) results; price stability, stable exchange rate, full employment, capacity utilisation and debt management among others.
Soludo raises the banner of bigger picture, challenges us with quality as distinct from abysmal quantity banking. He certainly deserves some benefit of doubt, if not unconditional encouragement. Pat Utomi's seemingly vested interest-driven cynicism about the prospects of prolonged stagnation (The Guardian, July 25) and Ayo Teriba's 'facts for facts' with respect to the new initiative (This Day, July 19) must give way to some broadmindedness and constructive engagement. The bane of development in Nigeria is the absence of vision and road map. We simply muddle through in greater quantity (the most populous nation! the most over-banked nation; the nation with highest filling stations!) with dismal outcomes in quality of life.
We may disagree with Soludo's shock therapy/ immediate effect approach and even his undue process. Some observers are even more benign; they urged us not to expect democratic practices from unelected governor of CBN. Key issues in financing however must be urgently revisited even with imperfect processes. Utomi gives the impression that CBN's capitalisation proposals are anti-thesis of proclaimed market economy approaches. Idolisation of the market should not make us forget that market forces are means and not the ends. We must overcome prisoner's dilemma (no thanks to our high walls!). Cynical, restricted and domesticated Adams Smith's Wealth of Nations (happily Smith wrote not about Wealth of Banks!) must give way to holistic Adams Smith, inclusive of his Theory of Moral Sentiments!
Market is a dynamic human social institution. Mature view has long replaced 18th century neoclassical unhelpful textbook notion of getting the price right at an equilibrium. The greater advantage of the market lies in its function as the transmitter of knowledge. We must draw profound lessons from the current pitfalls of two decades of wholesome uninformed 'deregulation' of financial market. CBN can be accused of over dramatising banks' irresponsibility, but to assume problems are elsewhere and NOT with the banks as Utomi did, is simply self-righteous! Asset-liability mismatch, capital inadequacy, weak internal controls, fraud and poor management, contributed to the lingering distress syndrome in the banking sector. At one breath, directors reportedly hold 89 per cent of non-performing credits in one bank!
Soludo's sermon to the bankers about the imperatives of capitalism with human and social 'face' is for me a tall order. Kenneth Galbraith, American economist once observed that the 'process by which banks create money is so simple that the mind is repelled'. Delinquent banking which rests on twin legs of government deposits and foreign exchange "round-tripping" with political solutions to bail them out in case of distress is certainly mind-boggling and could have bewildered Galbraith the more. Short term frivolous financing of imports of consumables such as fruit juice, biscuits by the banks are domestic equivalents of terror financing which is wrecking havoc in terms of domestic factory closures, mass job losses. Indecent jobs are the norms as some banks put their female staff in unprofessional use in the name of marketing contrary to their spirited denials to the contrary. Crony capitalism needs not have a social face. There is a lot that is asocial about it!
Interestingly those accused of arm-chair, theoretical unhelpful banking are the very vocal against impractical proposals of CBN! Bankers under the auspices of Bankers Institute derided CBN's as ivory tower directive, taking exception to CBN's seemingly comparison of likes with unlike. If Soludo's initiative seems unsustainable it is not because it is not desirable (it is long over due) or that banks resist change (banks have always been reactionary anyway). The litmus test of CBN's recapitalisation proposal rests on its seemingly vulnerable assumptions. First was the assumption that capital inadequacy is the problem. This is diversionary. The real issue is capital application and capital control. Only public control of capital can make it socially responsible. Capital, (minimum or maximum) without control is capital on the loose; it can finance cocaine growing as well as finance terrorism as America came to realise in the wake of 9/11.
Malaysia survived the Asian financial turmoil of late 90s while Indonesia is yet to recover because of the former's active capital control measures compared to the latter's passive de-control measures as advised by the IMF, (now with its belated apology after the misery in Indonesia). Rapid liberalisation of 80s and 90s was not complemented with enhanced regulatory capacity of the CBN. Indeed the growth of banks was inversely related to the sharp decline in CBN's regulatory framework. While the nation awaits other complementary measures of CBN, what is needed is capital control and not capital decontrol. The burden here is more with CBN than the banks. CBN must reform itself before it reforms others.
Today's relatively developed money market can be attributed to CBN's control measures of 60s and 70s. Not withstanding the enormous powers of the then international banks that dominated the system and the indiscipline and sheer inexperience of the then "indigenous" banks, CBN successfully in the 70s/80s, employed measures to sustain expansion of credits to more productive sectors to stimulate productivity. Even though loans to preferred sectors fell bellow prescribed ratios, loans were nonetheless directed to real production sector, services, real estate and construction. The upward quality of life index of 70s and 80s was in large measure attributable to tamed and purposeful capital.
Soludo's celebration of mega-banks as ends in themselves is grossly misplaced. It is partly the frustration with mega-banks of old which led to clamour for uncritical dispersal in 1986. We cannot be moving from pillars to post in a periodic impulsive cycle. South Africa's mega banks must be presented within the context. Mega-banks are products of apartheid economy, which privileged the few white through wealth concentration. Liberated S Africa has a lot to learn from our disperse banking in principle and not the other way round. Unwholesome mergers and acquisitions, a kind of 'compulsory love', lead to monopoly capitalism, which everywhere has anything but human face.
Lastly, shock therapy approach to reform is counter-productive. Even communists have realised that gradualist approach preserves reform/revolution compared to Bolshevik's rule of the thump that may even consume the revolutionists themselves. Memory is the best guide. In the 50s, following banks' failures, colonial authorities raised the capital base from approximate N4000 to N50, 000! The colonial Banking Ordinance of 1952 however gave three years period for all banks to correct their inadequacy. Colonialists needed not be too kind to us than we are kind to ourselves in 2004. Reform must be properly phased with appropriate time for all to adjust.
Aremu is with Textile Labour House in Kaduna
