ABUJA—MANAGING Director of the International Monetary Fund (IMF), Mr. Rodrigo de Rato, yesterday told the Obasanjo administration to reduce inflation or forget Foreign Direct Investment (FDI). Current inflation rate is about 19.5 per cent.
But President Olusegun Obasanjo in an apparent response to insinuations that the direction of the nation’s economy was being dictated by the likes of the IMF and the World Bank said it (economy) was fully in the hands of Nigerians.
Exchanging views with the business community in Abuja, yesterday, Mr. de Rato said inflation was the key to any economic policy and particularly, if investors were to be attracted to such an economy. His words: “When we are engaged with the government in economic policy and we insist on certain issues, we are giving them very clear signals. If you want me to give you signals, I will give you one signal this morning, if you don’t reduce inflation, you are not moving.
“You want a signal, I give you signal. If you ask for signal, that is a very clear signal. Curb inflation. Inflation is key economic policy issue anywhere in the world. If you don’t face that one first, you are making a big mistake because you are not solving the rest of the problems.
“In that respect, no country and no government should think that there are other priorities than reducing inflation. That may be your greatest task because you have new inflationary sources that come from different sources all the times in your society. But, of course, as the minister was saying, you want us to say something, we think that the legal agenda that the government is putting forward in this country, for instance in budgetary policy and in the addressing of budgetary laws, is very important agenda that deserves a lot of attention.
“If Nigeria is able to establish a clear legal framework to address expenditures in all levels of government and to address the sharing of revenues and to address the use of excess revenue from oil above the predicted revenue, you will take a big step forward in giving itself the stable tools to manage its economy in all circumstances.
“And that is a very important step for credibility. When you have a country that has international credibility, you usually have a country that has domestic confidence. And when you have a country that does not have international confidence, you usually have a country that hasn’t got domestic confidence. So, credibility is not different here than it is a thousand kilometres away.”
The MD said at the meeting which was moderated by the Minister of Finance, Dr. Ngozi Okonjo-Iweala, that credibility was also important for the economy to attract not only local but also international investors.
“When you have credibility in an economic system, you are not only giving the correct signals to people outside, you are also giving a very good signals for people who are in the country, and that is the most important people to address economic problems in a country.
“The tool that you can use to get investment has many sources. You have international community through the international agencies: the World Bank and the regional banks, you have the developed nations like the European Union. But at the end, if you want to have a constant flow of investment in an area like energy, you have to have a regulatory system that will provide revenues to finance that investment. Ant if you don’t address that problem, you will not get enough investment.
“To attract enough investments for the needs of the country in areas like petrochemicals, gas, roads will be very much related to the capacity of the economy to provide those avenues. And that is very possible. Certainly, the financial system and the banking system are essential to these issues. You have to provide a sound banking system which is key to providing the much needed capital,” he said.
Besides, Mr. de Rato said regulatory framework must be explicit in sectors where the Federal Government was seeking investors to enhance their expectations on what to gain from such investments, as well as enhance investors confidence. “If want a constant flow of investments in areas like energy, petrochemicals, gas and roads, the regulatory system must be clear to investors. The financial system — the banking system— is essential. You have to provide a sound banking system which will be key to providing capital,” he said.
On the difficulties created by globalisation for developing economies, Mr. de Rato assured that his organisation would ensure further steps towards positive agreements that would make room for greater access of products from less-developed countries into the international market. Said he: “We believe that the agreements achieved last Saturday were positive ones. The agreements were essentially in the agricultural sector and we expect that discussions to continue in the non-agricultural sectors. We have designed financial facilities to help countries to overcome dramatic changes in the trade situation because of the liberalisation. We are addressing technical issues and have helped developing countries that lack technical expertise and to design trade policies to absorb the effects of trade liberalisation.”
The IMF boss, however, insisted that the overall ability of the each country to access the international market lied with it as it had to make its products competitive. According to him, competition was a fact of life. “Trade is not just what others have to do to allow your products into their markets. That is very important, but also a lot more important is what you are doing to make products more competitive. Protectionism of whatever degree is not the road to achieve that in any country on earth. It is true that global competition is extra-ordinarily strong and we have a big debate all over the world about this but it is also true that globalisation provides new opportunities to better performance and international competition has to be taken into account because it is a fact of life,” he said.
Dr. Okonjo-Iweala, in her response to the IMF call for greater government attention to inflation, promised to sit with the Governor of the Central Bank, Prof. Charles Soludo, to see how to tighten up the system without strangulating it. She added that the economic team has been working behind the scene but that the reforms were already yielding results. According to her, for the first time in many years, the Federal Government has not raised any money through Ways and Means (borrowing from the CBN by overdrawing its accounts).
IMF failed in Argentina
Mr. de Rato who later addressed a press conference before departing Abuja publicly admitted that IMF was in error in the failed structural adjustment programme in Argentina, which was implemented between 1990 and 2001. He also admitted that the IMF was in error in its prescriptions for the South East Asians crises particularly Indonesia. He said the current policy of the organisation was to back home-grown programmes rather than IMF-handed-downs programmes, in countries where it was working. “We made errors in Argentina. We take responsibilities and we make it public. We have also done that in the case of the South East Asia and we have publicly admitted this. The IMF is very open. We are open to criticism and where we err, we take responsibilities. This is one quality that makes the IMF stand out. We are a public institution and we have nothing to hide,” he said.
Asked to comment on the N25 billion minimum capital base set by the CBN for Nigerian banks, the IMF chief was evasive as he said: “The CBN has established a very important reform in the banking sector and we will follow the implementation of that closely. It is left to them what is the minimum requirement.”
de Rato said the Highly Indebted Poor Country (HIPC) initiative would provide a $53 billion debt forgiveness for 27 poor African countries. Nigeria is not one of them because it has been adjudged unqualified by the criteria for HIPC as the IMF and the World Bank insisted that although Nigeria was highly indebted, it was not poor.
Nigeria, he said, was on the road to macro economic stability and that the IMF would help to draw the attention of the international business community to it, a fact he said would open many doors for the nation.
Nigeria in full control of economy, by Obasanjo
Meanwhile, President Obasanjo said yesterday the nation’s economy was under the full control ofNigerians. Receiving the visiting Managing Director of the IMF, Mr. de Rato, the president said: “Nigeria has taken full control of its economy,” and spoke of his resolve to propagate prudent management of the economy.He said his administration was determined to ensure that its reform agenda was fully implemented, and was very hopeful that the measures being adopted would lead to greater stability in the exchange rate of the Naira and a reduction in the gap between the official exchange rate and the parallel market rate.
On the importance of achieving sustainable peace and political stability in Africa, Obasanjo said government would continue to ensure that the fundamental conditions for development prevailed in all parts of Nigeria and Africa. “We accept the responsibility the situation in parts of Africa places on Nigeria. We are paying a high price for the cause of peace and stability in Africa. This needs to be more appreciated by the international Community,” the president said.
President Obasanjo said his administration would spare no effort to achieve peace and security in Africa because conflicts on the continent had negative implications for the economic development of itspeople.Mr. de Rato told the president that he had “intense and fruitful” meetings with members of the Federal Government’s economic team. He said he was convinced that with efficient management, the Nigerian economy would achieve its great potentials and assured the president that IMF was committed to helping his administration to achieve the objectives of its home grown reform agenda.
