Monday, August 27, 2007

Substance Abuse

Ed’s Note: The Law has not suddenly become an economist, a macro-economist or any other sort of economic or financial pontificator. The Law, under no coercion, threat, other form of intimidation, hereby willingly admits that he knows sweet fuck-all about economic theory. The Law is merely speaking via the instrument of common sense. Which instrument is (according to The Law’s mother in one of her many pearls of wisdom) not that common…

No, no, boys and girls. This is not a treatise on the dangers of weed, cocaine, alcohol, or amphetamines. This is not about “just saying no.” This is not about resisting peer pressure.

Sometimes, men undertake certain actions which can not simply be explained away, actions which require deeper scrutiny as to the motives behind them. General Custer deciding that Little Big Horn was an excellent place to make camp, Hugh Grant deciding to get a blow job in his car, General Abacha forgetting to read the small pamphlet contained in the box of Viagra, Tricky Dick sending his men to the Watergate Hotel, Bill Clinton forgetting that dried, two-week old semen stains still contain DNA, Adolf Hitler looking at Great Britain, half-crippled and just waiting for the Wermacht to come strolling in, and deciding to invade the Soviet Union instead, and so on.

Given a chance to explain, these men, great, powerful, influential, popular, would probably mumble something about pressures of work, the need to relieve tension, and give the public the sad puppy look while pleading for forgiveness (this worked especially well for Hugh Grant, except his babe was not amused). If you probe a little deeper, you might find that there was one shot of whisky too many involved, or an extra hit off a stick of igbo so strong it shouldn’t even be allowed on the market.

Perhaps this explanation will suffice to explain the recent decision of CBN Governor Soludo to “re-denominate” the Naira.

Suddenly, with Baba gone, Soludo found himself in the cold following the ascension of Umoru to power, and this despite his decision to drop “Charlie” and get back to his roots. Chuks, as he now wants to be known, went into seclusion for a while. This was rather unusual for a man who did his best to stay in the media spotlight every other week during the tenure of Baba. Some disrespectful wags said he was merely taking the route of Old Testament prophets, and going into the wilderness for 40 days and 40 nights at the conclusion of which he would emerge emaciated, bushy bearded, and, perhaps, bearing a stone tablet or two containing the cure for Nigeria’s economic woes.

So, when Chuks called a press conference, everyone was curious. People wanted to know if he had indeed returned with a stone tablet, and whether God had managed to learn how to write in Igbo sometime in the past 4,000 years or so. A stone tablet would surely not have been as shocking as what Chuks did have to say. His resignation? No such luck. And no stone tablets either. Rather, Chuks announced that as of August 1, 2008, we would be dropping two zeroes from our currency, scrapping the all notes from 50 Naira and above, issuing new notes, and pegging our dollar exchange rate at N1.25 in the new currency. Over the next few days, persons took to the pages of the papers lauding the new direction of the currency policy, rolling out the drums, ticker tape, confetti, balloons and so on. Chuks’ speech was described as “ground-breaking” (indeed, the collective impact of millions of jaws hitting the floor was felt so strongly across the world that a tsunami warning was issued). He was hailed as the best thing to happen to Nigeria since…since…erm…Obasanjo.

This is the same Chuks who told us to spend hundreds of millions printing 1000 Naira notes which he explained as being necessary for “high volume transactions” (read PDP National Convention). Next, he told us to spend billions of naira printing new 50, 20, 10, and 5 Naira notes and minting new coins. Further hundreds of millions were spent on a nationwide publicity campaign to “sensitize” Nigerians to the new notes. Now, barely a year after, Chuks wants us to scrap the 1000 Naira note, (election don pass, abi?), and apparently print new 20 Naira notes to replace the current ones, as well as new 50 kobo, 1, 5, and 10 Naira notes. Naturally, this will run into further billions of Naira.

Now, re-denomination in and of itself is not a bad idea. If your currency is in the toilet, that is. If prices in your currency make as much sense as base jumping without a parachute. Or if your economy is in the midst of a crippling crisis and inflation has sent prices zooming out towards Alpha Centauri at Warp Seven. Indeed, the examples Chuks gave in his “ground-breaking” speech were all uniformly of countries experiencing one of more of the above.

Argentina was in the midst of a series of economic crises so crippling they tried everything short of contacting a babalawo (and I’m not sure they didn’t do that) when they re-denominated their currency several times between 1970 and 1992.

