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Cablegate: Af Das Moss' Meetings with Nigerian Central Bank And

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PP RUEHMA RUEHPA
DE RUEHUJA #0372/01 0581251
ZNR UUUUU ZZH
P 271251Z FEB 08
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 2188
INFO RUEHOS/AMCONSUL LAGOS PRIORITY 8816
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHZK/ECOWAS COLLECTIVE

UNCLAS SECTION 01 OF 03 ABUJA 000372

SIPDIS

SENSITIVE
SIPDIS

DEPARTMENT ALSO FOR EB/IFD/OIA
DEPARTMENT PASS TO USTR (AGAMA)

E.O. 12958
TAGS: EFIN ECON ETRD PGOV KCRIM KJUS NI
SUBJECT: AF DAS MOSS' MEETINGS WITH NIGERIAN CENTRAL BANK AND
FINANCE OFFICIALS

SENSITIVE BUT UNCLASSIFIED -- HANDLE ACCORDINGLY.

1. (SBU) Summary: Deputy Governor of the Central Bank of Nigeria
(CBN) told AF DAS Todd Moss and the Ambassador that the CBN will
soon issue a policy on foreign banks merging with or acquiring
Nigerian banks. The upcoming policy is not/not aimed at restricting
other entry or operations by foreign banks. Both the CBN and the
Finance Ministry are working to further economic and financial
reforms. The Finance Ministry is professionalizing public service
while the CBN is working with the Economic and Financial Crimes
Commission (EFCC) to increase financial sector reporting on
Suspicious Transaction Reports and would welcome USG advice in that
effort. The Minister of State for Finance told AF DAS Moss that the
Ministry and the Debt Management Office (DMO) are developing a
framework to guide states in debt management. Soon, each state will
have a DMO office. End summary.

2. (SBU) AF DAS Todd Moss and the Ambassador met with Deputy
Governor of the Central Bank of Nigeria Tunde Lemo and Minister of
State for Finance Aderemi Babalola in separate meetings on January
23. Topics discussed included the banking sector, the budget,
federal and state-level spending, the EFCC, and the Niger Delta
Development Commission (NDDC).

--------------
Banking Sector
--------------

3. (SBU) CBN Deputy Governor Lemo commented that the ongoing banking
consolidation program was a success, reducing the number of banks
from 89 to 24. Bank assets had grown from N206 billion to N1.6
trillion (from 1.75 billion to 13.4 billion dollars) and banks now
account for 10 of the 12 most capitalized companies listed on the
Nigerian Stock Exchange (NSE). Deputy Governor Lemo declared that
there is no risk of over-capitalization in Nigeria. Banks fund
domestic and international commerce, small and medium enterprises,
and manufacturing. Not all banks have the capacity and skill to
invest in the oil sector.

--------------
Foreign Banks
--------------

4. (SBU) AF DAS Toss Moss inquired about restrictions on foreign
banks in the Nigerian banking system. Lemo stated that three
foreign banks are presently operating in Nigeria, and more are eager
to invest in the banking sector. Lemo said that the GON regards
banks as development partners, but past experience shows that
foreign banks are reluctant to open branches outside of major
cities, where most people live. The CBN intends to limit mergers
and acquisitions involving foreign banks. The upcoming policy is
not/not aimed at restricting other entry or operation by foreign
banks. He said that foreign banks can freely establish their own
operations in Nigeria if they meet the minimum capital requirement
of 25 billion Naira. (Note: We expect that the Ambassador and
Governor Soludo will discuss the mergers and acquisitions issue this
week. End note.)

-------------------------------------
Suspicious Transaction Reports (STRs)
-------------------------------------

5. (SBU) Lemo stated that the CBN works with other federal agencies,
including the Financial Intelligence Unit of the EFCC, in dealing
with money laundering issues. Commercial banks need to be properly
trained to report STRs. He expressed that both CBN and banks are
interested in further developing training on STRs and would welcome
USG advice on expanding such training.

---------------
Debt Management
---------------

6. (SBU) In his discussion with DAS Moss and the Ambassador,
Babalola said that the Ministry of Finance and the Debt Management
Office (DMO) are in process of developing a framework to guide
states in debt management and that each state will soon have a DMO.

Reckless spending in the past demanded the development of the fiscal
responsibility act. However, the new fiscal responsibility act is
only on the federal level, but the federal government is encouraging
the states to adopt it. Thirteen state legislatures have adopted
fiscal responsibility legislation. Babalola said the rest of the
states would follow suit "within two months."


