Charter of a Curious Bailout

The bailout for the states was not thought through, contends Bob MajiriOghene Etemiku

Following a global economic recession in 2008, then Secretary of the United States Treasury under the George W. Bush administration Henry Paulson proposed a plan to recapitalise the US financial system. It was a backup plan which eventually became the Emergency Economic Stabilisation Act of 2008, aka the bailout. The plan was a call on the US government to buy about $500 billion in distressed assets from many of the banks and financial institutions that were going under. Before the winter of 2008 when the US government took over mortgage institutions like Fannie Mae and Freddie Mac, the Lehman Brothers had become insolvent. But before the bailout indeed became effective, George W. Bush held extensive discussions with Congressional leaders including the Democratic and Republican presidential candidates Barack Obama and John McCain, who were hesitant and nervous about the bailout. As a matter of fact, the first time that the plan was sent to Congress, it was roundly pilloried and seen as a ‘gun to the head’ of the American people.

To understand why there was a need for the US government to bail out these distressed institutions, we must first examine some of the events which triggered the global recession. According to Wikipedia, from 1970 World Capital Markets were not as free as they were in 2008. The freedom that these financial institutions began to enjoy after 9/11 created a loose conglomerate in the financial system of the world economy together with a measure of recklessness. Therefore, by the time a certain Glass– Steagall Act of 1999 was repealed, banks were selling subprime mortgages as no risk investments. This eventually created a crisis in the financial system of the world, and led to ‘contracted liquidity in the global credit markets’ and ‘insolvency threats to investment banks and other institutions’. Stock markets around the world like Britain’s FTSE 100 Index, Germany’s DAX, and France’s CAC all took a dive. The Russians suspended trading in shares after the RTS stock fell drastically. Iceland’s major banks put trading on ice, and began to cook up a plan reminiscent of the US bailout. Nonetheless, the bailout worked for the US and world economy. Even though the plan resulted in the fall of the US dollar against the major currencies, it created stability and stemmed the financial crisis of 2008.

Almost a decade after US banks and financial institutions got a bailout arising from a global economic recession, Nigeria received $61.7 billion, nearly N13 trillion in four years accruing from unexpected income from a rise in the price of oil. According to records released by the Finance Minister under the Goodluck Jonathan government, Dr. Ngozi Okonjo-Iweala, government spent $1.818 billion in 2011; $2.63 billion in 2012, $3.26 billion in 2013 and $3.14 billion for 2014 servicing a subsidy on fuel. In 2011, it disbursed $3billion, about N66 trillion to be shared among the three tiers of government – the federal, state and local governments. In 2012, another $2.5billion was distributed for sharing among the tiers and $82.57million for the power projects. The following years until the election year of 2015, nearly the same amounts were shared by the three tiers.

In spite of the payments of the monies to the states and federal governments, power supply has not stabilised. Roads in major cities are still relics of the 1980’s where a structural adjustment programme created chasms of development in Africa. Our hospitals are still consulting clinics, and even though many fancy buildings spring up in some states and were tagged as hospitals, their builders still rush abroad for treatment if they have a headache. In one year alone, Nigerians spend more than N120 billion in medical tourism. Universities are still underfunded, children still learn sitting on floors in primary schools, and university graduates still cannot land jobs. But by far the most troubling aspect of this shortfall in the expectation of the overall welfare of Nigerians is that just before and after the elections, civil servants did not get paid for upwards of 11-14 months. The insinuation among Nigerians was that funds allocated for the payment of civil servants were illegally diverted to pursue and fund political campaigns. What made the matter even more bizarre is that if new governors were complaining of empty treasures and wanted to be bailed out because the outgoing ones had stolen the state dry, those who were re-elected wanted a bailout as well.

At the first meeting that President Buhari had with these governors concerning their request for a bailout, he nearly told them off. Why would a governor who had received a monthly allocation as required by the statutes be asking for a bailout? How did he spend the money and what were the projects that the monies were spent on? But as the days wore on it seemed that the initial bluff that Mr. President adopted on the request for a bailout by governors began to soften. Following a directive from Mr. President and in conjunction with a National Economic Council, states seeking a bailout were directed to apply to commercial banks. Already, 19 of 27 states have received N222billion. This looks like a perfectly normal transaction. But there’s more to this. First, why is nobody asking questions how all former and serving governors spent their monthly allocations and why they are unable to pay salaries? Why are we not asking where it is they got the monies with which they funded their campaigns and the campaign of Mr. President? At the time of writing this, only two former governors have been arrested by the Economic and Financial Crimes Commission, EFCC, in connection with state allocations, and they are governors in the opposition. Why have the others not been arrested as well? Second of all, the states have been given a 20-year tenor to repay the ‘loans’ or the ‘bailout’. If a governor has a maximum of eight years to serve, would it not be standing reason on its head to give him a tenor of 20 or 10 years on a loan?

The problem with the Nigerian bailout is that it was not thought through. Unlike the American which was put on the floor and subjected to the rigours of debate and presented to the American people to decide on how to rescue a failing economy, the considerations for ours were more political than economic. One man made all the decisions for us together with a bogus ‘National Economic Council’, a council constituted before the appointment and confirmation of ministers. While the Americans have used the bailout to stabilise theirs and the world economy, we are simply “dashing” these governors and local chairmen money. How many of the state governors who have already collected billions of naira on behalf of their states presented a business or an economic plan to their state assemblies for rigorous debate and analysis? Why did the banks and as a matter of fact, why did the central bank not ask to see a thorough expenditure plan before approving a ‘bailout’ for those states requesting one?

The situation in Nigeria today has not changed in any way from the old ways of doing things. Not many persons in government are interested in creating opportunities for Nigerians to grow.

The problem with the Nigerian bailout is that it was not thought through. Unlike the American which was put on the floor and subjected to the rigours of debate and presented to the American people to decide on how to rescue a failing economy, the considerations for ours were more political than economic