Never mind that the naira has been “technically” devalued, the debate on whether or not to throw the currency to the market hounds is getting more interesting by the day. I just finished reading an interesting piece titled Closing Developing Countries’ Capital Drain written by the duo of Joseph E. Stiglitz and Hamid Rashid. I must confess that the piece blew my mind. I therefore recommend it for reader’s enjoyment.
As if he needs any introduction, Stiglitz is Nobel laureate in economic sciences and professor at the Columbia University, United States while Rashid is a former director-general for multilateral economic affairs at the Ministry of Foreign Affairs in Bangladesh, senior adviser at the UNDP’s Bureau for Development Policy, and Chief of Global Economic Monitoring at the United Nations Department of Economic and Social Affairs. Both therefore should know.
Why do I find the piece by the duo irresistible? It is the way they attempted to frame dilemma facing developing countries at this time – a refreshing call away from the puerile market orthodoxies in an unequal world!
I also love their contextualisation of the current challenges facing us as “not just falling commodity prices, but also massive capital outflows”.
The facts, as they say, speak for themselves. The duo, for instance, would have us know that from a net capital inflow of $2.2 trillion in the five years of 2009-2014, net outflows from developing countries in 2015 alone, exceeded $600 billion –more than one-quarter of the inflows they received during the previous six years.
They also note that “the largest outflows have been through banking channels, with international banks reducing their gross credit exposures to developing countries by more than $800 billion in 2015”.
You ask why? It’s no other than the slowdown in China and the collapse of oil prices by more than 60% since July 2014!
For the developing economies, the impact of the trend cannot be anything but devastating: “drying up liquidity, increasing the costs of borrowing and debt service, weakening currencies, depleting reserves, and leading to decreases in equity and other asset prices… large knock-on effects on the real economy, including severe damage to developing countries’ growth prospects.
Familiar? It seems to me that some foreigners know where the rains started to beat us far more than our own people!
Among many prescriptions, they wrote: “In some cases, it may be necessary to introduce selective, targeted, and time-bound capital controls to stem outflows, especially outflows through banking channels. This would entail, for example, restricting capital transfers between parent banks in developed countries and their subsidiaries or branches in developing countries. Following the successful Malaysian example in 1997, developing countries could also temporarily suspend all capital withdrawals to stabilize capital flows and exchange rates. This is perhaps the only recourse for many developing countries to avoid a catastrophic financial crisis. It is important that they act soon”.
The above piece was written last week! Nowhere did I find the duo luxuriate in the illusion that the market would somehow self-regulate! And this is at a time our home grown economists would rather have us throw our forex vaults so the vultures can come and do as they please!
This is why I found the offering by our very own Oby Ezekwesili, former minister and World Bank Vice president in the Vanguard of Sunday February 28 titled Ideologies don’t deliver results for the poor on the subject totally strange if not incomprehensible. Her piece supposedly to a critique of the Buhari administration’s economic policies turned out to be more than a validation of my piece of last week titled What the hell is wrong with us. Not only is her position a repudiation of the position of Stiglitz and co. in its obsesion with the market, it sadly takes strategic national intetrest out of the national economic equation!
Samples: The president’s now well publicized and known stance on the acute foreign exchange crisis has magnified nervousness about his economic management history and ideology-centred policy direction…So strong is the president’s view on the value of the Naira that he uses words like “murder the Naira” to foreclose any consideration of alternative perspectives. It is precisely because of this manner of framing tough economic policy choices that the country is at this time engaged in an unhealthy debate that lacks empirical foundations and nuance”. So the problem is with the word “murder”? How about the activities of speculators that do more than murder the currency?
And this: “Nigeria has oscillated from a command and control regime with government as driver in resource allocation to a more market oriented system since the past 30 years. We however can be said to now have a broad coalition and even near consensus that the market economy framework has served us better”.
Only because the piggy back had hitherto been overflowing?
And yet another: “…The effort at controlling and commanding the demand for foreign exchange can only worsen already bad economic distortions. It is these distortions, more than dollar demand side issues that form the crux of our current account and fiscal crises”.
Because Bloomberg and The Economist said so?
Left to the Ezekwesilis of this world, Nigeria’s problems begins and ends with the so-called market forces – nothing in between. To be sure, most Nigerians would probably agree that the current administration lacks a coherent economic direction just as many would readily concede that the administration that promised change could do far better than it is presently doing both in terms of rigour and pace. Like many, I have had to express my frustrations with a president who appears hung on old paradigms like for instance in choosing to retain the refineries and its forays into aviation.
It is however a different call with the administration’s forex management policy particularly its insistence on not devaluing the currency. It is pragmatic and sound – far better than Ezekwesili’s overly romantic view of the market as the most effective allocator of a dwindling national resource like forex at a time of negative accretion! And we are here talking of a market controlled by speculators and street dealers! In other words, have the invisible forces call the shot while making the case for the sovereign to be in retreat?
Let me raise a question that I didn’t find the space to ask last week: which true businessman would buy dollars at the rate of N400? To keep the factories going in spite of consumer purchasing power or what? Why can’t we push for our country to do what other civilised countries do – by rendering the hawking of currencies on the highways irrelevant? Why should anyone seek to canonise the s so-called black market?
PUNCH
END
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