THE GUARDIAN www.ngrguardiannews.com
14 Wednesday, January 22, 2014
Opinion Lessons from U.S. Reserve Bank By Bayo Ogunmupe HE United States Federal Reserve Bank clocked T a century in December 2013. In the designated bank building called Federal Building, the outgoing chairman, Ben Bernanke performed a solemn ceremony marking the occasion of the founding of the banking system in 1913. Bernanke was flanked by his illustrious predecessors Paul Volker, Alan Greenspan and Janet Yellen, the person billed to succeed Bernanke in February 2014. During the occasion, Bernanke praised his predecessors for their courage to withstand pressures and make tough decisions necessary for the survival of the union. The history of the Federal Reserve Bank is very important to Nigeria. This is because our federalism is modeled after the United States’. Therefore, we should imitate it, particularly because the Federal Reserve Bank (FRB) is the biggest and most influential central banking system in the world. The FRB operations affect the whole world. Moreover, the FRB monitors the dollar, the world’s reserve currency. Besides, the dollar is very vital to our sustenance because it governs the global petroleum transactions, which is our basic lifeline. In order to manage the economy of the United States more effectively, Senator Nelson Aldrich in 1910 conceived a plan to create a central bank for the states. The ensuing Aldrich Plan recommended a federal institution to be run by bankers. Because bankers are reputed to be very corrupt, the U.S. Congress jettisoned the bill. But the courageous President Woodrow Wilson in power at the time persuaded the Congress to revisit the project. Wilson, being a retired university president, understood the importance of the bank. Within a month of his election as president, Wilson caused the Aldrich Bill to be passed into law. As currently constituted, the FRB is an independent financial institution, with a board of governors having executive powers. It has about six other regional banks with some measure of independence from the centre. The primary role of FRB is to supervise every banking activity in the United States. It lays down monetary policy, con-
trols prices, ensuring growth and full employment. The Federal Open Market Committee of FRB manages the monetary policies of banks. Indeed, the Federal Reserve Act of 1977 emphasized the dual mandate of FRB. It was charged with creating financial stability in the nation and ensuring full employment within the framework of financial stability and growth. In large measure, FRB has achieved its mandate in the last hundred years. To wit, it has succeeded in making the dollar the world’s strongest store of value, thereby succeeding to Great Britain’s imperial Pound Sterling. Thus, FRB has become America’s indeed, the world’s think tank on monetary and economic policy. But it has made mistakes causing the world economy to wither between 1928 and 1940. Then, stock prices reached a high plateau, with a prolonged euphoria in Wall Street where the Dow Jones Industrial Index increased six fold in eight years. In a twinkling of an eye, the bull metamorphosed into a grizzly bear, culminating in the economic crash of October 1929. Within a week, millionaires became paupers. Unemployment soared to unbelievable proportions, reaching 40 per cent, plunging the whole world into recession. Besides, by 1971, the gold standard had collapsed in the Republican administration of Richard Nixon just like the 1929 depression in the Republican administration of Herbert Hoover. The collapse of the gold standard was occasioned by a severe balance of payments crisis, forcing President Nixon to devalue and abolish Bretton Woods fixed exchange rate regime. Another Federal Reserve gaffe was the housing bubble of the 1980s which ran the world economy into a crisis from where we are just recovering. This latest crisis uncovered large scale corruption in the banking sector. A 2010 Bloomberg poll found as many as 40 per cent of people believing FRB needed to be more accountable. It is believed that the operations of the Federal Open Market Committee are corrupt and should be overhauled. Moreover, FRB imposes groupthink on econ-
omists, making it professionally dangerous for anyone to depart from the received wisdom of the Bank. That was why the Nobel laureate, Paul Krugman accused the bank of incompetence for failing to read the writing on the wall with regard to the housing crisis until the bubble burst. Indeed research by notable economists showed that the subprime crisis of 2008 and the great recession were evidence that we have not been as smart as we thought we were; which was why bankers engaged in fraudulent practices amounting to billions of dollars under the indulgent watch of the FRB. Thankfully, today we have a better understanding of the working of central banks. We now know that institutions such as the IMF, the G20 nations, the Bank for International Settlements (BIS) and the World Bank have roles to play in servicing the economy and safeguarding global financial stability. But at the moment, creative monetary