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Friday, 03 February 2012 11:44

Nigeria: IMF role in fuel subsidy removal?

IMF role in the recent fuel subsidy removal in Nigeria

No matter how the Nigerian present economic team chooses to shade, equivocate or obfuscate it, International Monetary Fund (IMF) played a significant role, if not an upper hand in the removal of fuel subsidy in the poverty stricken Nigeria. It is no longer news neither is it a surprise that IMF has been interested in the removal of fuel subsidy since 2009. The evidence to this assertion has been littered everywhere especially in the public domain.

 

British Broadcasting Corporation (BBC) reminded us that “The IMF has long urged Nigeria’s government to remove the subsidy, which costs a reported $8bn (£5.2bn) a year.”  IMF has never stopped to meddle in the internal financial and economic affairs of the country in spite of the impression and double talk it has been making lately.  Nigeria’s economic team effort to obfuscate the matter is no longer functional.

 

The America's flagship newspaper, New York Times wrote recently: “In a 2009 report, the International Monetary Fund called the removal of the fuel subsidy “an important first step.” But in a place where experts estimate that $50 billion to $100 billion in oil revenue has been lost through fraud and that 80 percent of the economic benefit from oil production has flowed to 1 percent of the population, the monetary fund’s approval of a step that hits ordinary people so hard looks provocative."   The endorsement for the abrupt fuel subsidy removal without adequate palliative measures buttressed that IMF is clueless and at worst indifference on the level of poverty and depravity in Nigeria.

 

In the rush to appease the masterly IMF the Nigerian leaders failed to make a solid plan; which is to absolutely convince the poor masses before the subsidy removal with realistic and implementable palliative measures. The global news network CNN crisply described the removal of subsidy, “It is the abrupt removal of the fuel subsidy, in what has been described as a callous New Year's Day "gift" that proved unacceptable for many Nigerians. There has been intense speculation in the country that the decision came suddenly because of pressure from the International Monetary Fund. The announcement coincided with a visit to the country by IMF’s head Christine Lagarde weeks earlier."

 

The economic team of the present administration led by Dr. Okonjo-Iweala went before the country's congress after IMF’s Christine Lagarde visit to reassure them that Nigeria will not implement IMF's neo-liberal policies. But on the first day of January the removal of subsidy came suddenly. Nigerians protested not necessarily because they disliked the administration but for the rejection of the policy. The poor masses could not accept the jumped in price of a gallon of petrol from less than $1 to almost $4 in a country that seventy percent survived with less than $2 a day.  The decision for the removal is not logical knowing quite well that the masses are already deprived and barely surviving. It is beginning to look that IMF does not have compassion for the poor struggling masses of Nigeria. IMF history with Nigeria has been a historical annals filled with thorns of suffering and misery.

 

 

When IMF Managing Director Christine Lagarde came to Nigeria, instead of the Nigerian leaders and intellectuals to ask her to apologize to Nigerians on behalf of IMF for the austerity measures of 1980s and the subsequent deformation of the country's economy; rather they were busy praising her. She was also given credit for the so-called 18% write-off of the Paris club debt. The praise and credit should go to poor Nigerians on whose back the payment was made to rich syndicates of Paris Club in which the mountainous payment made was based on high interest rate and arrears accumulated by the outstanding debt. The provision of water, electricity, healthcare and roads were abandon in order to make the payment to Paris Club. The credit and heaping of praises should go to Nigerians not to IMF’s head whose highest priority is not on women and children who went to bed hungry.

 

No one is suggesting that a nation should abandon its financial obligations and deleveraging of its debt. But at same time a logical approach must be taken which is to put people’s welfare on account and not relegated it to the nadir level. Nigerian people should not be thrown aside to satiate international wealthy syndicates. After all, charity should start from home.

 

The implementation of IMF's Structural Adjustment Program with its austerity measures in Nigeria’s 80s and early 1990s comes with naira devaluation, importation restrictions and slash of social spending, that was too traumatic to be easily forgotten.  The negative adjustment in the economic outlook and wellbeing of Nigeria was expressed by Gideon Nylan, a writer on political economy of developing nations at Afripol, on which he painted the situation with this troubling description: "The Nigerian middle class has yet to recover from the IMF devaluation of 1986. Suddenly teachers, lawyers, doctors, and civil servants saw their life savings disappeared. In order to support their families and create a better living for themselves, they left the country for greener pastures in other countries."

