BANK BAILOUT PROGRAM, NIGERIAN STYLE
By Benjamin Obiajulu Aduba
Special to USAfricaonline.com and The Black Business Journal, Houston
One of the difficulties in discussing public policy matters in Nigeria is that it often begins with names of people, who are the actors, and who are deemed to represent their ethnic groups and are not seen as representing the institutions that employ them. When this style of debate arises, the behavior of the participants are immediately tainted by the ubiquitous ethnic rivalry in the country and any pretense to objectivity is foregone and the debate rages uncontrollably forward forcing the debaters to unattainable positions.
The current questioning of Mr. Lamido Sanusi’s bailout program has followed the predictable part and it is juxtaposed by the retelling of Mr. Soludo’s tenure as the Central Bank of Nigeria’s (CBN) Governor. The debate demonstrates the parties’ biases especially when the issues of the alleged former CBN governors present and future aspirations are thrown into the mix. None of this moves the debate forward, none helps the readers understand the issues any better and therefore the public participation in the dialogue becomes just one of supporting one’s tribe against the other. Well meaning Nigerians ought to rise above this level of discuss if we are going to have intelligent discussion of matters affecting Nigeria in these not so good days.
In 2009 Mr. Sanusi is not the first or the only Central Bank Manager that has sought to rescue a nations failing banks. He is not likely to be the last, and even his efforts thus far in Nigeria are not likely to be his last effort. I believe that there would be more bank rescue efforts before this time next year. We would need the best efforts of our educated elite to analyze Mr. Sanusi’s effort bearing in mind what we have seen from other economies. USA, Britain, China and Germany, to name just a few and applying these experiences in the Nigerian context.
My position is that Mr. Sanusi should not be bailing out banks but that the government of Nigeria should be doing this work.
So my first point of criticism of the current efforts is that Mr. Sanusi has made seem as if he/the CBN, alone, is bailing out the banks. It has been complicated by the insinuation by his opponents who allege he has a hidden agenda. His supporters have not helped his efforts by arguing that it is within his rights to do so.
The management of a nation’s economy is done by the government in the form of its tripod structure of the Executive, the Legislature and Judiciary and their agencies of Central Bank, the Treasury and the Regulatory agencies. No one person has sole authority to do anything. So the first step Mr. Sanusi needs to take is to go back and show that he is working as member of a team that includes all the branches of the government and not as a lone ranger.
Exhibit 1 of this approach is USA. And the specific program is the Troubled Asset Relief Program or TARP. This program would cause the US government about $1 trillion, more than twice what the Nigerian program is expected to cost. Here is how the US government did it: The Treasury Department (Ministry of Finance) got together with the Federal Reserve (Central Bank) and formulated a policy which was presented to Congress and the enabling legislation was passed (opening the way for the Judiciary to come in if needed) and the rescuing of the banks started. As far as I know this approach was not followed in the Nigerian experiment. The rescue involves both the monetary and fiscal policies which the CBN and MOF are responsible for. CBN is responsible for the supply of money and the MOF is responsible for spending money. Giving a loan to the banks is spending money, fiscal policy, even more so when the loan involves equity positions (buying of bank shares) and thus in participating in any profits by the banks. So for anybody to argue that CBN could print money and give to the banks is absurd. Money is not exercise book papers. That was why Congressional authority was sought. If the banks are not able to repay the loans, tax payers would lose serious money and they would have some body to hold accountable, some butts to kick.
The second reason for the involvement of all the segments of the government to be involved is the need for a wider discussion of a problem and the need to get input from a wide public. A public debate would enable economists, academicians, business men and women, tax payers and others to contribute to the ways public funds are spent. It is also a form of public education. When the public is informed, club house policy making and behind the scenes deal making is short circuited and the society is better served.
The TARP program, as reported by CNN’s David Goldman on February 10, 2009, has four pillars:
- Financial stability trust
Aim: Prop up banks’ capital position to generate a higher level of lending.
- Public-private investment fund
- Aim: Help banks cleanse their holdings of “toxic” assets to get private lending up and running again.
- Consumer and business lending program
- Aim: Boost lending to consumers and business in order to restore the flow of credit and lower borrowing costs.
- Transparency and accountability
- Aim: Monitor and make public financial institutions’ use of government-provided public funds and ensure taxpayer money isn’t wasted.
All these were spelled out in the U.S bailout legislation. Similar guidelines are also present in the British plan, but because the Nigerian Legislature was not involved in the bail out of the Nigerian banks it is difficult to know how the tax payer money loaned to the banks is to be used. Both Mr. Geithner and Mr. Bernanke testified before the congressional committees before the rescue plan was approved. That is called oversight responsibility.
I would hope that the next time Nigeria is to spend N420 billion that proper steps are taken to protect the interest of Nigerians and the oversight responsibility of the Legislature, is sought and obtained. It is important that adequate legislation is on the books to help protect the interest of the people and that no person or any agency of the government is in position to act as a lone ranger, and that such a person’s wisdom or intention should not be the justification for such a massive expenditure.
•Aduba, based in Boston, Massachusetts, has joined USAfricaonline.com as a commentator and special correspondent.
