The Federal Government yesterday bowed to economic pressure caused by the global economic recession and the crash of the naira by setting up an economic crisis management team just as the CBN Governor, Professor Chukwuma Soludo, finally admitted that the devaluation of the naira was a deliberate government policy to generate more naira for government to make up for the shortfall from dwindling oil revenue.

Members of the Presidential Steering Committee include Governors Babatunde Fashola of Lagos State, Isa Yuguda of Bauchi State, Adams Oshiomhole of Edo State and Bukola Saraki of Kwara State.

Others are Ministers of Finance, Mansur Mukhtar; National Planning, Dr. Shamsudeen Usman; and Petroleum, Dr. Rilwan Lukman; Chief Economic Adviser to the President, Dr. Tanimu Yakubu Kurfi; Governor of the Central Bank, Professor Chukwuma Soludo; President of the National Economic Summit Group, Mazi Sam Ohuabunwa; Mr. Bismark Rewane, an economist; Mr. Tony Elumelu representing the Bankers' Committee and Alhaji Aliko Dangote representing Nigerian industrialists.

The committee will be inaugurated tomorrow with the president presiding over its first meeting.

Giving the terms of reference of the committee, Special Adviser to the President on Communication, Mr. Olusegun Adeniyi, said it was expected to "assess the impact of the global economic crisis on Nigeria with particular reference to the nation's annual budget, financial and commodity markets.

The committee is also expected to recommend appropriate macro-economic policy responses that can further stimulate the economy as well as identify more practical measures aimed at shoring up the confidence of investors and increasing production in the real sector;

"The committee is also expected to examine other related issues such as unemployment, poverty alleviation, food availability and ensuring a sustainable debt position and make recommendations on any other issues or actions that may be required."

Addressing State House correspondents, Mr. Adeniyi said the establishment of the committee which is chaired by the President himself was to give greater effect to efforts by his administration to deal in a more holistic and well-coordinated manner.

According to him, the Committee is expected to work with the National Economic Management Team which has been reconstituted. It is expected to establish technical working groups, he said, in accordance with the objectives which underscore the new economic management framework of the government.

Naira deliberately devalued, says Soludo

Meanwhile, the CBN governor yesterday admitted that the recent depreciation of the Naira was a deliberate policy of the Federal Government designed to arrest the decline in government's revenue as a result of falling oil prices and the negative impact on the economy, adding that the depreciation won't necessarily lead to inflation and job losses.

It, however, stated that the Naira would soon strengthen and stabilise and speculators would have their fingers burnt.

But the Naira depreciated further yesterday as N157 exchanged for one dollar as against N150 on Monday. Consequently, the interbank exchange rate also rose to N160 per dollar from N157. At the parallel market, uncertainty and speculation is the word as bureaux de change operators said there was no ruling exchange rate in the market.

WDAS suspended, RDAS to come back

Meanwhile, the apex bank said it would temporarily suspend the Wholesale Dutch Auction (WDAS) and reintroduce Retail Dutch Auction System (RDAS), to eliminate opportunities for sharp practices in the foreign exchange market.

CBN Governor, Professor Soludo stated this at a press conference to explain the rationale for the N18.73 or 14.3 per cent depreciation of the Naira in the official market since the beginning of the year.

According to him, "since November last year, there have been series of volatility in the foreign exchange market which has led to depreciation of the exchange rate of the Naira. As a result, there have been speculations as to what the exchange rate will be in the expectation that the depreciation will continue.

"This development notwith standing, I must state that the policy of letting the Naira to reflect the current realities in the global market is deliberate. However, the CBN remains committed to having a stable market determined exchange rate regime."

Enough forex available

"Also the CBN and federal government have the amount of foreign exchange to meet external obligations now and in the future.

We still have foreign reserves that is more than $53 billion, hence we have enough war chest to meet obligations and we remain committed to meeting all obligations.

"We have allowed the exchange rate to adjust in response to shocks in the global system that have affected prices and made crude oil prices to come tumbling down leading to sharp decline in the nation's foreign exchange earnings.

Also financial inflows into the economy either via the capital market or as foreign outworked investment have reduced.

"Consequently, we had a choice either to allow the exchange rate to remain fixed and risk filtering away the foreign reserves, and the consequence of decline in government revenue, with the risk of experiencing what happened years ago when government could not pay staff salaries and there were massive retrenchments across the country.

"In addition to these scenarios, because prices of imported goods have fallen globally including freight charges, if the exchange rate of the Naira was not adjusted, there is the risk of massive importation of anything and whipping off of the local market.

"The difference between what is happening now and then, that is in the 1980s when crude oil prices also fell, is that then we had a fixed exchange rate regime, and this resulted into decline in government revenue, but now we have a flexible exchange rate regime.

"The flexibility of the exchange rate is a key shock absorber for the economy when the foreign reserves are declining . Hence today, government can still pay salaries, continue with capital projects and run the economy as if nothing has happened.

"Another shock absorber is the excess crude oil revenue which the federal government and the state governments have agreed to save.

"However, we observed that the adjustment of the exchange rate of the Naira has led to speculations that the Naira would continue to depreciate.

But I have bad news for those who have been speculating and stockpiling foreign exchange with the expectation that the Naira would continue to depreciate. We will continue to sell to them at what rate they want to buy but I can assure you that the Naira would soon strengthen and stabilise hence I am sorry for those stockpiling foreign reserves because they will have their fingers burnt.

On the possibility of round tripping, he responded that, "this won't happen because it is not beneficial for them. Round tripping is beneficial if you can speculate successfully that the Naira will further depreciate and the exchange rate will continue to go up.

Presently, there is no incentive to do that because the Naira would soon strengthen, and more so it would be difficult for banks to speculate as we are monitoring them and the sanction would be heavy, including withdrawal of foreign exchange dealership, if any bank is cut.

"Also to curb the tendencies for such sharp practices we are temporarily suspending the WDAS and reintroducing Retail DAS.

Under WDAS, banks buy foreign exchange for themselves and they can buy to take positions when they have the liquidity, and later sell to customers. But now, under Retail DAS, banks will have to bid for their customers and we will investigate the bids they submit for customers to ensure that they are genuine.

Naira devaluation won't lead to job losses

Contrary to fears expressed by the private sector, Soludo said that the depreciation of the Naira will not necessarily lead to general increase in prices or massive job loss.

"In theory, it could potentially lead to higher prices, on the assumption that import prices are high and fixed hence the depreciation through import prices might lead to inflation but in practice because of the global recession, most prices abroad have collapsed, with some charges and prices of goods and services falling by up to 50 per cent, hence falling import prices. So the depreciation would not necessarily lead to inflation, and if at all the increase would be insignificant. More so, import component of inflation in the country is not significant.

"Also with respect to jobs, the depreciation will not lead to job losses but forestall job losses. In the 1980s, because the exchange rate was fixed dwindling government revenue led to massive retrenchment. But this is not happening because the depreciation forestalled decline in government revenue.

Also, if the Naira was not adjusted, the decline in import price would make it cheaper to import goods and this will wipe off domestic industry and occasion job losses."