Germany was feeling the effects of an ill-advised attempt to conquer the world, and groaning under the effects of the Treaty of Versailles when they re-denominated the Mark in 1923. And in 1948, after yet another ill-advised attempt to conquer the world, they re-denominated again. Third time’s the charm, anyone?

Buying a bottle of Coca Cola (I could have said coke) in Ghana cost thousands of cedis, prior to their decision to re-denominate. Need I say more?

His other examples of Bolivia, Mexico, Brazil, Poland, and Uganda (yes, that Uganda) to mention a few, simply aren’t worth puncturing.

Was Chuks, by mentioning these crisis babies, perhaps trying to tell us we would were either experiencing an economic crisis, or would soon be in the middle of one? You’d lean this way if not for the fact that in the same speech, Chuks mentioned the fact that our banking sector was booming, and we would soon have not one, not two, but seven banks with market capitalization exceeding $1 billion. Hardly sounds like an economy in crisis, does it?

He said we would be restoring the Naira to its pre-SAP value by re-denominating. Let’s look at that for a minute. Prior to SAP, in the 80s, the Naira exchanged at close to par with the dollar, and while our economy wasn’t exactly booming like it was in the 60s, it wasn’t dead either. Maradona, in his infinite wisdom, decided to take an IMF loan, but opened the topic to debate by Nigerians. The people told him we didn’t need the IMF and their loans and conditions. Maradona nodded, wisely, announced his intention to abide by the wishes of the overwhelming majority of his countrymen, then took the loan anyway. As part of the IMF’s conditions, he devalued the Naira, and adopted such other economic “measures” as prescribed by the IMF which promptly sent our economy into diarrhea-induced intestinal cramps.

Even so, at the time of the dark-goggled one (of blessed memory), our Naira was exchanging at 85 to a dollar, and stayed that way for a while. When the reform champion, General-who-never-fires-blank, and all-round tough guy, Baba arrived on the scene, the Naira inexplicably nose-dived to 130 to a dollar, and has since hovered between 130 and 127. With the repayment of our foreign debt, and the rising clamor for our Naira to be restored to its pre-Maradona days, Chuks has decided to chop everyone off at the knees. If the Naira-Dollar exchange rate goes to N1.25 in the new regime, it simply means that we are now exchanging our currency at the current rate of N125. The value of the currency would not have improved, and Chuks is banking on the semantics involved to blind everyone to the reality of the situation.

As a friend in the banking sector put it, “If from August 2008, the 500 Naira recharge card goes for 5 Naira, you’ll still have to shed the same blood sweat and tears for the 5 Naira as you currently do for the 500. The value of the currency won’t improve in any way.” This is so true.

The difference between revaluing the currency and re-denominating is therefore stark and bare. If the currency was revalued, the value contained in the Naira would rise accordingly. Re-denominating is having currency of the same value, but without the same name, or as we liked to say back in UNIBEN, I say see neck, you say see throat.

Now that Umoru has “suspended” Chuks’ plans (prior to giving him the boot, it is whispered in some quarters) I hope he doesn’t give in to any flowery explanations or rationalizations, and the plan remains suspended indefinitely.

If Chuks could kindly let us have the number of his weed-man, I'm sure we will then be able to join him on cloud 27, or where ever he was when the crazy idea entered his head.


Texazzpete said...

I bow to your brilliance! All the points i've been too lazy to make were effortlessly captured in this piece.

What you failed to mention (perhaps knowning too well as a lawyer the danger of libel) is the growing rumor/whisper that Chuks is on the take, that despite his proud boast to the Nigerian Government (and people) that we'd be printing/minting our own currency by 2006 December, He's secretly started accepting bids for the minting contract from international agencies. naturally for a healthy kickback.

My Verdict? It's time to remove his Halo. He's been useful in the past, but he's tarring himself in ignominy.

bighead said...

You write quite well but I must say that you haven't given enough credit to Soludo. He never said the redenomination would make things cheaper(that was the interpretation of the masses led by a few unintelligent members of the press). He made it clear that this was mainly psychological and for a better perception of the naira.

Note that I don't agree with him, I see the redenomination thing as whitewashing a more serious issue and as a lack of long term plans (like you said, why spend so much printing new notes when this was in the works) but I still cannot take credit away from Soludo who is a very brilliant man with his reasons(even if they are political) and who has left indelible footprints over Nigeria's monetary sector. If every government official were willing to propose and stand by new solutions, however radical, Nigeria won't be where it is right now.

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Suffering from an addiction. This website has a lot of great resources and treatment centers.

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