At present, Nigeria's external reserves, put currently at $63bn, are placed at the disposal of global financial sharks to gamble with, while there are monumental developmental challenges facing the country which require the injection of huge resources.

Global capitalism is now in the midstream of financial meltdown. In Europe and US a number of banks which are global brands have either drowned or been rescued with lifeboats fuelled with public resources. This fundamental crisis of capitalism appears to be leading towards a worldwide recession. This is despite multi-trillion dollars of public funds that have been spent globally to stem the tide. The contagion has caught up with the real economy. Already, the cases of significant drop in company profits and job losses are on the rise around the world.

The slowdown in world economy has brought down the price of crude oil. Thus, in Nigeria the revenue from crude oil, which accounts for almost 99 percent of the foreign exchange earnings, will be seriously affected. Accordingly, under capitalism, the poor working masses are in for further attacks and deprivation on living standards, working conditions and basic needs. Now there is a big question on the safety of the foreign exchange reserve, which had been amassed during the recent oil boom, in the face of the raging global financial crisis. Chuwkuma Soludo, the Central Bank of Nigeria (CBN) Governor has at different forums assured Nigerians that the external reserve is safe. But how safe is it? It is safe to the extent that the crisis has not degenerated to currency crisis, according to Soludo.

At the Town Hall meeting, organized on October 3 in Abuja by the This Day newspaper on global financial crisis, Soludo stated, "The other crisis which has not manifested yet, and we pray it does not is for this crisis to spill over into a currency crisis. So far the US dollar has still managed not to weaken substantially rather it has in fact strengthened against some other currencies. "I think that is relatively a good news because were this crisis to become a currency crisis and major currencies begin to lose confidence in the dollar as a reserve currency, then we might have a new spiral of some other global financial crisis but thank God we haven't got there" (This Day, October 4, 2008). This implies that Nigeria's foreign reserve is at mercy of providence. There is potential for "a new spiral of some other global financial crisis" to consume the reserve! "But thank God we haven't got there".

This means that we can still get there. "But we pray it does not". Soludo has suggested that we need divine intervention, prayer and fasting, to avert the calamity. This is a warning signal that the reserve is endangered. Labour and pro-masses' organizations should demand that that huge resources put in the foreign reserve should be largely used for infrastructural development and provision of basic needs for all. Now, that danger appears to have arrived at the doorstep. Bloomberg (October 29) reported that the dollar fell the most against the currencies of six major US trading partners as the US Federal Reserve cut its interest rate to 1 percent. Worse, limiting the potential loss of the reserve to just possible currency crisis may turn out to be half truth in the long run.

What is the health of the banks and financial institutions that manage our reserves? The assurance from Soludo and government economic team has been "all is well". Previously This Day Newspaper reported in its September 16 issue that it had been told the previous night by an unnamed top government official "that the country's external reserves estimated at some $64 billion was not in any of the affected banks". But this is a blatant lie. Some of these institutions are in serious crisis and only exist on lifeline from their local governments. Indeed, one of them, ABN Amro, has been in existence only by default and another one, Fortis, has been reduced to a mere brand name.

ABN Amro, a once upon a time Dutch banking giant with operations in 63 countries around world, had already sold itself to Fortis, Royal Bank of Scotland and Santander of Spain for €70bn ($110.4 billion) in October last year. Indeed, it was this transaction that has finally crippled Fortis, another bank that manages Nigeria's foreign reserves. The acquisition of ABN came at the time the capital reserves of banks across the world had started being depleted by huge losses to bad debts in sub-prime related investment and at the outset of the global credit crunch. Fortis was weighed down by the €24bn it paid for its share of acquisition of ABN Amro. It needed badly to bolster its finance by €8bn but could not raise it due to credit crunch. The crisis was so deep that initial joint effort by governments of Belgium, Luxemburg and the Netherlands, with an injection of $16.1bn, failed woefully to bail out the bank.