ABUJA 00000372 002 OF 003


------------------------
Finance Ministry Reforms
-------------------------

7. (SBU) Babalola told DAS Moss and the Ambassador that
institutional reforms were focused on professionalizing public
service. Previous reforms had relied too much on consultants and
when they left, there was no capacity to continue the reforms. The
new plan was to have consultants work more closely with civil
servants, while also encouraging people from the private sector to
join the civil service and share their knowledge and experience with
civil servants in order to create institutional capacity. Since
2006, reforms have slowed down. When President Yar'Adua assumed
office, people expected the pace of reforms to pick up again, but
this hasn't happened. However, Babalola said, once the budget has
been passed by the National Assembly, the GON will roll out a series
of new and deeper reforms but did not elaborate further.

-------
Budget
-------

8. (SBU) Babalola said the government used International Monetary
Fund guidelines to create the 2008 budget, some for the first time.
Under the new system there is a focus on rule of law and a
commitment to implementing what comes out of the budget process. For
the first time, money allocated for a specific fiscal year must be
spent or committed during that fiscal year, which should reduce the
deficit and abuse of public funds. The money not spent or committed
must be returned to the Treasury. The GON wants to have a
private-sector-led economy and wants public-private partnerships to
play a larger role in the economy.

9. (SBU) In response to DAS Moss' inquiry whether Nigeria would
combine higher spending with a reduction in import tariffs to reduce
inflation, Babalola acknowledged that a lot of money was being
pushed out into the economy. Higher oil prices are expected to
result in higher revenues for the GON despite production disruptions
in the Niger Delta. This is expected to lead to increased money
supply which could be inflationary. However, the CBN had devised a
strategy of sharing revenues to the states in dollars to reduce
inflation from an excess supply of naira. (Note: Press reports
during the second week of February stated that the Government had
halted this practice for some allocations. End note).

--------------------------
Excess Crude Account (ECA)
--------------------------

10. (SBU) Babalola stated that funds presently in the ECA would stay
there. (Note: Apparently a reference to the GON's commitment to
maintain USD eight billion in the ECA. End note). The accretion
would be shared with the states, but the government was considering
imposing conditions on the release of the money; for example,
requiring 70 percent of the money released to the governors to be
used to purchase capital imports to support high-value
infrastructure projects. Babalola said if the National Assembly
raised the benchmark price by more than five or six dollars per
barrel there could be problems, implying that such an adjustment by
the Assembly would not be fiscally prudent.

--------------
State Spending
--------------

11. (SBU) The Ministry of Finance is also looking at ways to improve
fiscal accountability at the state level. According to Babalola, in
the past, states would obtain an Irrevocable Standing Payment Order
(ISPO) from the federal government for purchases, as a guarantee in
order to borrow money from private markets. In the past, one
Governor obtained ISPO to purchase planes for his state, but ended
up employing them for his private use. As the example shows, this
practice was open to waste and abuse.

--------------------------------------------- -
Economic and Financial Crimes Commission (EFCC)
--------------------------------------------- -

12. (SBU) Discussion between DAS Moss and Babalola turned to recent
developments at the EFCC and its future. Babalola emphasized that
the goal was to institutionalize reform. The GON wants reforms to
outlive Ribadu, giving future chairmen a chance to prove that EFCC
will continue the course of its work even without Ribadu. The
Ambassador told Babalola that the decision to reassign Ribadu was
problematic, following as it did on the heels of former Delta State

ABUJA 00000372 003 OF 003


Governor Ibori's arrest by the EFCC on corruption charges. She said
that while the U.S. understands that institutions are greater than
individuals and that it was a presidential prerogative to send
Ribadu for a year long senior management course at the National
Institute for Policy and Strategic Studies in Kuru, the way the
decision was made increased doubts on the GON's commitment to the
EFCC's anti-corruption efforts. Babalola argued that if the new
(acting) chairman carried on the work of the EFCC, such doubts would
be assuaged.

-----------------------------------------
Niger Delta Development Commission (NDDC)
-----------------------------------------

13. (SBU) DAS Moss and the Ambassador asked about government
leverage over the NDDC. Babalola emphasized that it was tough to
monitor budgetary allocations paid to the NDDC. The government was
trying to see what projects it should give money to rather than
increasing the amount of money NDDC receives. Statutorily, the NDDC
must receive money from the federal government, but there was
nothing in the constitution or law about monitoring the activities
of the NDDC. Babalola said that it could actually be illegal for the
government to bring in an external auditor to conduct an audit of
the NDDC. (Note: Due to the statutory authority of the NDDC, only
the National Assembly has the power to order an audit. End note).

14. (U) AF DAS Moss cleared this message.

SANDERS

6

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