Falling oil revenues spur Nigeria to take bold economic step. Currency devaluation reignites public debate over dealing with IMF
Abidjan, Ivory Coast — In devaluing his nation's currency by two-thirds, Nigerian President Ibrahim Babangida has taken his biggest gamble since he took power after a coup in August 1985. President Babangida was forced to act by the collapse in world oil prices. The plummeting prices have brought black Africa's biggest economy close to bankruptcy. Oil accounts for more than 95 percent of Nigeria's export earnings.
Since 1983, successive Nigerian civilian and military governments have shrunk from devaluing the currency for fear that it would cause a steep rise in the price of imported food and raw materials and provoke severe social unrest.
Mr. Babangida now hopes that after several years of severe economic recession, the Nigerian people realize there is no alternative, analysts say.
Oil export earnings are expected to be less than $7 billion in 1986, compared to some $22 billion in 1980. The resulting financial squeeze has forced the government to declare its third consecutive three-month moratorium on debt repayment beginning Oct. 1 and to begin the nation's first foreign-exchange auction of its currency, the naira.
The International Monetary Fund, whose help Nigeria has never before requested, has been insisting on a sharp devaluation of the naira. The IMF sees this as the crucial element in a package of economic reforms that it has been discussing with Nigeria since April 1983.
Devaluation should win the IMF's stamp of approval for Nigeria's structural reform program. It is hoped this will help Nigeria to renew credit lines with foreign banks and governments, allowing the nation to finance essential food and raw-materials imports. It is also hoped that Nigeria's commercial creditors will be persuaded to reschedule an estimated $14 billion medium-term debt and an overdue $6 billion trade debt.
The weekly auctions, which began late last month, are part of a newly created second-tier foreign-exchange market covering all trade and transactions except government debt service and payments to international organizations. The auctions are being supported by a new $450 million World Bank loan, but there are doubts as to how long the government will be able to provide foreign exchange to fund the auctions.
At the first auction, some $50 million was auctioned by the Central Bank of Nigeria. Since then, the naira has dropped 70 percent in its value against the dollar.
Mindful of last December's heated public debate over an IMF deal, Nigerian officials prefer to talk about the naira's ``adjustment'' to a more ``realistic'' rate.
``National sovereignty'' was one of the strongest arguments against an IMF deal. Critics also point to the IMF's lack of success with similar programs elsewhere in Africa and argue that higher food prices will outweigh any gains. This is especially true because the dollar-denominated oil exports will not increase.
The Nigerian Labour Congress, a trade-union federation, has condemned the auction plan as ``disguised devaluation'' and says the working class will be hit hardest by increased prices of imported food and consumer goods.
But some analysts argue that many Nigerians are already accustomed to paying inflated black-market prices. They add that the majority of rural people should be largely unaffected, since they mainly eat locally grown food.
The second-tier market has been opposed by many powerful interest groups, including manufacturers, traders, government bureaucrats, and some members of the military. But during his year in office, Babangida has defused many explosive issues, including a military coup plot, a religious controversy over membership in the Islamic Conference Organization, and student and labor unrest.
``Beneath a chubby and jovial exterior lies an astute politician as well as a popular military leader'' says one observers.