The worth of the entire Fortis, which was adjudged in 2007 as the 20th biggest business in the world by revenue in Fortune Global 500, had been vastly eroded by the crisis. It was valued €23.5bn – less than €24bn it paid for ABN in Netherlands. At present, Fortis is balkanised. To defend their nationalistic interests the three governments have gone different ways. Fortis was the Belgian biggest financial service provider while the ABN Amro, the lethal poison taken by the bank, was a Dutch financial institution. Thus, Fortis units in Belgium and Luxemburg have been sold to the French giant BNP Paribas for $21bn with Belgium having 11.6% stake in the bank and Luxemburg 1.1% holding.

On its part, the Dutch government has fully nationalized Fortis assets in Netherlands including the bank ABN Amro. The financial institution will henceforth operate with the name ABN Amro, because ABN has bigger assets in the country than Fortis. Technically, Fortis does not exist again and ABN has now resurrected though only in Holland, but weaker. Royal Bank of Scotland and Santander still hold unto its assets elsewhere. Who manages the part of reserve originally kept with Fortis now? Is it ABN Amro or BNP Paribas? Who had earlier inherited the part with ABN Amro after it was sold last year?

Has anything been lost to this web of transactions may be in term of expected return or not? Nigerians have been kept in dark. The melody continues, "all is well"! BNP Paribas also has its share of Nigeria reserve. It was the first in August 2007 to cry out of the serious pang of the sub-prime crisis and credit crunch outside the US. Indeed, according to a BBC analysis, the start of the global credit crunch has been pinpointed as August 9 2007 when the French investment bank told investors they would not be able to take money out of two of its funds because it could not value the assets in them, owing to a "complete evaporation of liquidity" in the market. This revelation triggered sharp rise in the cost of credit.

Among those hardest hit by losses from the American sub-prime mortgage debt is the Swiss UBS, which also has a part of Nigerian reserve at its disposal. The bank has recorded around $50bn in write-downs, more than any bank, in bad debt and rotten assets in its books. It had staked over $80bn on the risky mortgage securities. It was the first major global bank to announce loss of $3.4bn in October 2007 and posted net losses of $12bn in the first quarter of this year. As of September, private depositors had withdrawn $43.4bn from the bank. UBS has announced it would retrench 5, 500 workers by mid next year. The Swiss government had to intervene to save the bank from collapse by providing it with $5.36 in capital and take 9 percent stake.

The government has also set up a $60bn fund to absorb rotten assets in the bank's books. Another Swiss banking giant, Credit Suisse, also holding Nigeria's reserve, rejected the government direct intervention. But this does not imply a clean bill of health. The bank made write-down of $6.3bn as of the first quarter and has planned to raise $8.75bn from Qatar Investment Authority to shore up its capital base. The bank recorded $1.12bn loss in the third quarter. JP Morgan Chase has appeared as one of the few banks that have been able to weather the storm of the financial crisis. It has acquired two of the casualties of global meltdown in the US, Bear Stearns and Washington Mutual. But all is not well with this banking giant that also manages a part of the Nigerian foreign reserve.

It has reported an 84 percent drop in its third-quarter profit as a result of losses on bad mortgage investments, leveraged loans and home loans. Earlier as of the first quarter, it had written off $9.7bn as a result of its exposure to the sub-prime mess. One of the two surviving independent investment banks on the Wall Street is Morgan Stanley. The other one is Goldman Sachs. Lehman Brothers has gone under. Bear Stearns was bought by JP Morgan Chase while Merrill Lynch sold itself cheaply to Bank of America to prevent a worse scenario. Morgan Stanley, which also holds a part of the Nigeria's external reserve, and Goldman Sachs have had to give up the shadowy Wall Street investment banking model, in order to remain in business. Wachovia, the US fourth largest commercial bank, Morgan Stanley had earlier planned to merge with in order to secure lifeline has collapsed.

The investment bank whose share value has dropped by half in the last one year has had to sell a 20% stake to Japan's bank Mitsubishi in a $9bn deal as a timely rescue. The bank had written off $12.6bn in bad debts in the first quarter. Black Rock, a US based asset management company, might have become history if Merrill Lynch, its largest shareholder, had not shelved the plan to sell its 49 percent stake. Black Rock also holds Nigeria's foreign reserve. As earlier mentioned, Merrill Lynch itself has been bought by the Bank of America.It is clear from the foregoing there is much more than meets the eye as far as the Nigeria's external reserve is concerned. All Nigerians have known is the paper value of the reserve.

