Our Credit Crisis, Bailout and Spend-out


Hometruths By Adeola Akinremi: Email: adeola.akinremi@thisdaylive.com

Corruption, deception, repression, apprehension and depression, all go with recession.

We’ve heard and read of the tsunami of fraud in the last government.

We’ve also noticed dishonesty of this very government, especially in telling Nigerians the truth and accepting criticism.

In the heat of the moment, there’s only one thing that the government can do to restore Nigeria back to its greatness—boost the confidence of the people.

In 2009, America was in recession, when President Barack Obama took over the reins of government.

We saw many retail stores closed down and several businesses filed for bankruptcy.

We saw investors moved away from risky investments and we saw household incomes perished. The same holds true for our situation today. A number of companies have closed down and unemployment has grown steadily.

What did Obama do? He didn’t rush his steps in the whirlwind of panic. He simply did the right thing.

For the moment, President Muhammadu Buhari’s response to recession appears to be that of a leader in panic station. His speeches and body language suggest not otherwise. What with the Treasury Single Account (TSA) gamble?

It is simple economics that when you take money out of circulation in its very order, you are bound to be hit by recession.

Yes, anxiety is prevalent in a country beaten on the left by terrorism and on the right by economic contraction, but panic decision will make everything worse.

The most important decision now is to ensure that we face the truth: we are in recession. That helps us to find real solution I believe.

One lesson I’m sure Buhari must have learned by now is that fighting corruption alone does not isolate a country from recession. There’s need for sensible interventions to keep any country going.

Between 2008 and 2010, the United States Government applied quick and decisive action that helped the country avoid great depression. It came out of its deepest recession in less than two years by applying sound public policies that were implemented vigorously.

The three government interventions were acts of congress that empowered the president to move with speed without restrain and I believe we can borrow the ideas for our own recovery.

For our concern let’s concentrate on America’s recovery and reinvestment act.

It will do more good to us if the programme is carefully constructed.

For instance, an attempt had already been made with bailout to states and the N-Power programme, but they appeared not to have stimulated the economy so far.

The simple reason is that they were rushed decisions. The president was probably stampeded into it. So they didn’t provide any effect. The governors are still looking for more bailouts and the N-Power is yet to employ a single individual.

On one hand, the N-Power programme is delayed and on the other hand the bailout to states—though with genuine intention of helping to resolve salary issues—may have been a misdirection of good policy.

So what did America do with recession? The detail is in its Recovery and Reinvestment Act and I will attempt to bring out excerpts from a report authored by the United States’ Council of Economic Advisers.

A preamble to the report says: “President Obama took office in the middle of the worst economic crisis since the Great Depression. In the previous year private employers shed 3.8 million jobs. Trillions of dollars of household wealth had been wiped out, and the economy’s total output, as measured by real gross domestic product (GDP), was in the midst of its most severe downturn of the postwar era. In the face of this crisis, the President took immediate, bold, and effective action.”

Yes. Whenever there’s a crisis with a spiral effect on the populace, immediate, bold and decisive action is necessary.

Oftentimes, President Buhari delays and also makes Nigerians doubt his judgment and willingness to delve into real policy, when he finally decides. That has robbed him of celebrating many milestones. This October 1, the nation’s independence anniversary, I doubt if Buhari will celebrate.

The US recovery measure allowed money to come back into the economy though it was called spend-out.

For instance, the United States population “felt the early effects of the Recovery Act almost immediately, as enhanced Medicaid payments started to flow to states on March 13, 2009 and individual income tax withholdings were reduced by April 1, 2009. As of the third quarter of 2009, roughly one-quarter of all spending and tax cuts had occurred.”

“The Recovery Act had goals beyond preserving and creating jobs and promoting economic recovery. This section evaluates the impact of the Recovery Act in helping those most affected by the recession weather an extraordinarily trying period. The Recovery Act included substantial assistance for middle-class families, unemployed workers struggling to find a job, and households in poverty or in danger of slipping into poverty. Many of these measures were extended or retooled in subsequent legislation. This assistance was partly to help families maintain their consumption even when income fell and credit dried up, a phenomenon economists refer to as “consumption smoothing.” But the support was also motivated by the fact that people would quickly spend a large fraction of this assistance, boosting aggregate demand and in turn, job creation.”

Somewhere in the report, there is a line that says, “Thanks in significant part to the actions of President Obama, the economic picture today is much brighter.”

This is exactly the sentence I want to write for President Buhari before his current tenure ends and who knows, he may end up like the United States President Ronald Reagan, whose economic policies in 1982 was derided as Reaganomics, that did not only fail to produce growth, but was leading the nation into fiscal disaster, but eventually made a turnaround, restored trust and got elected for a second term. For now, Buhari needs to do the right thing for Nigeria’s greatness.