policies and fiscal forbearance are needed to ensure long term sustainable development. In the case of Nigeria where there are no laws to govern financial transactions, the Central Bank of Nigeria (CBN) must be imaginative in running the economy for the good of the people. Price stability cannot be the sole objective of a central bank. Growth, full employment and social security should be the purview of the CBN. Like the Nigerian Mortgage and Finance Company, which CBN jointly established to provide affordable housing for our people, CBN should also establish an Ebele Facility whereby small scale industrialists can access interest free loans for full employment in Nigeria. In the Nigerian Mortgage Finance Company, government and CBN sponsored loans for housing in the Federation. The scheme is also backed by a World Bank zero interest credit of $250 million with 40 years tenor, and 10 years of grace, a very attractive facility. The mortgage firm will further float an additional N50 billion bond as soon as operations begin. These bonds can thereafter attract institutional investors for subscription. In the same vein, the proposed Ebele Facility can be tendered for state subscription and
adoption. As the American experience illustrates, successful central banking in the 21st century will have to be knowledge driven. In our case, the new CBN governor must be very knowledgeable. He or she must be both an experienced banking official and a rigorous and up to date economist. He needs in-house research analysts who will feed him with effective policy options. Like the FRB of the United States, the CBN needs to take full account of regional economic realities and learn how to calibrate monetary policies to reflect our diversity while it expands the frontiers of social welfare in the Nigerian federation. To be effective, the CBN must be run by self-confident governors able to manage politicians whose instincts never transcend the calculus of immediate gain. The CBN must be led by men and women of integrity, courage and creativity, and who can manage knowledge while earning respect and trust. A good Central Bank is never subservient to the politicians, they are resolutely committed to accountability. They eschew secret, parochial agenda, while working for the common good. In this turbulent world, mistakes are bound to happen, when they do, a responsible central bank official quickly owns up, setting out to make amends. When there are no clear cut powers, the responsible banker does what is proper and fair, creating a convention that could be legalized later. As Janet Yellen takes over as chairman of the U.S. Federal Reserve Bank, it is expected that she will consolidate on the achievements of Ben Bernanke, her predecessor. She needs creativity to meet the challenges of a world in which the U.S. dollar may no longer dominate owing to the emergence of China as a world power. United States’ greatness had been rooted in its great institutions, its commitment to the rule of law, freedom of expression and the creative ingenuity of his people. With Yellen in the saddle, we look forward to a great 21st century with her entrepreneurial mindset and intellectual firepower. I urge her to lead the financial world with detachment communicating clearly, without allowing herself to be mesmerized by bureaucracy. • Ogunmupe is a columnist with The Guardian
Time to call Amaechi’s bluff By Adamu Gwazuwang N what can only be a confirmation of executive idleness in the Itheranks of the Amaechi-led group of governors, another call for investigation of the serially debunked allegation of non-remittance of $48.9 billion of crude oil revenue to the Federation Account has been made by the group of governors. Ever since the Nigerian Governors’ Forum split over purely political sentiments, the credibility of governors as leaders has dropped dramatically. With this latest outburst, it is doubtful if at all they can regain lost respect and relevance, although it is now easier to sort the wheat from the chaff of Nigerian Governors. Incidentally, Governor Rotimi Amaechi had earlier talked himself into ridicule unbecoming of a leader and presumed role model when he raised the sensational but unfounded allegation that 5 billion dollars had been removed from the Excess Crude Account(ECA) without explanation in the heady days of the rebellious G7. That seriously misleading propaganda suited the agenda of running down the Jonathan administration, which seems to be the only remaining motivation for Amaechi and his group to meet and issue spurious communiqué. It has since come to light, through the Coordinating Minister of the Economy Ngozi Okonjo-Iweala, however, that Governor Amaechi “has been closely involved and actively participated in making requests to the Presidency for the ECA to be shared for the purpose of augmenting the regular allocations from the Federation Account whenever there is a shortfall”. The Rivers State Government received N56.2 billion, the second highest share among states from the supposedly missing money, for that matter! So we are justified to regard Governor Amaechi as more of a pedestrian propagandist who can sacrifice facts for his concoctions of fictitious allegations than a responsible governor who should be taken seriously when he speaks, even without reference to his latest litany of rehashed, crude and unfounded statements about the non-remittance of 48.9 billion dollars by the NNPC. Governor Amaechi surely cannot claim to be ignorant of the discredited source of the second-hand sleaze he is bandying about under the otherwise distinguished platform of the gov-