There is a palpable pall around its real value. Is it that the reserve has not in anyway affected by the monumental losses suffered by the institutions managing the reserves? If the answer is affirmative, the Yar'Adua government must tell that to the marines. In October 2006, when the external reserve was about $38bn, the Central Bank of Nigeria (CBN) had shared $7bn among the 14 global asset management firms, mostly banks which had entered into partnership with some Nigerian banks. Most of the balance has been kept as deposits with some foreign banks. Since then Nigerians have never been told what have been the returns on the investment. While there is cloud on returns or losses, it is crystal clear that the reserve has been put at risk - the risk of currency crisis and collapse of asset management firms.

The collapse of financial giants like Lehman Brothers, Washington Mutual, Wachovia, etc and near collapse of AIG, Fannie and Freddie, UBS, etc. have proved that no institution is too big to be swept by the global financial tsunami. Nigeria has amassed huge revenue for almost decade now from the boom in the price of crude oil, which reached the all-time high of $147 in July 2008 before the dead weight of global financial crisis dragged it down. The price has slumped below $70 as of October and could continue to move southward. While it lasted, there was nothing fundamental to show for the boom in term of improved living standard of poor working masses and infrastructural development. Rather, on the basis of neo-liberal economic agenda, a huge reserve has been built largely to create a false impression of economic achievement and to gratify profit-maximizing interest of global financial sharks and local vampires. Besides, excess crude revenue is constructed as reservoir for looters.

Together with appropriated allocation, excess crude revenue is shared monthly between the state and federal governments, and only to find its way largely to private bank accounts locally or be stashed away in Europe and US. The Revenue Mobilisation and Fiscal Allocation Commission once reported that the excess crude account besides has not only been misused but also always unaccounted for (Daily Independent January 2, 2008). It was not a surprise when Chuwkuma Soludo attributed excess crude fund as a major contributing factor to the inflationary trend of the economy (CBN MPC Communiqué August 5, 2008).

The vast majority of Nigerians who have not benefited from the upswing will be made to pay for the slump in the economic fortune. Already, the benchmark for 2009 budget has been cut down from the earlier proposed $62.5 to $45. Even when the current 2008 budget is pegged at $59, every household is a municipal government. They generate their water and electricity and pay expensive for health care and education. It appears government is in abeyance despite huge resources at its disposal. But it is not; it only exists for the thieving ruling elite, at all levels, who live like leeches on the collectively owned resources. The poor working masses will be made to pay much more for goods and service with the proposed increase in fuel prices and value added tax.

The slump in the price of crude oil, which hitherto constitutes 85% of government annual revenue, has provided further specious argument to raise the VAT and other taxes to fill the void. Already, the Yar'Adua government has announced that it will make taxation the primary source of revenue and has told the state and local governments to "henceforth depend less on monthly allocations and intensify their internally generated revenue drives" (Guardian October 28, 2008). Labour, socialist and pro-masses' organisations must get prepared to go back to the trenches. The looters in government have already hedged themselves against price rises and other impacts of global financial meltdown with jumbo pay package.

Labour must lead the fight for living minimum wage for all workers without job losses and against all forms of neo-liberal attacks. But the fight against neo-liberal attacks is not enough, it has to be linked with struggle to wrest power from the rapacious ruling elite. Thus NLC, TUC and LASCO should mobilise workers, youths and poor masses for the formation of a fighting working peoples' party that could commit resources to basic needs of all and infrastructural development. Such a party, when in power, has to take into public ownership, the commanding heights of economy with democratic management and control by working people.

More importantly, the party must build a revolutionary socialist movement in order to defeat iniquitous capitalism that has brought the world into this abyss of mess with its vicious cycle of boom and bust. This is the task for working class people worldwide. Workers and the poor masses enjoy precious little, and fundamentally nothing, from booms but suffer most when there is a slump.

 

The views expressed in this article are the author’s own and do not necessarily reflect the editorial policy of SaharaReporters

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