How domestic
confidence breeds international credibility, by IMF president
The International
Monetary Fund (IMF) came into the consciousness of Nigerians with the
introduction of the Structural Adjustment Programme (SAP) during the Ibrahim
Badamasi Babangida regime. Since then, the international financial agency has assumed
the reputation of being an enemy of the people. As a matter of course,
government’s policies over the years have been largely rudderless and so,
against the interest of the people. Unfortunately, there has been the erroneous
impression that many of the policies were instigated or even dictated by the
IMF. About three years ago, Mallam Adamu Ciroma was the chairman of the IMF
monitored recovery programme for the country.According to Ciroma then, Nigeria
wanted to fashion out its own programme to suit its socio-political
environment. Last year, the government announced the introduction of the
National Economic Empowerment Development Strategy (NEEDS). Still, Nigerians
dismissed it as another of those IMF inspired policies. Recently, the institution changed
leadership and Mr. Roderigo de Rato emerged its new Managing Director. He was the guest of the Federal
Government in Abuja between August 1 and August 3, and as part of his busy
schedules, de Rato met with members of the civil society on the morning of his
departure, where he tried to answer questions on the role of his organisation
in international financing with emphasis on how it could help Nigeria. He not
only clarified that NEEDS is a home-grown programme of the government but that
“the IMF fully agrees with the overall policy thrust and direction for
tackling economic development and unleashing Nigeria’s growth potential,
as encapsulated in NEEDS”, which is a reiteration of Article IV
Consultation on Nigeria. Our Senior Correspondent, Sanya Adejokun, was in the
audience and reported that one of de Rato’s points of emphasis on the
occasion was the need for the government to gain the confidence of its citizens
as a pre-condition for international credibility.
On why IMF policies have failed in
Africa.
Let me just stress a
bit of idea. We are seeing more and more clearly that in Africa, countries that
make key effort to have orthodox macroeconomic policies that are able to stabilise
macroeconomic situation can achieve sustained and greater growth and that those
macroeconomic policies come with deep and comprehensive structural reforms, the
capacity of growth of these countries are higher. In that respect, we are
already seeing some success stories in Africa, not only are we able to keep up
the growth rate, but also attract domestic and foreign investment and we
believe that that module is the one that we all should pursue.
Certainly, the other
field of political programmes and economic programmes are essential. We are
more and more convinced in the IMF that countries and governments should
establish their economic programmes, responding to the political and social
needs of the countries. And of course, our role as an international financial
institution is to help governments to find the best technical approaches and
economic approaches to their own problems.
As you all know, we
are working with the Nigerian government after it designed its own programme of
a very comprehensive reform agenda and we are at the request of the Nigerian
government monitoring the programme. We are sure that following that path,
Nigeria would be able to achieve high rate of growth and through that policy to
establish a long and effective way of reducing poverty.
The role of the
business community is essential in Africa like everywhere in the world. Most, if not all the jobs that the
society needs, will come from this sector. In that respect, it is very
important that the business environment, the legal, the social, the control
both at the financial and the economic environment that business needs to be
able to grow, is one of the essential issues that the government needs to take
care of. In the Nigerian reform programme, there are many issues, affecting the
public sector-budgetary policy, tax policy, privatisation, liberalisation of
sectors and others that may be addressing the microeconomic realities.
We believe in the IMF
that though a sound budgetary policy, we’ll reduce the tendency of
increasing debts and we’ll make debt sustainability a reality in Nigeria.
The Nigerian future budget would have much more scope for devoting resources to
productive activities. Certainly, we agree with the government that
infrastructure is a clear need for the Nigerian economy and we’ll like
very much to listen to your ideas about that. We believe also that partnership
between the private and public sectors in the bringing up of infrastructure
could be useful in Nigeria.
The oil sector is
certainly an essential sector of this economy and we particularly welcome the
commitment of the government to pursue a transparent policy of the use of the
oil resources and also we encourage that various tiers of government agree on a
sustained way to share the revenues and especially to take care of moments in
which prices of the oil are abnormally high, to be able to create a fund that
will save resources for other moments and that will come to reduce the burden
of debts in the Nigerian economy.
I will also like to
listen to your ideas about bottlenecks not only about economic and physical,
but also legal bottlenecks in the Nigerian business environment and stress the
important work that the business community can play in enhancing transparency
and anti-corruption practices. Certainly, the way that Nigeria can overcome its
bottlenecks in infrastructure, especially in energy and also in roads, and all
of public goods will be attracting more investments. So, in that respect, I
think that short-term objectives are not contrary to medium term objectives. It
would be a big mistake to design short-term objectives to be contrary to medium
term objectives and the other way round. Short-term objectives have to help us
to realise if we are meeting the calendar of our medium term objectives. Have
we been able to put forward a policy that, taking into account the shocks, can
be moving in the same direction in a constant manner?