ernors’ forum. It was his collaborator in a campaign of calumny against the Jonathan Administration in general and the NNPC in particular in the person of CBN Governor Sule Lamido Sanusi who gave undue publicity to this fairy tale by leaking his letter to the President containing the falsehood to the press. It must be an uncomfortable task for him to also recall how the whimsical whistle -blower shamelessly recanted and even accepted that the so-called unremitted funds had in fact been duly deposited in designated accounts under his watch at the CBN! The facts of the ruse of unremitted funds still being bandied around by Governor Amaechi have been sufficiently publicized by the NNPC and the Minister of Finance and comprehensively understood by the generality of right thinking and fair-minded Nigerians as not to warrant repetition here. This is more so, given the now notorious fact that Governor Amaechi deliberately and unconscionably suppresses privileged accurate information at his disposal to give vent to pre-meditated political vendetta all in the bastardized name of opposition politics. However, suffice it to point out that Amaechi misled his factionalized forum into declaring that “there is no record to show that the alleged missing $49.8bn was paid into the Federation Account or was duly appropriated”. How was it then that even the originator of the fabrication voluntarily backed down from that preposterous position to the point of accepting that only $10.8 billion remained in contention and is currently the focus of an inter governmental reconciliation exercise. To be sure, this issue has been promptly cleared by the NNPC clarification as among others, part of the official purposes of settling subsidies and paying for storage capacity and other verifiable logistic expenses to which the amount was devoted. It must also be emphasized that the process that led the CBN Governor into eating his words by admitting to deliberate negligence of available facts and figures in raising allegations against NNPC in a letter to the President, involved reconciliation of figures and records kept by the CBN, NNPC, Finance Ministry, Budget Office as well as review and testimony to the relevant Senate committee. As a consequence of these detailed and all-inclusive processes, the matter has been practically dismissed as a non-event or-
chestrated solely for political capital and propaganda purposes. We therefore wonder just who else or what else Governor Amaechi expects to be in possession of records contrary to those verified and subsequently declared by these concerned parties! Perhaps Government House, Port Harcourt? The call by his Forum that the National Assembly should institute what they called a comprehensive forensic audit into the matter is both outlandish and outrageous in the circumstance. It should be an embarrassment to those who tag along Governor Amaechi’s path, most of whom are regarded with more respect that their reputations are being auctioned with ridicule and distrust to lend undue credence to the jaundiced perceptions of one of them. Their silence in the face of such assault on their persons and exalted offices can only mean that they are consenting parties to such dishonourable mischief. This was how compromised sections of the Press continued to publish discredited statements and churn out cheap propaganda against NNPC long after their more objective and ethical colleagues had turned their editorial venom rightly on the disrobed CBN Governor and his fellow political collaborators. It is necessary to draw Nigerians’ attention to the extent people like Governor Amaechi can go in raising dust and heating up the polity. The NNPC is an agency of the Federal Government which predates and will definitely outlive the Jonathan Administration which, at any rate, is a democratically elected government working for all Nigerians. If they cannot contribute positively and sincerely, people in Amaechi’s enclave should not jeopardize a national project for their clannish and unpatriotic ends. The Rivers State Governor ought to be well occupied with the all time record he set a week or two ago in which in the full glare of a bewildered public, a kangaroo legislative session held inside the Government House, where ‘his excellency’ read the proposed budget for 2014, was simultaneously passed by the bewitched legislators and to crown it all signed into law by the Governor same day. Democracy indeed. Governor Amaechi and his fellow travellers are reminded of the wise saying of physician heal thyself. • Gwazuwang, an industry watcher, writes from Abuja.