| Nigerians should watch Aganga carefully, lest he import Goldman Sachs fanciful ideas into our economy |
It was announced by the Debt Management Office (DMO) on May 31, 2010 that the total outstanding Federal Government of Nigeria (FGN) Bonds as at April 30, 2010 was N2.248 trillion). Nigeria’s total public debt, external and domestic, are also estimated at N4, 104.97 Trillion (about $27.36 billion) as at March 31, 2010.
The Minister of Finance, Olusegun Aganga was belaboured to explain to Nigerians that our debt is still within the internationally accepted benchmark for measuring debt sustainability.
I saw Aganga on National Television about two months ago defending the decision of President Goodluck Jonathan to borrow $1billion dollars from the World bank.
That time, Aganga also said that with the new borrowing, the debt is still within the internationally accepted benchmark for measuring debt sustainability.
What Aganga failed to explain is the use to which western countries put their borrowed money vis-à-vis Nigeria.
Admittedly, in the matter of public and/or general debt, Nigeria stands on good stead compared to say, Britain. In the calendar year 2009 the UK recorded a general government deficit of £159.2 billion, which was equivalent to 11.4 per cent of gross domestic product (GDP).
At the end of December 2009 the UK general government debt was £950.4 billion, equivalent to 68.1 per cent of GDP.
The Maastricht Treaty’s Excessive Deficit Procedure sets deficit and debt targets of 3 per cent and 60 per cent respectively for all EU countries. Applicable critical limit for countries in Nigeria’s economic peer group is 40 percent.
Arguably Nigeria’s biggest macroeconomic achievement has been the sharp reduction in its external debt, which declined from 36% of GDP in 2004 to less than 4% of GDP in 2007.
Nigeria faces intense pressure to accept multibillion dollar loans for railroads, power plants, roads, and other infrastructure. Expanded government spending also has led to upward pressure on consumer prices. However, the recent drop in world oil prices and the global financial crisis have prompted the federal government to tap its foreign exchange reserves, which consequently have decreased from $60 billion to $48 billion, in order to meet pressing budget demands from cash-strapped state and local governmental bodies.
Many Nigerians will be surprised to learn that Nigeria is still an indebted nation after she exited from the debt of Paris Club and London Club in 2006. Nigeria external debt is currently over $5 billion dollars.
Nigeria finally settled her debt of $36 billion but most Nigerians might think that Nigeria is forever free of external debt.
In December of 2009, the former minister of finance, Mansur Muktar highlighted the state of Nigeria’s debt: “Nigeria’s exit from the Paris Club debt in 2005/2006, the external debt stock dropped dramatically and substantially from $35.94 billion to $3.54 as at the end of year 2006 but rose to $3.947 billion at the end of December 2009, including the $3.686 billion obtained from multilateral organizations namely World Bank, African Development Fund (ADF), International Development Association (IDA) and African Development Bank (AfDB) which has 40 year repayment period and 10 year moratorium period.”
It is essential that this is conveyed to average Nigerian taxpayers so that they become watchdogs to the finance of their country.
Should Nigeria go on a borrowing spree again? Obviously, Nigeria Minister of Finance Olusegun Aganga thinks we should.
A thriving nation is likely to be in debt provided that the available credits are invested appropriately for creation of further wealth and improving the well being of the nation. However, as noted above, While Aganga is quick to point out that Western Nations are heavily indepted, what he failed to also stress is the use to which western countries but their borrowed money vis-à-vis Nigeria.
Let us take heavily indebted Britain for example: the thirteen years Gordon Brown served first as Chancellor and then as Prime Minister saw a mammoth explosion in UK debt. Yet the period also witnessed more jobs, better schools and hospitals, more police on the streets and falling crime, revival of UK dilapidating great cities, with Leeds, Glasgow, Liverpool, Manchester, Belfast, Newcastle, Cardiff and the rest enjoying booming local economies.
In the period before 1997 under the Tories, those cities were synonymous with unemployment and decline. But New Labour transformed the UK’s health service, spending double in real terms, cutting queues and providing NHS Direct.
New Labour introduced the minimum wage, and the independent Institute of Fiscal Studies recognises that the poor are better off under New Labour. Education for the very young has improved with Sure Start (for example).
Till date, UK is still borrowing, but the ordinary Briton need not ask; where are all these money going?
Why?
Yesterday I travelled from Straford to Richmond. If you live in the UK, You must agree that Silverlinks that used to ply that overground route was one of the worst in London. But by two days ago, the rehabilitation of the rail link was complete, with new and bigger coaches for added space and comfort.