In that respect,
macroeconomic stability, inflation and sustainability of debt are essential
medium-term objectives. You will not get private investment in any country that
is inflation-prone. You have that maxim that is the old gospel, but is the
truth. If you don’t reduce inflation, it would be very difficult that
domestic investment and international investors will be willing to take risk in
a country, because the premium risk they would be paying for people, who
provide money would be extremely high because people would like to cover
themselves from inflation and that is a fact that happens in every market, it
happens in every country that needs to be addressed as essential medium-term
strategy.
Inflation-prone
societies are unable to solve the problem and that happens everywhere, all the
time. So, anti-inflationary policies are essential to attract investment. So,
that is why monetary policies, monetary frameworks, regulation of financial
systems, transparency in the financial system, restructuring of the banking
system, budgetary policies that reduce inflationary tensions are key
instruments for private investments.
It is being asked
whither the role of the academics. Certainly, the role of academic intelligence
is very vital in the society. It would be impossible to develop a home-grown
programme, to have the ownership of a programme without a strong academic input
in the programme. It is also necessary to follow up if that programme really is
performing in the way of the medium-term objective of the society as part of
the public opinion and certainly, part of the academic opinion.
Nigeria has to be able
to establish a sustained rate of growth and to do that, the private sector has
to play a very important role. You have to evolve an economy that is dependent
on debt and dependent on international financial help to an economy that would
have more and more own resources, national and international, domestic and
international and then would be able to attract private investments.
That is the module
that will be able to solve the problems and would be able to develop a strong
national situation that can absorb economic shocks that happen all the time and
that we know but we don’t know exactly what are going to come and how
they are going to come, but many of them are produced and happen in other
countries and just affect us.
The role of IMF in increasing the
attractiveness of the Nigerian economy for private investment.
I think that the
collaboration we have established with the government includes the monitoring
of the progress of economic performance of Nigeria. It’s a very good tool
for enhanced confidence, confidence in the international community and
confidence in the domestic community. And confidence is a very difficult issue
to define. You don’t have a mathematical formula to determine how
confidence comes about, but we all know that without confidence, investment is
very difficult to attract. So, I think that we are providing our technical
expertise and our experience in many countries can provide the Nigerian society
with a viable tool to be implementing its own home-grown economic programme and
that is why we have established a very detailed follow-up of the Nigerian
economic performance and are able to have that follow-up in a transparent
manner. The fact that Article 4 is a publicly known position that is published
by the Nigerian government and by the IMF and that we are going to be
responding to public opinion through press conferences and meetings like this
one regularly will help us be sure that what we are seeing and the problems
that we are addressing in the Nigerian economy are the true ones. That the
response that the Nigerian government and the Nigerian society is doing is
adequate to solve their problems.
But the question of
the debt is the question between debtors and creditors everywhere in the world.
So, there is no need to define the Mediterranean because the Mediterranean has
already been defined. We know what is the problem. But, how can we collaborate
to enhance positive negotiation? That is what we think we can do. We can
collaborate to a positive negotiation if we enhance the confidence of the
creditors of the debt. That is what we can do! We can enhance the confidence of
the creditors of the debts by exactly doing what we are doing, which is
monitoring the programme and making public statements, continuous public
statements on the way the Nigerian institutions are implementing their own
programmes, with the fact that the Nigerian short-term and medium-term
objectives have the backing of the IMF.
I think that is our
most important contribution to enhance that confidence but of course, the negotiations
have got to happen between the debtors and creditors, that is a fact of life.
And we cannot change that. In that negotiation with the Paris Club, the
Nigerian authorities will have to engage some people to help in the
negotiations. We can help them technically to address those negotiations. But,
our main contribution is to publicly in the international community to be able
to provide as much ingredient of confidence as possible, so that the Nigerian
situation will be seen more and more as a stable and credit-worthy one because
without that, you would not get the words of the creditors and without the
words of the creditors, you are going no- where. And that is a fact of life
too.
That is the way we are
contributing to the important and difficult subject of the debt sustainability
in Nigeria. We also advice publicly the Nigerian authorities to take measures
to use excess of predicted oil revenues in stabilising the way so that it will
increase the credit worthiness of Nigeria and that will reduce interest rates
paid on Nigeria’s debt so that while we welcome and we encourage the
Nigerian authorities to increase the Stabilisation Fund of oil prices, as to
get themselves away from the boom burst module to much more sustained influence
of oil revenue and that they save, as they are doing right now, the increase in
the oil revenues from the targeted price that they established at the beginning
of the year.
