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