 

In addition Nigerians have not wholly recovered from the aftermath of the implementation of the neo-liberal policies that separated families, worsen the health wellbeing of the country and totally demolish the educational sector that was starved of fund. The manufacturing sector that relied on the importation of raw materials closed down due to lack of import license and foreign exchange. The IMF's austerity measures spiked and induced higher unemployment and together with surging inflation rate made life unbearable for majority of Nigerians. Are Nigerians quick to forget?  Probably, the temporary amnesia has made them to be praising the visiting IMF's chief instead of asking IMF for reparation and apology.

 

A Nigerian government official was suggesting that the removal of subsidy was necessary to save Nigeria from not ending up like the bankrupt Greece.  But in reality and joke apart, Nigerians should be envious of Greece because in spite of the so-called debt problem of Greece, their lifestyle have not changed. Last time we checked there is still tap running water, 24 hours electricity and paved roads in Greece. Nigerians will not mind having all the social amenities, social safety nets, security enjoyed by Greeks even together with its debt.  Many Nigerians may be willing to trade places with Greece if asked.

 

Nigeria should work with IMF when she deems it necessary and there is no reason to be genuflecting and kowtowing. Nigeria has produced capable men and women that have the ability, intellect and potential to salvage the sinking country. IMF should not be adding sand to the garri of nation struggling to determine her destiny.

 

Published in Archive

Geopolitical stakes in Nigeria: Curious role of the IMF

Nigeria, Africa’s most populous nation and its largest oil producer, is from all evidence being systematically thrown into chaos and a state of civil war. The recent surprise decision by the government of Goodluck Jonathan to abruptly lift subsidies on imported gasoline and other fuel has a far more sinister background than mere corruption, and the Washington-based International Monetary Fund (IMF) is playing a key role. China appears to be the likely loser along with Nigeria’s population.

The recent strikes protesting the government’s abrupt elimination of gasoline and other fuel subsidies, that brought Nigeria briefly to a standstill, came as a surprise to most in the country. Months earlier, President Jonathan had promised the major trade union organizations that he would conduct a gradual four-stage lifting of the subsidy to ease the economic burden. Instead, without warning he announced an immediate full removal of subsidies effective January 1, 2012. It was "shock therapy" to put it mildly.

Nigeria today is one of the world’s most important producers of light, sweet crude oil—the same high-quality crude oil that Libya and the British North Sea produce. The country is showing every indication of spiraling downward into deep disorder. Nigeria is the fifth largest supplier of oil to the United States and twelfth largest oil producer in the world on a par with Kuwait and just behind Venezuela with production exceeding two million barrels a day.

The curious timing of IMF subsidy demand

Despite its oil riches, Nigeria remains one of Africa’s poorest countries. The known oilfields are concentrated around the vast Niger Delta roughly between Port Harcourt and extending in the direction of Lagos, with large new finds being developed all along the oil-rich Gulf of Guinea.Nigeria’s oil is exploited and largely exported by the Anglo-American giants—Shell, Mobil, Chevron, Texaco. Italy’s Agip also has a presence and most recently, to no one’s surprise, the Chinese state oil companies began seeking major exploration and oil infrastructure agreements with the Abuja government.

Ironically, despite the fact that Nigeria has abundant oil to earn dollar export revenue to build its domestic infrastructure, government policy has deliberately let its domestic oil refining capacity fall into ruin. The consequence has been that most of the gasoline and other refined petroleum products used to drive transportation and industry, has to be imported, despite the country’s abundant oil. In order to shield the population from the high import costs of gasoline and other refined fuels, the central government has subsidized prices.

Until January 1, 2012, that is. That was the day when, without advance warning President Goodluck Ebele Azikiwe Jonathan announced immediate removal of all fuel subsidies. Prices for gasoline shot up almost threefold in hours from 65 naira (35 cents of a dollar) a liter to 150 naira (93 cents). The impact rippled across the economy to everything including prices of grains and vegetables.

In justifying the move, Central Bank Governor Lamido Sanusi insisted that "The monies will be used in provision of social amenities and infrastructural development that will benefit Nigerians more and save the country from economic rift."President Goodluck Jonathan says he is phasing out the subsidy as a part of a move to "clean up the Nigerian government." If so, how he plans to proceed is anything but apparent.

The huge unexpected price hike for domestic fuel triggered nationwide protests that threatened to bring the economy to a halt by mid-January. The president deftly took the wind out of protester sails by announcing a partial rollback in prices, still leaving prices effectively double that of December. The trade union federation immediately called off the protests. Then, revealingly, Goodluck Jonathan’s government ordered the military to take to the streets to "keep order" and de facto prevent new protests. All that took place during one of the bloodiest waves of bombings and murder rampages by the terrorist Boko Haram sect creating a climate of extreme chaos.

