This Day (Lagos)

20 February 2013

Nigeria: The U.S.$67 Billion Foreign Reserves Legacy (2)

Photo: WEF
Cape Town. Obiageli Katryn Ezekwesili at the world economic forum on africa 2008.

analysis

Between 2007 and 2008, there was a sudden rise in the global oil prices per barrel: From $50 in early 2007 to $147 in mid-2008; suddenly falling to below $40 by late 2008.

The way the unexpected rise in oil prices pushing the value of Nigeria's stock market to unheard-of 350 per cent, attracted billions of western foreign portfolio dollars into the market trying to take advantage of high return on investment; was the same way the unexpected plunge in global oil prices dipping the stock market value, triggered an unprecedented capital flight. In other words, the way some unquarantined $20 billion, foreign hot money, pouring into the country's stock market heated up the market, was the way $15 billion of that money, leaving the country brought the stock market on its knees.

By the time the ravaging global liquidity crush, which started on Wall Street in September 2008, was over, Nigeria's own version of the financial fiasco couldn't be more dramatic. Dropping from N13.5 trillion to N4.6 trillion, the country's stock market had lost monstrous N8.9trillion. An astonishing 66 per cent in value, which compelled Bloomberg World Stock Market Report to rank the NSE Index in 2009 as "the worst performing equity index globally." But besides the devastating impact of billions of dollars of foreign outflow that also affected the country's foreign reserve accounts, millions of Nigerian investors too lost whopping N2.5 trillion personal savings and assets to the country's Ponzi scheme margin bank lenders. Badly hit by the loss of N1.5 trillion in toxic assets, the banks had their stocks turning into junk. In the meantime, like most central banks around the world trying to quench this ravaging financial wildfire, the CBN, from the lender of last resort, injecting N620 billion into some of the worst hit banks, suddenly turned into the lender of only resort as well as the buyer of the last resort.

In trying to mitigate the devastating fallout of this global financial crisis now resulting in avalanche of banking bankruptcies, governments around the world poured unheard-of hundreds of billions of dollars of public money in banking rescues as well as to restart the credit economy. In addition, hundreds of billions of dollars were equally poured as stimulus package to jumpstart the real sector of the economy. With the US economy worst hit, the government injected $1.9 trillion into the country's financial system. Britain, announced $850 billion bailout package. China, with over $3.5 trillion foreign reserves war chest, had no difficulty pumping $586 billion into its banking and financial sector. The Euro-zone economies on their part, announced 200 billion euro, which could be further increased should the need arise. All in all, nations around the world, big and small, intervened with as much public money as they could to bail out their respective economies.

From this, it is understandable how almost half of the so-called $45 billion in foreign exchange reserve accounts left by Obasanjo in 2007 got wiped out by late 2008. In other words, how foreign portfolio investors, who brought in billions of dollars into the country between 2005 and 2008, took their money out by late 2008 in search of safer haven out of Nigeria. Had Mrs. Ezekwesili taken some time to look into how the global financial crisis of 2008 and 2009 wiped out large part of the country's foreign reserves, especially had she known that out of her alleged $45 billion in foreign exchange reserve account, actually about $20 billion in that said account belonged to some western foreign portfolio investors, who took pulled $15 billion of it quickly out of the country as a result of the global financial crisis.

Even though one shouldn't be seen to be pre-empting the outcome, given Nigeria's revenue allocation formula as stipulated in our constitution, it's extremely difficult for the two administrations to have accessed, let alone have spent money belonging to three tiers of government without involving states and local governments as the co-owners. Were these allegations true, obviously there wouldn't this deep silence among governors and local government chairmen. Or did they not hear from Mr. Ezekwesili that the $67 billion left behind by Obasanjo while leaving office, was allegedly squandered by the federal?

The good news here is that the country's own version of the global financial crisis happened under the watch of Chukwuma Soludo. An Obasanjo CBN governor appointee, Soludo, as the country's chief banker, only handed the country's monetary policy management to Mr. Sanusi Lamido Sanusi on June 1, 2009, when the ravaging financial tsunami was over, leaving only debris. So close to Obasanjo was Soludo that he conducted the banking consolidation for no other strategic reasons than to concentrate the banking industry in the hands of Obasanjo's close allies.