And we certainly
advice regional authorities to collaborate in that project because we believe
that that project provides short and medium-term strategies that will be
extremely useful to both reduce the Nigerian interest rates and at the same
time, enhance Nigerian credibility for creditors and for investors.
We are certainly
collaborating technically with the government to establish a framework that
will be able to address an effective poverty reduction policy. Let me use a
very clear example with a clear budgetary policy, a transparent one that will
be able to address efficient social and economically efficient project for
public expenditure. We are certainly giving a boost to poverty reduction
strategy of any government and the Nigerian government.
On trade and open economy
Certainly, the
question of trade and open economy is an essential one from very many points of
view. First of all, because of the integration of the Nigerian economy into the
world economy, one of the clear signals that would emerge from that would be
the clear capacity of the Nigerian economy to export.
So in that respect,
certainly the issue of equal playing field is an essential one. As you would
know, that one is all about the WTO. That essentially is the discussion WTO is
having. And we believe that agreements achieved are positive ones in the
agricultural sector and we also see that if the agreements continue in the
non-agricultural sector by the end of this year, the WTO would have been able
to move things in a very important direction.
What are we doing
directly at the IMF? We are doing certain things in trade. We have designed a
financial facility to help countries to overcome dramatic changes in the trade
situation because of liberalisation and we are helping countries to cope with
that. We are certainly addressing technical issues in trade but from the point
of view of negotiations, we are helping countries to negotiate trade agreements
with more developed countries that if they have lapse in the technical analysis
and also to design their own trade policies to absorb the impact of
liberalisation. So, in that respect, we are devoting part of our resources
directly to trade issues.
Trade is not only a
question of what others have to do to allow your product to come in to your
market. That is very important but also, a lot of what you are doing to make
your market more competitive and protectionism of whatever degree is not the
road to achieve that in any country. It is true that global competition is
extraordinarily strong and we have a big debate all over the world about this
in developed countries, for instance, but it is also true that globalisation is
providing new opportunities to better performance and international competition
has to be taken into account. That is a fact of life but at the same time, it
is a better opportunity. So, I think that countries must be able to address not
only the debate about how they have better chances in other countries’
market, but also how can they respond to international competition in their own
market. And certainly through protectionist measures, you would have blocked yourself
in that direction.
More on debt forgiveness
The international
community has addressed some measures in debt forgiveness. The most important
one is the Heavily Indebted poor Countries (HIPC) initiative that has provided
debt forgiveness in many countries in particular. The IMF believes that we are
coming to a point in which this issue will have to be readdressed by the
international community because of many reasons. One, because the HIPC
initiative has final date at the end of this year and then, the other is that
although debt forgiveness effort has been very strong, the problem still lies
there. So, in that respect, we certainly believe that the international
community has to address this issue and we know that it would be addressed in
the autumn meetings in Washington.
The signals that the IMF can give.
Well, I think that
when we are engaged with the government in an economic policy and we insist on
certain issues, we are giving very clear signals. If you don’t reduce
inflation, inflation is a key issue for any economic policy anywhere in the
world. And if you don’t face that problem headlong, you are making a big
mistake because you are not solving the rest of the problem. So, in that
respect, no country and no government should allow itself to think that there
are other priorities than reducing inflationary pressures.
That is an everyday
task because you have new inflationary pressures that come from different
sources all the time in your society.
But of course, like
the minister was saying, maybe you want to see all the signals. We think that
the legal agenda that the government is putting forward in this country, for
instance, in budgetary policy and in the address in budgetary laws is a very
important agenda that deserve a lot of attention because 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
excessive oil above the predicted price of oil revenues, it would make a big
step forward in giving itself a stable tool to manage this economy in all
circumstances. And that is a very important step for credibility.
Credibility is not
different domestically than internationally. 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
credibility, you usually have a country that lacks domestic confidence.
So, credibility is not
different here than a thousand kilometres away. So, when you have credibility
in an economic system, you would not only be giving a good signal for people
outside but you are also giving a very good signal for the people, who are in
the country and that is usually the most important people to address economic
problems in any country.
However, the system of
recognising sacrifices in the society is a very important issue but is not easy
to define. When you are looking for concessional policies, help, grants when
you are looking for private investments, the IMF can help enhance the
credibility of an economic team, or an economic performance and that is what we
are trying to do in many cases.