The smoking gun of the IMF

What has been buried from international accounts of the unrest is the explicit role the US-dominated International Monetary Fund (IMF) played in the situation. With suspicious timing IMF Managing Director Christine Lagarde was in Nigeria days before the abrupt subsidy decision of President Jonathan. By all accounts, the IMF and the Nigerian government have been careful this time not to be blatant about openly announcing demands to ends subsidies as they were in Tunisia before food protests became the trigger for that country’s Twitter putsch in 2011.

IMF managing director Christine Lagarde

During her visit to Nigeria Lagarde said President Jonathan's 'Transformation Agenda' for deregulation "is an agenda for Nigeria, driven by Nigerians. The IMF is here to support you and be a better partner for you." Few Nigerians were convinced.On December 29 Reuters wrote, "The IMF has urged countries across West and Central Africa to cut fuel subsidies, which they say are not effective in directly aiding the poor, but do promote corruption and smuggling. The past months have seen governments in Nigeria, Guinea, Cameroon and Chad moving to cut state subsidies on fuel."

Further confirming the role US and IMF pressure on the Nigerian government played, Jeffery Sachs, Special Adviser to the United Nations (UN) Secretary General, during a meeting with President Jonathan in Nigeria in early January days after the subsidy decision, declared Jonathan's decision to withdraw petroleum subsidy "a bold and correct policy."

Sachs, a former Harvard economics professor, became notorious during the early 1990s for prescribing IMF "shock therapy" for Poland, Russia, Ukraine and other former communist states, which opened invaluable state assets for de facto plundering by dollar-rich western multinationals.

Even more suspicious is the manner in which Washington and the IMF are putting pressure on only select countries to end subsidies. Nigeria, whose oil today sells for the equivalent of $1 a liter or roughly $3.78 a US gallon, is far from cheap. Brunei, Oman, Kuwait, Bahrain, Qatar, Saudi Arabia all offer their petrol very cheap to their people. The Saudis sell their oil at 17 cents, Kuwait at 22 cents. In the US gasoline averages 89 cents a liter.

That means the IMF and Washington have forced one of the poorest economies in Africa to impose a huge tax on its citizens on the implausible argument it will help eliminate corruption in the state petroleum sector. The IMF knows well that the elimination of subsidies will do nothing about corruption in high places.

Were the IMF and World Bank genuinely concerned with the health of the domestic Nigerian economy, they would have provided support for rebuilding and expanding a domestic oil refinery industry that has been allowed to rot, so that the country need no longer import refined fuels using precious state budget resources.The easiest way to do that would be to expedite a two-year-old deal between China and the Nigerian government to invest some $28 billion in massive expansion of the oil refinery sector, to eliminate need for importing foreign gasoline and other refined products.

Quite the opposite—the criminal cabal inside the Nigerian National Petroleum Company (NNPC) and the Government making huge profits on the old subsidy system are suddenly making double and potentially triple more to maintain the old corrupt import system, and, of course, to sabotage Chinese refinery construction that could put an end to their gravy train.

Cutting their nose to spite the face…

Rather than benefit ordinary Nigerians as the IMF proclaims to want, the elimination of the subsidies has further pauperized the 90 per cent living on less than $2 a day, according to Mallam Sanusi Lamido Sanusi, the Nigerian Central Bank governor. An estimated 40 million Nigerians are unemployed in the country of 148 million.

Because transport costs are a significant factor in delivery of food to the cities, food price inflation has soared along with costs of public transportation for the majority of poorer Nigerians. According to the Nigerian Leadership Sunday, "prices of commodities which shot up as a fallout of the fuel pump price increase have refused to come down." Everything from street vegetable sellers to carwashes to roadside photographers are feeling the shock of the rise in fuel prices. Unemployment is rising as small businesses fold.

The argument of the IMF and the Jonathan administration is that by freeing fuel prices, funds would be available to more social services and rebuilding Nigeria’s "infrastructure." Both the IMF and the government know it would have been far more economically viable to replace the current corrupt system of importing refined gasoline and fuels with investing in rebuilding Nigeria’s domestic refining capacity.

Son Gyoh of the Nigerian Awareness for Development organization asks, "Would it not be more expedient to pressure government to service the refineries to full production capacity, given the implications on overhead and competitiveness for local industries?"

