After the pain comes relief ( 2)

WHAT changed in the production and marketing chain to warrant such a quantum jump in price within 48 hours? Did money supply change within such a short time to justify that level of inflation? This is an abracadabra that is clearly beyond market force. Manipulation and sundry artificial interventions are at work.

This connection between exchange rate and inflation should have been seriously considered at the CBN’S MPC meeting a few weeks ago. Hiking the MPR from 18.75 percent to 22.75 percent will further hurt the economy instead of mitigating it by increasing the restriction of sustainable credit to an already strangulated real sector. As an importdependent economy the CBN should focus on a combination of expanding the availability of foreign exchange as on the control of money supply in its fight against inflation. We need informed unconventional thinking. By concentrating on money supply as the key anti- inflation tool the CBN is only pursuing conventional economic theory. Sometimes we need to try the unconventional but informed contrarian approach. This means that as an immediate policy measure the country should consider, among other monetary and fiscal factors, spending its way out of the current economic crisis through the expansion of single digit credit for the real sector instead of starving the sector of credit through high interest rates. Mainstream economists would consider such a policy measure crazy in the wake of the surging inflationary pressure.

In recent decades leading countries have taken unconventional measures to tackle economic crisis. In 1929 following the crash of the New York Stock Exchange and consequently an expected recession, the American Federal Reserve adopted a tight monetary policy, hoping that this would control inflation and end the recession. This measure had the opposite effect of exacerbating the recession into the Great Depression. Reason: lack of resources for business recovery.

Armed with this lesson, several countries led by America adopted a less stringent monetary approach, spending their way out of the crisis by bailing out distressed businesses and liberalising access to credit while rolling out social programmes when the sub- prime crisis broke out in 2008. That is how another Great Depression was avoided. The same approach was adopted to tackle the economic fallout of the COVID- 19 crisis. We clearly need rethinking of some of our canonical economic theories as it is obvious no magical pill can cure all illnesses. Addressing the current crisis in Nigeria mainly through established monetary algebra will hardly suffice. The real sustainable answer is economic diversification of which the country has been sloganeering but very little is being achieved.

We need to practice the principle which Western economies historically adopted and embraced by the “Asian Tigers” in the past four decades: export or perish. This cannot be achieved through an expensive credit regime. As we have seen, secondary interventions such as the banning of crypto currency trading, can achieve little in stabilising the naira and curbing inflation without increasing the availability of foreign exchange. The gains the naira has made in the past week will only be temporary if there is no influx of foreign exchange.

Back to Tinubunomics in conclusion. Main street economists would insist that if subsidy is being removed it should be done across board, not to be selective if the desired result of liberalising the economy for growth is to be achieved. The implication of this is that even the electricity subsidy that has been so contentious must go in order to address the power crisis that has hugely constrained economic growth in the country. This has been the position of IMF.

We must, however, also consider the potential balance sheet of such a measure. As in the case of our earlier argument, informed unconventional approach is necessary in this direction. Neoliberalism has its limits.

Tinubunomics has been painful. The kind of pains the past administrations have been avoiding to the benefit of the political and economic cabals that have held the country to ransom. There is no magic wand. After the pain there will be relief if the reforms are faithfully implemented to effectively address “lack of production” and sundry macro and microeconomic issues, including corruption.

But there has to be an effective social safety net for the poor and vulnerable in this turbulent time to avoid a social upheaval. And of course over 60 per cent of Nigerians fall in this socio- economic bracket. Balancing these concerns won’t be easy. “There must be someone to help this situation,” according to the Pioneers. Will that be Bola Ahmad Tinubu?