The line that used to worse for wear is now one with the most comfort. Same with Victoria line among others. Meanwhile Cross Rail is coming and with the Olympic, East London is being regenerated.
An honest Briton might therefore justifiably complain that Mr Brown borrowed and spent extravantly, but would hardly ask: where did the money go!
Now compare with Nigeria. The nation has never prudently utilized external loans for the public sector. Previous loans were neither properly accounted for nor prudently managed. Indeed, most ended up in private bank accounts in Dubai, London, Zurich and New York.
On April 30, 2010, I published a widely circulated article: ‘Jonathan must take note of this Greek Tragedy’ and that brings us to why I don’t trust Olusegun Aganga.
Today Greece is in trouble. The Greek tragedy that has been a long time in the making has finally reached a denouement. Decades of reckless spending has saddled Greece with debts it cannot afford. The economy is a basket case and the financial markets have had enough.
Greek debt is rated as “junk” and the cost of borrowing has soared as those lenders still prepared to deal with Greece demand ever higher returns. Attempts by the Greek government to enforce an austerity measure and rein in spending have led to violent protests even to the extent of the people storming the Greek Parliament.
The IMF, the European Union and the International Monetary Fund have all rushed bail-outs to Athens, but these help comes with a price!
Credit ratings agency Standard and Poor’s has now downgraded Greece’s credit notes to junk bond status. Such agencies are all too fallible, having got so much wrong in the run-up to the credit crunch, but on the matter of Greece they reflect a general view- its economy is bust.
The Nigeria Acting President must take note of this Greek tragedy and watch Olusegun Aganga carefully.
In February, the US central bank announced they are looking into Goldman Sachs’s role in arranging contentious derivatives trades for Greece, which helped the country to massage its public finances, Ben Bernanke, chairman of the Federal Reserve, revealed.
“We are looking into a number of questions relating to Goldman Sachs and other companies and their derivatives arrangements with Greece,” Mr Bernanke said, noting that the US Securities and Exchange Commission were also interested in the issue.
However, Mr Bernanke did not give any more details about the investigations but criticised the use of financial instruments, such as credit default swaps (CDS) that destabilised a country or created runs against governments as counterproductive.
Before becoming Nigeria’s Minister of Finance, Olusegun Aganga was a managing director at Goldman Sachs division in Britain. Aganga, a free marketer has a substantial experience in private industry.
Goldman came into a negative spotlight in February, 2009 over its role in arranging contentious derivative trades for Greece that could help the financially troubled country to ease its staggering fiscal situation.
Goldman has come under fire from European regulators for structuring transactions that helped Greece trim its debt figures after it joined the European Monetary Union in 2001. As Greece’s public debt grew to exceed its annual gross domestic product, the bank helped it organise a currency trade to delay its repayments.
Goldman has said that the currency swaps played a minimal role in Greece’s current financial crisis and that the transactions were in line with European regulations. However, a senior Goldman banker told a UK parliamentary committee last week that the bank should have been more transparent.
Separately, Phil Angelides, chairman of the US Financial Crisis Inquiry Commission, said that he was concerned about the financial market practice of creating securities and “fully betting against them” – and about Goldman’s role in particular.
Goldman prides itself on being different. From its over-the-top recruitment process to its alumni network, it cloaks itself in an ethos of superiority. But like I pointed out in another article, ‘Goldman Sachs, Olusegun Aganga and we suckers’, while what Goldman Sachs does is good for the purse of Goldman Sachs and their rating, it is very bad for we suckers.
Goldman is currently under SEC and City investigation for suspected fraud; It was alleged Goldman created and sold a mortgage investment that was secretly intended to fail.
Of interest to us watchers is the fact that just as the Federal Government announced they have borrowed US $915 million from the World Bank to finance an expected deficit in the 2010 budget, On Thursday, April 22, 2010, The Nigerian Minister of Finance, Mr. Olusegun Aganga, said that media reports that the federal government was to borrow about U S$ 950 million to finance the 2010 budget were ‘absolutely wrong’.
Mr. Aganga told journalists after witnessing the signing of the 2010 budget by Acting President, Dr. Goodluck Jonathan that the government would not borrow to fund the budget. Instead, he said, the deficit in the budget would be financed through other sources of revenue, including the sales of some assets and about US$ 500 million bond to be raised from the international market.
Yet while Aganga was lying through his teeth, Jonathan was drafting a badly mangled letter to the deputy Senate president asking the Senate to approve “the 2010 External Borrowing Plan of the Federal Government”.
The Senate wasted no time to give Dr Goodluck Jonathan the approval to borrow the sum of N138.165bn ($915 million) from the World Bank, “part of which would be used to finance the 2010 budget”.