Gyoh pointed to the source of the problem: "Why have successive governments left the refineries in a state of disrepair while spending huge on subsidy? Is there any chance that the savings from subsidy withdrawal will go directly into rehabilitating the refineries? Does deregulation imply NNPC will no longer operate a monopoly in importation of refined petroleum product, or is this lobby a self-serving lifeline to continue its monopoly? " He concludes, "In any case, there is good reason to doubt subsidy removal will solve the fuel scarcity problem as the cabal will only regroup to change tactics, a fact Nigerians are only too aware of."

After Nigeria partly nationalized its oil sector in the late 1970s, it also took control of Shell Oil’s Port Harcourt I refinery. In 1989, Port Harcourt II refinery was built. Both refineries fell into serious disrepair after 1994, when the Abacha military dictatorship cut the "take" of the Nigerian National Petroleum Company NNPC from domestic sale of refined oil products such as gasoline from 84% to 22%. That caused a cash crisis for NNPC and a halt to refinery maintenance. Today only one of four refineries operates at all.

What developed since was a system of NNPC importing foreign gasoline and other refined products for Nigeria’s domestic needs, naturally at a far more expensive cost. The price subsidies were to relieve that higher import cost, hardly a sensible solution but a very lucrative one for those corrupt elements in the state and private sector making a killing, literally, off the import process.

NNPC criminal enterprise

The IMF is well aware of the real cause of Nigeria’s fuel industry problems. A Nigerian legislative committee examining the sources of the industry’s problems recently released a report documenting that at least $4 billion annually is taken from taxpayers in fuel industry corruption with the state Nigerian National Petroleum Company (NNPC) at the center. According to the commission, "every day, fuel importers drop off 59 million liters of fuel. The country consumes 35 million liters daily. That leaves 24 million liters of oil available for smugglers to export, paid for by government fuel subsidies. This costs the Nigerian people roughly $4 billion yearly, according to Reuters."

Kaduna refinery (photo from nigerianbestforum.com)Kaduna Refinery

The Nigerian government has said that the 7.5 billion dollars spent yearly on fuel subsidies could be used to provide desperately needed infrastructure. But they omit any mention of the rampant siphoning off of $4 billion of oil by black market smugglers, reportedly with connivance of high NNPC government officials, to sell to neighboring countries at a hefty profit. The refined imported fuel is reportedly smuggled into neighboring countries like Cameroon, Chad and Niger where petrol prices are far higher, according to Abdullahi Umar Ganduje, Deputy Governor of Kano State.

China as IMF target?

One major geopolitical factor that is generally ignored in recent discussion of Nigerian oil politics is the growing role of China in the country. In May 2010, only days after President Jonathan was sworn in, China signed an impressive $28.5 billion deal with his government to build three new refineries, something that in no way fits into the plans of either the IMF, or of Washington, or of the Anglo-American oil majors.

China State Construction Engineering Corporation Limited (CSCEC) signed the deal to build three oil refineries with Nigerian National Petroleum Corporation (NNPC), in the biggest deal China has made with Africa. Shehu Ladan, head of NNPC, said at the signing ceremony that the added refineries would reduce the $10 billion spent annually on imported refined products. As of January 2012, the three Chinese refinery projects were still in the planning stage, reportedly blocked by the powerful vested interests gaining from the existing corrupt import system.

A report in China Daily last November quoted Nigeria’s Olusegun Olutoyin Aganga, the minister of trade and investment, that Nigeria was seeking added Chinese investors for its energy, mining and agribusiness industries. Last September on a visit to Beijing, Nigeria central bank governor Lamido Sanusiannounced his country planned to invest 5 per cent to 10 per cent of its foreign exchange reserves in China's currency, the renminbi (RMB) or yuan, noting that he sees the yuan becoming reserve currency. In 2010 China's loans and exports to Nigeria exceeded $7 billion, while Nigeria exported $1 billion of crude oil, Sanusi stated.

Until now Nigeria has held some 79% of her foreign currency reserves in dollars, the rest in Euro or Sterling, all of which look dicey given their financial and debt problems. The move of a major oil producer away from dollars, added to similar moves recently by India, Japan, Russia, Iran and others, augurs bad news for the continued role of the dollar as dominant world reserve currency. Clearly some in Washington would not be happy with that.

