By Adisa Adeleye
I CONCLUDED my last week‘s contribution with an advice that the government should adopt the option of a ‘Cheap Money Policy‘ for Nigeria‘s dormant economy.
It is a policy aimed at expansion and growth based on low interest rate and easy access to borrowing by all sectors and in particular, the private sector. My aim is to strive for economic development which might, in the shorter term and the long run bring political stability.
I have been a consistent believer in a policy of budget deficit (spending more than revenue) to bring a sluggish economy to life and thereby stimulate effective demand which would impact an employment if the excess amount is spent on improving productive economic ventures like power generation, roads, health facilities, technical education.
The returns would more than justify the expenditure. It is agreed, however, that a budget deficit based on bloated recurrent expenditure on allowances and wasteful ventures would spell disaster.
I was in a pleasant but uncertain frame of mind when my attention was drawn to the Monetary Policy Committee (MPC) Communiqué No 74 – a statement which seems innocuous in its appearance but pertends great danger in operation. The Report, while noting a modest growth of 7.8 per cent in 2010, laments the drain on the Foreign Exchange Reserves (S33.2 billion in Jan 2011) through Joint Venture Calls, imported refined products and foods (especially Rice). It also notes the reduction of inflation rate to 11.8 per cent in December from 12.8 per cent in the previous month.
Before drawing any conclusion on the 2010 economic performance, MPC came with curious conclusion in its recommendations. ‘The Committee is committed to maintaining price stability by pursuing the interest rate policy thrust of monetary tightening in view of perceived inflation risks. The Committee took the decision to further tighten Monetary Policy. The decision was taken by a majority of 11:1. Alas, a majority of eleven conservative disciples of the classical economists of the 1920s and early 1930s‘.
The MCP in reviewing the trends in the Domestic Economy in 2010 regrets the ‘lack of flow of credits to the critical sectors and the consequent need to unlock the flow of credit for critical investments in agriculture, SMES and manufacturing sectors.
What a double talk or warped thinking!. The answer to unlock the flow of credit to the critical sectors of the economy is the Central Bank‘s policy of raising its lending rate from 6.25 per cent to 6.5 per cent and increase in deposit banks‘ ratio from 1 percent to 2 per cent – with all implications on cost of borrowing by the real sector of the economy.
As it has been noted often, the word Inflation is the mortal fear of Central Bank Governors (past and present) and the present monetary authorities are afraid of Risk or risk taking attitude.
If the past tightening policy had not grown the economy beyond 7.8 per cent in 2010, what magic could be expected to stimulate further demand for credit by the stakeholders in the face of anti_growth attitude of the Central Bank authorities backed by the eleven (11) members of the MCP who voted for further tightening of the existing unproductive monetary policy.
It is agreed, as some have suggested, that movements in interest rates do not necessarily affect decision to invest. That decision lies in future expectation of yield or what others call the risk attached to investment. In the 1920s in Britain, high interest rate did not stop speculative booms of the period, while low interest rates proved quite ineffective against the Great Depression of the 1930s.
Keynes even argued effectively that the rate of interest was a roundabout way of affecting economic activity and of small practical utility. Keynes was of course, dealing with a developed economy.
In Nigeria (before Sansui’s banking reforms), majority of stakeholders in the economy depended on the low interest rates of the 1970s and early 1980s (before Gen Babangida) created the middle_class and ensured the building of private houses and luscious estates.
Low interest rate and favorable foreign exchange rate of the period provided cheap new cars and comfortable foreign travels for Nigerians without stress or temptation to steal. What we have today is a new version of a mismanaged economy with emphasis on conservative monetary and unprogressive fiscal policies.
Many observers agree that the Nigerian situation needs at present an economic expansionist policy based on less centrally controlled stance of the Central Bank, and its questionable lending and foreign exchange policy. There is that obvious danger that if monetary policy is pushed too hard (as it is being done now) to the point that it will stabilize prices, it will affect investment to the stage of causing dreaded depression.
Such a policy that tends to keep production below desired capacity in the interest of price stability is likely to retard economic growth.
With the approach of April elections, the reasonable assumption is that the country is walking into a political wilderness or arid wasteland.
The killing of political opponents and the uncertainties surrounding the primaries of many political parties (with attendant bitterness) call for serious stock_taking. Are we voting for the serious candidates that would take the country to the promised land of peace and prosperity? The lack of security and the atrocities being perpetrated openly by human jackals in Jos and Maiduguri threw into baffling reflection the serious preparation of the authorities to ensure free and fair election throughout the country.
As for the divided opposition, the fight is not on pushing the ruling party out of power, but on the provision of an alternative capable government. It looks as if President Jonathan is too strong for any challenger from the divided house of uncoordinated aspirants. For a spirited contest, the opposition could pick Prof. Utomi as its candidate and Ribadu or Shekarau as his vice. It may be a good but a doubtful winning team.
The road to a political wilderness is being built gradually on the sorrowful path of economic depression.
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