By Emeka Chiakwelu
The value and worth of a
currency is determined by the wealth of a nation. In this era of
global capitalism, a wealth of nation goes beyond the conventional valuation
based on the natural and human resources. A nation’s image,
perception, security and stability also played an important role in the
determination of a nation’s wealth. Therefore currency and its value become the
bellwether and principal indicator of the economic status and financial well being of a given nation.
The principal factor in a
currency regulation and determination is rooted on the forces of supply and
demand, most especially nations that are exposed to global trade and currency
transactions. Most currencies are not rigidly fixed but are allowed to float
and checkmated by the forces of the market. The gold standard that was tied to
a currency has been abandoned and determination of a currency was replaced by
the forces of the market and the wealth of a nation. A currency is more than
medium of exchange, for a currency is principally used as a settlement of debt
both domestic and international.
A wealth of a nation
consist of its currency backed by the size of the economy (GDP) which includes
of course the natural and human capital, credit worthiness and the debt of a
nation.
International Monetary
Fund (IMF) an international elite organization is empowered by the member
nations to be advisory regulatory of the financial wellbeing of the global
market economy. In this case IMF becomes a watchdog to the financial
and economic standing of nations, more or a less a financial policeman that can
bark but sometimes it can also bite. The later became functional and
operational when a nation seeks the aid of the Brentwood institute for a
financial counsel and credit due to economic hardship. In this case a nation
invites the financial entity and it will come and rearrange the financial house
before it accept to help the host. Sometimes IMF can interject without
invitation on the grounds of doing public good and protecting the world from
financial and economic pandemonium that comes with great recession and
sometimes depression.
Never for one second
believes and accepts the propagated notion that IMF is just only a financial
institution devoid of politics, the whole truth is that IMF is also a political
institution. Political economy is bedrock of economic evaluation and
determination of a nation’s wealth. Advanced nations have more clout before IMF
more than developing nations of south of the hemisphere especially countries of
Africa. IMF bureaucrats can prescribe some conditions and criteria to African
member nations and the implementation may cause unforeseen hardship but those
policies will not be accepted by the more powerful economies of northern
hemisphere. The less developed nations bear the brunt of IMF overwhelming
control and intimidation.
With this in mind, let’s
reflect on Africa of 1980s that ran to IMF for financial bailout due to
economic hardship and a laden-back breaking foreign debt caused by herculean
mismanagement and corruption. Those were days of capital flights, military
coups and political instabilities in Africa. The African dictators asked for
credits from international financial institutions but they were directed to go
through IMF. The ramifications of the emitted IMF’s austerity measures that
come with currency devaluation on African nations brought economic collapse of
the continent. There were massive unemployment and brain drains that decimated African
economic outlook and prospect. Prices of essential commodities rose beyond the
affordability of an average African.
African producers and
manufacturers import most of their raw materials with devalued currency and
subsequently higher price of dollar makes it impossible to continue production.
Literally and figuratively Africa was in mundane hell endowed with higher and
rising inflation. The prices of cash crops produced by African countries
nosedived because they were instructed to devalue their respective currencies.
The once respected and dominant naira was so devalued that many companies went
bankrupt with red financial balance sheet. These were the prescriptions given
to powerless and poor nations of southern hemisphere.
Most African nations were
not producing arrays of materials and commodities for export but rely on one or
two cash crops for making of small foreign exchange and these nations are
receptors of donations from abroad donors to balance their budgets. Therefore
what is the meaning and logic behind devaluing their already weak currencies
that were streamlined by inflation and political instability?
The connected and
acceptable African economists and government bureaucrats who were anointed by
IMF elites were the mouth piece of the goodness of currency devaluation and
austerity measures. The government was asked to reject welfare state, therefore
to cut down on spending and to remove subsidies from the essential commodities
that the poor needed for survival. The IMF Ivy league elites and their
puppets have no meat in what is happening to Africa, it is all about policies
and economic theories and experiments on Africans. Our leaders were intimidated
to challenge those unproven economic theories; moreover African dictators do
not want to rock the boat and asked about their democratic credentials. Can
IMF point to any success story that came out of Africa as a result of their
economic and financial pills it prescribed to Africa?
Then comes Nigeria of
1980s, she has no business asking for help from IMF but she did and she paid
dearly for it. Nigeria in 1980s could not acquire credit lines for
international transactions due to her weakness in serving her debts and foreign
obligations. Nigeria an oil-rich nation has no reason to fall behind in her
financial obligations and payments of her foreign debts. But inertia,
mismanagement and corruption had claimed a large chunk of her operational and
financial integrity.
The economy is not a wholly export based except crude oil
and the economy is not diversified with arrays of manufactured products for
export. The logic of devaluation is to induce and increase export by lowering
the prices of local manufactured products making them attractive for export.
But that is not the case with Nigeria, a mono-product exporting country; crude oil
which generates about 90 percent of the country’s foreign exchange is not fit
for such a move.. By devaluating naira the price of oil will further nosedive
and country’s foreign reserve will dwindle, while the incentive to buy Nigerian
fiduciary bonds and securities in international market will depreciate.
To be factual, Nigerian currency naira have already been
weakened by rising inflation and market forces as buttressed by the exchange
rate at the parallel market. At this point in time the inflationary trend is
gradually creeping into the monetary base and naira is gradually but steadily
losing its ground. Therefore what is the logic of further devaluating a
currency that already have been weaken by rising inflation and by so doing
summons and heaps a greater hardship on the majority of Nigerians.
Most of the products and raw materials utilized by
producers are mostly imported from abroad. With the devaluation of naira
importation and oversea products will become more expensive and out of reach of
majority of Nigerians.
Devaluation may discourage importation and foreign
products in Nigeria as a result of the subsequent appreciation of foreign currencies
notably dollar. Subsequently, naira will
continue to lose its intrinsic value as a medium of exchange. Nigeria not being
export driven economy cannot take advantage of devaluation because the economy
is not diversified and local production still at the rudimentary stage.
Nigeria industries are still dependent on foreign
expertise and raw materials to function. And with further devaluation of naira
the scarcity of dollars and pounds will greatly magnify.
The adverse effects of devaluation are humongous and
insidious: Apart from massive
unemployment and hyperinflation, the prices of food and essential commodities
will be too expensive; beyond the reach of the suffering masses in a nation
where 85 percent of the population survived with less than one dollar per day.
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