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Cablegate: Nigeria: Naira Redenomination Flip-Flop

VZCZCXRO2747
PP RUEHMA RUEHPA
DE RUEHUJA #1865/01 2410643
ZNR UUUUU ZZH
P 290643Z AUG 07
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 0758
INFO RUEHOS/AMCONSUL LAGOS PRIORITY 7745
RUEHZK/ECOWAS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 ABUJA 001865

SIPDIS

SENSITIVE
SIPDIS

DEPARTMENT PASS TO USTR (AGAMA)
DEPT OF TREASURY FOR RHALL, DPETERS

E.O. 12598: N/A
TAGS: ECON EFIN EINV PGOV NI
SUBJECT: NIGERIA: NAIRA REDENOMINATION FLIP-FLOP

REF: A. ABUJA 1793
B. ABUJA 1741

THIS MESSAGE IS SENSITIVE BUT UNCLASSIFIED. NOT FOR INTERNET
DISTRIBUTION.

1. (SBU) Summary. The sudden suspension of the naira
re-denomination policy by the Government of Nigeria (GON)
demonstrates a lack of coordination and cohesion in President Umar
Yar'adua's economic team. Such policy flip-flops affect Nigeria's
credibility adversely in the international financial markets and
with its development partners. The suspension of the
re-denomination and possibly other components of the Strategic
Agenda for the Naira jeopardizes Central Bank Governor (CBN)
Chukwuma Soludo's position and castes doubt on Nigeria's plans to
become Africa's financial hub by year 2020. End Summary.
.
----------------------------
AG Drops Hammer on CBN Plans
----------------------------
.
2. (U) On August 24, Michael Aondoakaa, Attorney-General and
Minister of Justice of the Federation, announced the suspension of
the naira re-denomination policy. This was a major blow to a key
component of the CBN's "Strategic Agenda for the Naira" announced
with much fanfare on August 14, 2007 (reftel A). Aondoakaa said the
suspension was based on the failure of the CBN to obtain the
President's written approval and highlighted section 19, sub-section
1 and 2 of the CBN Act of 2007 (the Act), which requires that any
matter dealing with issuing new currency and coins must be approved
by the President.

3. (U) The media reported, following the August 14 announcement,
Soludo met with the Federal Executive Council (FEC), to merely
inform them without seeking approval, and told the FEC he was acting
within the powers granted to him by the Act. Soludo, after
hurriedly cutting short his vacation and returning to Nigeria, had
the CBN issue a press statement on August 27, confirming that he and
the CBN Board recognized and reaffirmed the President's approving
authority regarding denomination and accepted the decision to
suspend implementation. It was not clear from the press statement
if other components of the agenda - current account liberalization,
inflation targeting, and sharing of part of the federation account
in U.S. dollars will be affected.
.
--------------------------------------------- --
Clarification from the President's Spokesperson
--------------------------------------------- --
.
4. (U) In an August 25 press statement, Segun Adeniyi, Special
Advisor on Communications to President Yar'adua, stated that the CBN
put forward the re-denomination policy "without appropriate regard
for the present administration's insistence on due process and the
rule of law" and the President was suspending the "Strategic Agenda
for the Naira." Adeniyi commented that Soludo did not seek approval
from the President before announcing the policy, contrary to the
provisions of the Act. The press statement indicated that President
Yar'adua was not convinced of the naira policy merits and questioned
whether he approves of the entire project.
.
---------------------------
Disagreement within the CBN
---------------------------
.
5. (SBU) Sola Awoyungbo, Special Assistant to the Deputy Governor
responsible for Financial Sector Surveillance, told us that he would
have preferred holding more consultations and discussions with
stakeholders before the announcement. He had doubts whether
currency re-denomination was a priority because of other more
pressing economic issues and noted the high cost that would be
incurred for printing lower denomination notes and coins. Awoyungbo
doubted that the President would support the policy even if the CBN
follows the procedure highlighted by the Attorney General.
.
------------------------
Experts Differ on Policy
------------------------
.
6. (SBU) Professor Pat Utomi of the Lagos Business School and Ayo
Teriba, CEO of Economic Associates approved of the GON's directive
and argued that only countries suffering hyper-inflation and a loss
of public confidence in the domestic currency should implement a
re-denomination policy. They agreed these conditions were not
present in Nigeria and applauded the GON for suspending the policy
initiative. Bismarck Rewane, CEO of Financial Derivatives, a
financial consulting firm based in Lagos, said it was regrettable

ABUJA 00001865 002 OF 002


that the rules were not followed by the CBN and the issue was not
put to a wider debate.
.
--------------------
Reform Implications?
--------------------
.
7. (SBU) Soludo has been a strong advocate for economic reforms,
and the timing of the AG's press statement, while he was on vacation
and out of the country, was to publicly discredit him. It is
unclear whether the President will move forward with other agenda
components. A further demonstration of Soludo's falling
credibility, he was omitted from the President's Economic Management
Team headed by Minister of Finance Shamsuddeen Usman, former CBN
Deputy Governor. Commentators contend that Soludo, will be asked to
resign and replaced with a northerner close to the President.
.
-------
Comment
-------
.
8. (SBU) This most recent flip-flop follows in the wake of another
public turnabout on the Economic and Financial Crimes Commission
directive on investigation and prosecution of suspects (reftel B).
It implies that President Yar'adau and his team are not in sync and
calls into question his leadership. Both policy flip-flops were
justified by Attorney General Aondoakaa - leading one to question
whether he is influencing a broad range of administration policy or
simply being used to provide a legal mechanism to reverse decisions.
- This public demonstration of poor cohesion hinders the GON's
efforts to establish its reform credentials to the international and
donor community. An IMF team is in Nigeria preparing a final review
of Nigeria's Policy Support Instrument (PSI) and paying close
attention to the evolving situation.

GRIBBIN

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