Though the senate approval was unanimous, some members of the opposition All Nigeria Peoples Party, ANPP, cautioned that the utilization of the loan must be properly monitored. It is unconscionable for the government to deceive the public on what their real intentions are.
Why Aganga’s double speak. I say why not? Double-speak are Goldman Sachs stock in trade!
You see, while other Nigerians are scratching their heads wondering why we are borrowing again, I was watching Aganga’s sophistry- all sophistries and legerdemains that dribble the public around the whole place:
“We are not borrowing a $bn to fund the budget, I think what they are referring to is something which we are working with the World Bank on and the World Bank as you know helps a number of developing countries and that is just a quantification of the work they are doing which is broken down to quite a few segments, maybe eight or nine of them. So it is not one billion dollars borrowing upfront, it doesn’t work like that. It has nothing to do with the budget”.
Aganga said the government is also looking at other sources of revenue including raising a bond this year and going to the international capital market adding that the budget deficit is growing at an alarming rate.
Interesting! Floating bonds” as touted by Aganga constitute a form of “debt equity” and is a fancy economics terminology for a form of “borrowing with a corporate or government guarantee”. There are interest’s charges as well, although usually fixed.
Just like a director from Goldman Scahs would put it, Aganga did not disappoint! Remember the manner Goldman Sachs helped Greece “to massage its public finances”.
It would have been funny but for the fact that in the end the people suffers!
You see why again I don’t trust Aganga? Fanciful things put me off. I hate fancy people, fancy titles, fancy ideas and fancy businesses? And Goldman Sachs is always full of fanciful ideas and Olusegun Aganga is from Goldman Sachs.
Last year, Goldman became embroiled in a row with China. Several of its state-owned companies were sold packages of complex derivatives by Western banks, with Goldman central among them, which lost money and led to accusations by the Chinese that they had been duped into buying the financial instruments.
This year, Goldman was revealed as having helped Greece hide the true level of that country’s indebtedness in a secret deal said to have earned the bank as much as £192 million. Again, Goldman stresses it did nothing wrong.
Nigerians should watch Aganga carefully, lest he import Goldman Sachs fanciful ideas into our economy. That also involves getting our antenna up whenever Aganga wishes to indulge in Goldman’s sophistry; People should know what they are getting into. Honest leadership rather than manipulative and confusing leadership is the best principle to lead Nigeria out of her present mess.
SEC’s charges against Goldman will surely bring out so many things to light that will open the eyes of operators of developing economies like Nigeria to the heinous activities of multinational consultants like Goldman Sachs.
In Nigeria, no economic policy conference was ever complete without the presence of Goldman’s officials to offer their advice: three of the Goldman Sachs’ partners were in Nigeria for an international breakfast meeting in Mid-July 2007, tagged What The World Expects Of Nigeria, Post 2007, organized by Oceanic Bank Plc. and BusinessDay newspaper; another Goldman executive, Dambisa Moyo, was at the ThisDay Townhall III, held in Abuja on October 3, 2008, a conference on the resolution of the 2008 global financial crisis as it affects Nigeria, they were in all the annual rituals like Nigeria Economic Summit.
Aganga must demonstrate to Nigerians that rather that importing his former employer’s fanciful ideas into the economy, that he can efficiently manage and oversee Nigeria’s financial house. The minister of finance must be ready and keen to make sure that Nigeria will not fall into the trap of large external debt and higher inflation. This is important because Nigeria should not be thrown back to the gloomy days of large foreign debt. Nigeria was overwhelmed with the increasing interest rates and arrears accumulated by the servicing of the foreign debt.
Therefore the new minister of finance, Olusegun Aganga should deliberately and carefully monitor the country’s debt. The minister must closely work with Sanusi‘s Central Bank of Nigeria to tame inflation which can easily frustrate economic growth and further weaken the depreciating naira. Nigeria is issuing bonds to raise money for infrastructures development. Aganga must get involved and make sure that money raised will not be wasted and the burden of the debt passed down to powerless Nigerians.
Recent positive ratings of the Nigerian economy by Standard and Poor’s and Fitch rating agencies suggested Nigeria’s positive economic outlook for the year 2010. But sharp rise in domestic debts and more reliance on external borrowing can threaten this positive rating.
Why does the Federal Government of Nigeria need to borrow and be indebted to the World Bank again?
I repeat; Nigeria’s Acting President must take note. The credit crunch is spreading — from households, to banks to countries. Entire regions are at risk. Sovereign debt is the new sub-prime.
To be continued
elsdaniel@yahoo.com