Nigeria's New Leader Turns Back the Clock On Market Reforms
NIGERIA'S new budget has abandoned market reforms begun in 1986 and reintroduced economic controls. This, critics say, has set the country back nine years.
Any prospect of reaching an agreement with the International Monetary Fund (IMF) has been indefinitely postponed by a series of moves announced Jan. 10: A foreign exchange rate was fixed at 22 naira to the dollar and a ban was set on movement of foreign currency into Nigeria. The gap between the official and market exchange rates is more than 100 percent.
In addition, a maximum lending rate was set at 21 percent. With inflation near 100 percent, the government is thereby attempting to impose a negative interest rate of about 80 percent.
A deal with the IMF could have opened the way to fresh funds and substantial relief on servicing Nigeria's $30 billion external debt, now more than $6 billion in arrears to official creditors.
Billed as a budget to ``shore up the value of the naira,'' the announcement was delayed while Nigeria's new military ruler and his mainly civilian Cabinet struggled to formulate an economic policy.
The 1994 budget leaves in question the future of Finance Minister Kalu I. Kalu, who is known to favor complete deregulation of the economy.
It will also disappoint many private sector leaders and foreign investors who urged Gen. Sani Abacha, the new head of state, to deregulate the economy and allow market forces to reduce Nigeria's corruption, smuggling, and dependency on imports. Investors predict that the likely outcome will be a further drop in exports and investment. Increased capital flight will force the naira down further on the black market, they say.
`THESE measures will please manufacturers who believe that they are priority cases for allocation of foreign exchange,'' says the head of an industrial development group in Lagos. ``But they may soon find the same old problem - not enough foreign currency to buy spare parts.''
``They have thrown out the baby with the bath water,'' says Atedo Peterside, a merchant banker in Lagos. ``We could have had fiscal discipline and some tariff reforms which would have given manufacturers 90 percent of what they want without giving up all the gains of deregulation since 1986.''
Under General Abacha's predecessor, Ibrahim Babangida, Nigeria underwent partial deregulation in the agriculture, foreign currency, and banking sectors. But the government never agreed on a structural adjustment program with the IMF.
General Babangida's reforms were only partial and coincided with falling oil-export revenues in the 1980s. So deregulation appeared to many Nigerians to leave them worse off. Yet the private sector welcomed some of his reforms - especially the ability to repatriate export proceeds at a competitive rate. It provided an incentive to produce and export goods and encouraged the multinational oil companies to bring some of their dollars back into Nigeria for use by non-oil industries.
``This is economic illiteracy,'' says an economist in Lagos. ``Nigeria must have the only government in the world which thinks it can strengthen the exchange rate through setting low interest rates.''
Nigeria has not serviced its Paris Club debt (owed to foreign governments) for two years since the last rescheduling deal. Talks with the IMF and the World Bank failed last year over the government's foreign exchange rate policy, quirky controls on oil revenues, and huge subsidies on domestic fuel consumption.
Abacha has budgeted for a state surplus in 1994 of over $5.5 billion, which would allow room to pay external debts. But it is not clear how the government can achieve it. The budget predicts $11.5 billion in revenue, nearly 50 percent more than in 1993 when the assumed oil price was 35 percent higher. Abacha says Nigeria will not tolerate a repeat of 1993's record $4.5 billon deficit.