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Tuesday, December 10, 2013
- The Nigerian government, unable to reach agreement with world financial institutions on a medium-term economic programme, is drawing up a home-grown adjustment policy to be introduced in September.
The policy is being drafted by the National Economic Intelligence Committee (NEIC) – a think-tank of economic advisers set up by Nigeria’s military ruler, General Sani Abacha, soon after he seized power three years ago – with inputs from local financial experts, industrialists and university academics.
Since 1986, Nigeria has been implementing a Structural Adjustment Programme (SAP) initiated by then ruler Gen. Ibrahim Babangida and advised by the World Bank and the International Monetary Fund (IMF).
The new policy would replace the 10-year programme. Under it, the government — rather than the Bretton Woods institutions — will “hold the ace,” says NEIC chairman Professor Sam Aluko.
For three years, Nigeria and the IMF/World Bank had been negotiating a medium-term economic programme under which the West African nation hoped to obtain substantial debt relief. They have failed, however, to reach agreement on measures proposed by the two financial institutions – a further devaluation of the national currency, the freeing of domestic interest rates, officially pegged at 21 percent, and increases in fuel and fertiliser prices.
The first indication that negotiations had broken down came in May when, after talks in Washington with Bretton Woods officials, Finance Minister Anthony Ani declared that the government would not raise fuel prices because they were not being subsidised, contrary to the claims of the two multilateral institutions.
In late June, Planning Minister Chief Ayo Ogunlade confirmed that the “IMF has refused to approve our draft medium-term economic programme.”
Nigeria’s main concern is its foreign debt which, like those of other developing nations, has been increasing despite substantial interest payments. According to Ogunlade, the debt, originally 17 billion dollars, has risen to 32 billion dollars despite the repayment of 10 billion dollars of the principal.
“That kind of arithmetic is a little bit difficult to swallow,” the planning minister said.
The government had proposed a freeze on interest charges for 15 to 20 years which, it argued. would allow it to use money normally spent to service the debt — two billion dollars a year in 1994 and 1995 — to revive industries and rebuild social infrastructure, and thus increase Nigeria’s capacity to produce and to repay its debts.
Nigeria has also rejected the institutions’ argument that the domestic price of petrol — 11 naira (13 U.S. cents) a litre — does not pass the international comparability test i.e. that it is much lower than in most other nations.
“As a minister of Nigeria, the most populous black African country,” Ogunlade said, “I earn 58,000 naira (716 U.S. dollars) per year. How does the international comparability test compare with my colleagues in Europe or America?”
(Ogunlade made no mention of the fringe benefits enjoyed by all Ministers)
Equally sore is the question of the value of the local currency – a rate of 22 naira to the dollar for governmental transactions and a parallel rate of 81:1 for other operations. While the government has said it would prefer the parallel rate to be well below 81:1, the World Bank’s latest outlook on the economy, released a little over two weeks ago, suggests that “the real rate” should be in the range of 91:1.
But Aluko, a renowned economist and long-standing critic of the SAP, thinks otherwise. “Nigerians are suffering,” he says, “If the suffering must be reduced, the value of the naira must go up, otherwise wages should rise to meet the devaluation and no government can afford this.”
Giving an idea of the social cost of the devaluation of the naira, which has fallen steadily since 1986 when it was on par with the U.S. dollar, Aluko said it was the root cause of a three- month-old strike by university lecturers, who are demanding better pay and improved funding for their universities.
In the past three years, university instructors have been on wage strikes for a total of 14 months. Their monthly salaries, which have increased only slightly over the past decade, average 8,000 naira — under 100 U.S. dollars.
One consequence of the situation has been a massive brain drain. While academic staff in Nigerian universities number fewer than 15,000, the World Bank reported in a 1994 study that at least 10,000 Nigerian academics were in the United States alone.
The government appears keen not to aggravate the social and political costs of a decade of SAP by further devaluing the naira or by increasing the domestic fuel price.
While it has come in for much criticism on the political and human rights front here, its resistance to the IMF/World Bank recommendations has begun to earn it support from Nigerians, who deeply resent the 10-year-old SAP.
For example, Professor Claude Ake, a respected political scientist who runs the Centre for Advance Social Science (CASS) in the south-eastern town of Port Harcourt, had severely criticised the Abacha regime following the hanging in November last of nine minority activists, including writer Ken Saro-Wiwa. But he recently issued a statement commending the government for its stance in its discussions with the Bretton Woods pair.
While Nigeria plans to go ahead with its home-grown programme, both government officials and IMF/World Bank representatives say there is still need to reach an agreement.
According to Ogunlade, the lack of agreement is affecting the government’s long-term planning. “For the perspective plan to be meaningful, we have to know how much will be available for development spending,” he said. “This cannot be resolved without the medium-term plan.”
Following talks in January, the World Bank’s resident representative in Nigeria, Trevor Byers, had declared that the most important of his “short term priorities” was to get discussions going on the medium-term programme.
“We are still committed to a successful negotiation of the programme,” an IMF official commented last week.