That's why besides banking consolidation, under his watch, the country's banking industry turned into Ponzi scheme, where bankers, believing to have become Hollywood celebs, went to work every day simply in search of the newest financial innovations to be used to defraud unsuspecting depositors and investors alike. Little wonder, when most of bank chiefs were sacked in by Sanusi, they all retired dollar billionaires, with some having foundations in their names and private jets to travel around the world in absolute luxury.

So, the question is: How many times should government have to share the petrodollar revenues before turning the dollars to the CBN as foreign exchange reserves for conducting the country's monetary policy, controlling inflation, managing exchange and interest rates, done in an effort to continuously maintain system stability? The question should be asked because otherwise, we end up believing that besides printing the naira, the CBN has also the power to print dollars we need in meeting our foreign trade obligations too.

That is because, without the dollars in CBN's foreign exchange reserve accounts, there is no way it should be expected to be providing the foreign exchange needed by those flooding the country with foreign imports. Since the US dollar is the de facto reserve currency, it obvious that Nigeria too conducts its international trade in dollar currency.

Given how dollarized our economy has increasingly become, without enough dollars in our foreign exchange reserve accounts, how do we expect the CBN to perform its foreign exchange monetary policy, especially given dollar standard replaced the gold standard? Simply put, without enough dollars at its disposal, how should the CBN be able to successfully defend the naira as a store of value? Having recognized this essential role the foreign exchange reserve account plays, why still demanding where did the dollars in foreign exchange reserves disappeared into? Shouldn't asking this question amount to wanting to have our cake and eat it?

Of course, Mrs. Ezekwesili could have made some convincing argument playing the devil's advocate. She could have argued that the administrations having loaded the economy with such unproductive domestic and external debts have used them to turn the country's foreign reserve accounts insolvent. Yes, such argument could be plausible should we be talking about a rogue government. It could be argued that because of excessive unproductive dollar and naira debts, the country's foreign exchange reserve accounts and domestic economy, crowding out the real sector from domestic credit market, all added up, plunged the economy into stagnation. The problem with this line of argument is that it forces her to tell us more about how much she understands the underworld economy, invariably how the movement of armed robbers at night could be ascertained. This is a kind murky water to swim in.

Since we have to get to the bottom of these accusations, besides interrogating Soludo and Sanusi about what they know regarding the alleged $67 billion, equally to be questioned should be the past and present Security and Exchange Commission and Nigerian Stock Exchange bosses, especially regarding capital flights resulting from the global financial crisis of 2008-2009 happened under their watch. The Debt Management Office boss too should come under investigation, not only to fully tell how the country's debts were raised so high, but also how much professionalism has gone into the conducting of the country's debt sustainability analysis since 2007. The Accountant General of the Federation and the Auditor General too should explain what they about Mrs. Ezekwesili's allegations.

Since there is nowhere in the constitution that it is said that a citizen, accusing government of wrongdoing should have the right to debate government, if Mrs. Ezekwesili truly has serious allegations against Jonathan administration, shouldn't as her burden of proof demands, rather than calling for debate make her to call press conference to show to Nigerians her "empirical facts, figures, details, and analysis"?

In other words, if we should get to the bottom of these serious accusations, rather than wasting time having a debate between Mrs. Ezekwesili and the Jonathan administration, we should follow the constitution? Cheap media onslaught apart, isn't it obvious that in democracies such as ours, democratically set rules should be followed, otherwise we end up turning the government into a debating society, debating every citizen who accuses it of any wrongdoing, even witåhout sufficient proof?

That place to start should be the country's apex lawmaking arm of the government. But, should either Mrs. Ezekwesili or the Jonathan administration, still feel unsatisfied, then, they should go to the country's apex judiciary arm of the government, being the final arbitrator.

While I may not have satisfied everyone with the position I have taken in my analysis of the alleged squandering $67 billion, at least, allowing myself some casualness in trying to unveil the truth, without unnecessarily employing some confusing financial jargons, haven't I tried? Too often, though, pundits imagine that because the subject of finance is such a serious subject, it must be approached with excessive seriousness. Avoiding excessive seriousness in these two articles, I did so, even though in my good standing, I could have written difficult to understand articles.

Enwegbara is a MIT educated specialist in money and financial matters.

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