development.
He pointed out that the "cross-conditionality," which included the endorsement of IMF before debt relief or rescheduling is granted, may imply that such economies have to adopt explicit programnmes and policies designed by the world international monetary agency for these countries or through self-censorship, that can only be approved by the agency.
"A shock therapy of the type experienced under the Structural Adjustment Programme (SAP), whereby economies embraced privatisation and liberalisation of markets, irrespective of the extent of their readiness, was roundly criticised by many analysts then, but I am not sure if any of such countries would rather wish to return to pre-structural adjustment programme days of state administered prices and control of the so called commanding heights of their economy.
"Similarly, in Nigeria, the banking sector revolution was underpinned by our conviction that to leapfrog the process of development, we needed to supply a new system ahead of the demand for it", the CBN governor added.
Soludo said that in response to the current global financial crisis, governments in the developed countries like United States had deliberately mobilised trillions of dollars to recapitalise their banks and bail-out the financial system in the best interest of their economies.
He explained that this was because these governments considered the financial system as part of the national security infrastructure.
He, however, expressed regrets that these developed countries had been bailing out their own financial system with "our billions of dollars" kept there, while poor countries have literarily been abandoned to their fate.
He said that the current global financial crisis had once again raised the need and urgency for new thinking that one country could cause such a magnitude of crisis in which many countries with sound fundamentals are also plunged into the same problem as a result of contagious effect.
Soludo explained that it was a "market-cum-system failure of great proportions" that led to the current crisis, adding that the rich countries bail themselves out because they have resources available to do so, regretting that the least developed countries would suffer the long-lasting effect.
He added that apart from the cost of direct government interventions around the world, other indirect costs of the current crisis run into several millions of dollars in income loss, stressing that tens of millions of people may be plunged into poverty for a generation particularly in the developing countries.
The CBN governor warned that the global economic system will find it extremely difficult to survive many more of the current global financial crisis, adding that problem "offers a chance to create the beginning of an all inclusive and responsive globalised economy."
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