The Chinese are also bidding to get a direct stake in Nigeria’s rich oil reserves, until now an Anglo-American domain. In July 2010, China's CNPC (China National Petroleum Corporation) won four prospective oil blocks – two in the Niger Delta and two in the frontier Chad Basin, with plans to become core investor in the Kaduna refinery, and construction of a double track Lagos-Kano railway. China’s oil company, CNOOC Ltd also has a major offshore production area in Nigeria.

The IMF and Washington pressure to lift subsidies on imported fuels is at this point in question, as is the future of China in Nigeria’s energy industry. Clear is that lifting subsidies in no way will benefit Nigerians. More alarming in this context is the orchestration of a major new wave of terror killings and bombings by the mysterious and suspiciously well-armed Boko Haram. This we will look at next in the context of Nigeria’s recent transformation into a major narcotics hub.

F. William Engdahl, author of A Century of War: Anglo-American Oil Politics and the New World Order

Source: RT

 

 

 

 

 

 

 

 

Reuters reports that IMF is compelling Nigeria to end fuel subsidies contrary to Dr. Okonjo-Iweala assertions

The International Monetary Fund is nudging Nigeria and some other African countries to remove fuel subsidies, a report by UK-based news agency Reuters said yesterday, calling into question claims by Nigerian authorities that they are acting independently in their bid to deregulate the downstream petroleum sector. One of the countries under IMF pressure, Ghana, yesterday announced ending fuel subsidies, as the government of Nigeria pushes ahead to implement the policy next year. Officials have said their plans to end subsidy were not being influenced by any foreign power.

But Reuters reported yesterday: "Ghana, which joined the club of oil producers in West Africa last year, has come under increased pressure from the International Monetary Fund to remove the fuel subsidies. "The IMF has urged countries across West and Central Africa to cut fuel subsidies, which they say are not effective in directly aiding the poor, but do promote corruption and smuggling. The past months have seen governments in Nigeria, Guinea, Cameroon and Chad moving to cut state subsidies on fuel."

Spokesman for Finance Minister Ngozi Okonjo-Iweala, Mr. Paul Nwabuiku, insisted yesterday that Nigeria was not under any IMF pressure to remove fuel subsidy. "Refer to what the Managing Director of IMF said when she visited Nigeria. She said that Nigeria is an independent country and cannot be influenced by the IMF to do anything. Nigeria is not owing the IMF, we have not taken any facility from IMF," he told Daily Trust.

During her recent visit to Nigeria, IMF Managing Director Christine Lagarde said President Jonathan's 'Transformation Agenda' "is an agenda for Nigeria, driven by Nigerians. The IMF is here to support you and be a better partner for you." It is estimated that by the time fuel subsidy is removed, price of petrol will jump from N65 per litre to about N140 per litre.

Government officials said over N1.3 trillion is used annually to subsidise fuel products, which they said was not sustainable. No provision has been made for subsidy in the 2012 budget. Ghana for the second time in twelve months reviewed upwards the prices of petroleum products yesterday.

Ghana's National Petroleum Authority yesterday announced that the recent upward adjustment was necessitated by government's decision to withdraw subsidies on petroleum products in 2012. The last increase in pump prices of petroleum products was in January this year. The adjustment was by 20 per cent. Global crude oil price then was $92 per barrel and this increase is to reflect the current world market price of about $107, authorities said.

The Chief Executive Officer of the National Petroleum Authority, Mr. Alex Mould, who made the announcement, said government's decision was informed by the rising cost of crude oil in the global market."As you are aware crude oil prices when the last build up was done on the 4th of January, 2011 and for one year, government has been able to keep stable the price at the pump and I believe it is in that respect that the review be done and the pump price passed on to the consumer for full cost recovery," he said.

Mould said the cumulative effect of the rise in crude oil prices this year and the about 5.7 percent depreciation of the cedi meant a 25 percent increase in cedi terms in the cost of procuring crude oil and petroleum products since January. He said Ghana has spent about 450 million cedis ($276 million) on fuel subsidies in 2011. The price change effective from December 29, will see the cost of Liquefied Petroleum Gas (LPG) increase by 30 percent while petrol and diesel will go up 15 percent at pump. Mould said the NPA would be monitoring crude oil prices and will not to increase or decrease pump prices if the average crude price stay within the $107-110 per barrel range. He assured that government had taken palliative measures to reduce the effect of the increase on the people.

