Their columnist, Bode Agusto, takes us back to the 1980s and 1990s when governments led by generals tried to control the interest rates, noting that the banks merely impose non-interest "fees" on private sector borrowers, equivalent to the difference between the market interest rate and the government-imposed interest rate ceiling.
He argues our governments' (past and present) official explanation of these rate ceilings (that it is necessary to allow the private sector to access loans/capital at affordable rates) are a smokescreen. The real purpose, in his view, is to allow governments facing fiscal problems to fund their deficits by borrowing at below-market rates.
In Mr Agusto's words:
In the end,businesses pay market rates while government borrows at below mar-ket rates. The high interest rates and weakening exchange rates will ultimately impact product prices and erode purchasing power. The poor, the very ones we are trying to protect, suffer most.
It is therefore in the interest of the poor to have high interest rates now because this may force the government to address the fundamental problem the level of government spending.
Our governments, state and federal, will be borrowing an estimated $11 billion this year to fund their deficits, most of that from local banks.
I am troubled by this. We do not really know what the CBN is thinking or why they do what they do. I do not trust the public statements of any political figure, be they Nigerian or otherwise, but in Nigeria specifically there is so little credible information out there that rumours and innuendo rule the roost. Even the so-called credible leaders spend most of their time talking out of both sides of their mouths because that is the only way to keep their jobs; for example the CBN's Charles Soludo had a lot more influence during the Obasanjo regime than he has had under the Yar'Adua regime, but in exchange for that influence, he kept his mouth shut while Obasanjo, the PDP, and Obasanjo's bosom allies the Uba brothers more or less wrecked Soludo's own home state Anambra. See no evil, hear no evil, speak no evil of the Ubas made Soludo a jolly CBN governor .... but that sort of attitude basically undermines any good a person thinks they are doing.
Basically, what I am getting at is Charles Soludo is not going to tell us if the government's rate ceiling is just a command economy ruse to get cheap money out of the banks to fund the deficit.
And at a time when the banks are carrying $10 billion in toxic assets, it seems odd the government would oblige them to find $11 billion in loans for which they cannot expect a full market rate of return. It is easy to say the bigger banks could just absorb the smaller banks, but is it not better to be safe than sorry?
And do we really want to crowd out the private sector in a time when credit is in short supply worldwide?
I have a feeling I will make several more blog posts exploring this issue further ... but for now, I suggest we look at the other side of the ledger, to rationalize, simplify and tighten up our tax collection. And we can dramatically cut costs by pushing the administrative realignment I advocated thus:
Nigeria should have 7 states and 84 local administrative districts, instead of 36 states and 774-and-rising local government areas. The combined total of state assemblymen and local councillors in the new setup should be at least 66% lower that the comparable figure for today.
There should be 25% fewer total federal legislators in a single parliamentary chamber, rather than two.
This would save us a lot of money. And if it is done right, we would NOT have to sack civil servants to see the benefits of cost savings (but that should be the topic of a separate post .... nevertheless, the strange thing about Nigeria is every time you ask the government to cut costs, they start talking about the effects of laying off civil servants, when civil servants are not the problem and have never been the problem. We keep creating new reasons for new political jobs, be they "elected" posts or "appointed" posts. The only "reforms" our leaders are capable of are the creation of new LGAs, new states, new political bureacracies that duplicate, triplicate, and quadruplicate existing functionalities .... only for the collective mass of bureaux and commissions to fail to do the job that one could have done.)
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