Buhari and independence of the Central Bank

History has taught us – and scholars are now documenting the lessons – that a great deal of the difference between developed/prosperous societies and those that are not are traceable to the presence and quality of institutions. For instance, Daron Acemoglu and James Robinson – in their highly acclaimed book “Why Nations Fail” conclusively show that the reason why some nations are rich and others poor, divided, as it were by wealth and poverty, health and sickness, food and famine, is as a result of the presence and quality of man-made institutions in the former and its absence or weakness in the latter. To drive home their point, they cited the example of Korea – a remarkably homogenous nation, yet the people of the South are among the richest while those of the North are among the poorest in the world. The contrasting fortunes of the two Koreas are in the nature and quality of their economic and political institutions. While those of the South are open, encouraging innovation and full participation in the economy coupled with a workable political system that is fully accountable and responsive to citizens, those of the North are closed, dependent on individuals and non accountable and responsive to citizens.

That is why countries that seek to build prosperous and sustainable societies anchor them on strong institutions rather than personal rule or strong men. Institutions are impersonal and enduring and not subject to the whims and caprices of leaders. They outlive individuals and guarantee progress regardless of the people inhabiting them at any point in time.

It is in this light that we view the usurpation of the powers and functions of the Monetary Policy Committee and the Central Bank of Nigeria to fashion and determine the country’s monetary policies by the President as unwise. Since his assumption of office, President Buhari has been making definitive monetary policy statements in apparent contempt of the laws setting up the CBN and the MPC. In Paris, France, in September 2015, the President was quoted as saying: “I don’t think it is healthy for us to get the naira devalued.” when quizzed on the shortage of foreign exchange that decision will cause, he argued that “the central bank is providing ample foreign exchange to “essential services [and] industries.” Also, in a widely circulated interview with Aljazeera two weeks ago, the president pointedly said the Nigeria will not devalue the Naira because devaluation is not good for a country like ours that imports everything including toothpicks.

Expectedly, after the pronouncements and even before that, the CBN has lost its independence to determine the country’s monetary policy and has relied instead on reading the ‘body language’ of the president and taking actions that will conform to that ‘body language.’ Therefore, the MPC’s decision in January not to devalue the naira was not considered an independent decision by the markets, which usually frowns on political interferences with Central Banks and monetary policies. No wonder then the CBN has been struggling – rolling out policies considered too pedestrian – to protect the Naira that has already devalued itself.

Prosperous and sustainable societies are built around respect for the laws of the land and on strong institutions. This administration must not set a bad example of trampling on and consequently destroying institutions while trying to build a prosperous society. It never works!

The president may have good intentions but he must remember that the road to hell is always paved with good intentions. What the president is doing amounts to personalisation of power – and as history has shown, no matter the good intentions, personal rule is all that is wrong with Africa. With personal rule, state institutions become synonymous with the ruler and cease to have any importance outside of the ruler. Of course, everything crumbles the moment the rule exits the stage, and in the absence of institutions, the state descends into chaos and even anarchy. Over fifty years of experimentation with strong men and personal rule in Africa has shown that strong and enduring institutions do not co-exist with strong man rule.

In contrast, a country with strong and established institutions could withstand weak or even disastrous leaders. The focus and or accent is on the institutions and not the leaders. The fortunes of such countries are not tied to the whims and caprices of individuals, but on established and enduring institutions. That is why, for instance, the United Kingdom could emerge stronger from the many blunders of weak Prime Ministers like Neville Chamberlain and Anthony Eden. In contemporary times, we are all witnesses to how the United States quickly recovered from the many disasters of George Bush Junior. Africans are better off prioritising the establishment of strong institutions than on getting strong men to rule because only strong institutions ensure democratic sustainability.

We urge the president to respect the provisions of the law and allow the CBN and the MPC the independence to determine the country’s monetary policy.