VICTOR OGIEMWONYI
Ogho Okiti’s Column in BusinessDay always makes an impressive read. His June 8 Column on the incoming & outgoing CBN governors (Soludo and Sanusi) was yet another example of his incisive economic analysis. I disagree that Soludo’s best days were the days he had to respond to the global financial crisis. If anything, he reacted too little, and too late. His late response may be responsible for the excessive damage to the values of most of our financial assets.
I agree that his response was spot on. Policy-wise, but he was slow in coming to that decision. He completely missed the early signs of what was happening in the financial markets. The response was very weak initially
Depreciating the Naira was a courageous act on his part; but again, it was a little too late and the depreciation was too large a drop with no real strategy to manage the resulting effects and in the process, destroyed some of his best achievements during his 5yr-tenure at the CBN. Inflation went back to where he met it, foreign exchange rates deteriorated past the N140 mark he met. In fact, N140 became the official rate while the black market rate raced to N170 to a $1. His monetary policies consistently changed, unsettling markets, just as he joined other panicky regulators to trade blames on why things were not working right. Bureau De Change operators became his first victims. A new round tripping of foreign exchange returned. The old foreign exchange street speculators reappeared in full force.
Read Also: The Sanusis and Soludo were superior managers of Nigeria’s exchange rate
Let me explain myself; I am a fan of Professor Soludo, my friends who know my views and in my several write-ups, particularly during the consolidation, will tell you I was one of those who backed Soludo to the hilt. Ask Chief Lawson Omokhodion, we are good friends but share opposite views when it comes to Soludo, and his consolidation agenda. The reason I backed him then, was because he was right. I thought he did poorly, in his last days. He took his eyes off the ball. Some of his critics say he became too much of a politician.
Soludo as CBN Governor was one of the best in understanding the total role of the CBN as an institution specifically set up to manage the economy through the financial system. This major role, includes managing price stability, i.e. watching inflation closely, ensuring a fair exchange rate and interest rates in effect maintaining the stability of the financial system. Regulating the banks comes last.
Before Soludo, most of our past CBN Governors spent all their time issuing monetary circulars to banks and rarely did enough to control inflation, interest or foreign exchange rates. When they focused on inflation, they virtually stopped activities in the economy, because they applied tight monetary policies that was also in addition to government’s own tight fiscal policies which translated to low liquidity for the economy, high interest rates and in most cases with high inflation; resulting in a stagnated economy, what economists call stagflation.
The high interest meant, no productive activity, every one became rent seekers. Top government officials sought reasons to deposit any money in their care in banks for all sorts of reasons to earn personal interest. Foreign exchange rates rose daily and became the only game in town, as speculators fed on our collective misery .The folly of these monetary games, was what lead to the bank failures in the 80’s. As most of the banks were not doing any real business, but money games, when the political crisis of June 12 came, the economy suffered a major slow down and the distress that followed, lead to bank’s failures, taking with them some of the early Finance companies.
The military could get away with those very tight fiscal policies, because they were not accountable to any one. The CBN Governors of those days were not able to challenge those wrong policies, the economy suffered. The resulting effect was that the banks which were supposed to be service companies all focused on foreign Exchange and easy money making, to the detriment of real the economy which became stunted as the CBN attempted to control interest rates, foreign exchange rates and inflation rates all at the same time. The CBN had controls on virtually everything the banks did. There was limit on credit expansion, there was sectoral allocation of credit, cap on interest rates and forced rural banking. Of course all these disastrous policies failed.