IMF Managing Director Christine Lagarde Calls for Policies to Shield African Economies From Global Crisis and Promote Job-Creating Growth

International Monetary Fund (IMF) Managing Director Christine Lagarde called today for greater efforts to shield African countries from the crisis affecting developed economies, and to promote inclusive growth on the continent to create jobs and fight poverty. In a keynote speech to economists, academics and private sector representatives in Lagos, Nigeria, Ms. Lagarde said the IMF would stand by its African members through times of economic uncertainty.

"These are challenging times for the global economy. The dark clouds of risk are gathering, and Nigeria and others in Africa will need to watch them carefully," Ms. Lagarde said. "While these problems might seem a world away, without action, the world economy could be swept into a downward spiral of collapsing confidence, weaker growth, and fewer jobs. And in today's interconnected global economy, no country and no region is immune to these risks."

Ms. Lagarde said progress over the past decade-reduced budget deficits and public debt; lower inflation; and stronger foreign exchange reserves-had put sub-Saharan Africa on a fundamentally stronger footing to face the food and fuel crisis of 2008 and the global financial crisis that followed. An effective response from policymakers had ensured most countries in the region were able to maintain critical spending on health, education and infrastructure and allowed their economies recover quickly to the growth levels of the mid-2000s. Nevertheless, those crises took a toll on Africa's efforts to reduce poverty, she said.

"The potential for greater volatility in commodity markets could cause further disruptions, with winners and losers within the region," Ms.

Lagarde said. "Faced with these risks, my main worry is that many countries do not have as much capacity to absorb shocks as they did three years ago. Added to that, the global slowdown could be more pronounced this time around. Policies need to tread a fine line between defending against the global slowdown in the near-term, while also preserving fiscal resources for investment in much-needed infrastructure that will help promote employment and growth."

Ms. Lagarde stressed the IMF's commitment to help its African members navigate the troubled waters ahead. "The IMF is here to support you and be a better partner for you. I am committed to a deeper, more fruitful dialogue, with the IMF listening even more carefully to your needs. This will help us serve you even more effectively," she said. "We have also been working hard to reform the IMF's governance structure so that emerging market and developing countries have a greater voice in the institution. And, so we can be truly representative of our membership.

"For those countries that need it, we have boosted our concessional lending capacity and made our lending instruments more flexible, with greater protections for social spending. We are also redoubling our efforts to provide quality technical advice," she added. "We can also play an important role, through our four, and soon to be five, regional technical assistance centers in Africa, of facilitating a sharing of expertise between countries."

 

Published in Archive

MINISTER of Finance and coordinating minister for economy, Dr Ngozi Okonjo-Iweala,  yesterday, said Nigeria was not going to implement any programme initiated by the International Monetary Fund, IMF, even as the Senate President David Mark urged the Fund to make its economic and financial policies friendly to Africa if the desired results must be achieved.

Contrary to insinuations that the Federal Government is implementing designed programmes of the Fund, Okonjo-Iweala, who was accompanied by Mallam Sanusi Lamido Sanusi, Governor of the Central Bank of Nigeria, CBN, to the House of Representatives, explained that the Fund had changed the modality of its operation, adding: “IMF of today is different from the IMF of yester-years.

“We are now partnering with an institution that is here to listen and help us. We set the policies, we set the pace, and they support us to do what it takes for the Nigerian economy. The idea of the IMF coming to tell people what to do, this is no longer what happens and so we are happy to partner with this institution.”

In her remarks, Christine Lagarde, IMF managing director, lauded the role played by Okonjo-Iweala during the negotiation for debt relief from the Paris Club in 2005, saying: “I pay tribute to her resilience and sense of public interest.

“I have to say IMF is a different institution from what I knew many, many years ago. It is a different institution because it was known for lending money and designing conditionality … and imposing programmes,in doing so in the past, it did mistakes.”

She explained that IMF also provided surveillance to member states on yearly basis and meet with representatives of countries across the world with the view to “seing what is being done and how they perform, what the results are….”

Finance Minister, Mrs. Ngozi Okonjo-Iweala breifing journalists on Revenue Allocation Formular in Abuja. Photo by Abayomi AdeshidaDr. Okonjo_Iweala

Tambuwal urges IMF MD

In his response, Mr Aminu Tambuwal, Speaker of the House of Representatives, urged the new IMF managing director to “ensure that the financing instruments of the Fund were more responsive to the needs of African countries by increasing the concessions in the Fund’s lending to low-income countries in addition to extending the zero-interest rate policy on Fund concessional resources beyond 2012.

Make your policies Africa-friendly  – Mark

Meanwhile, the Senate President Mark has urged the International Monetary Fund, IMF, to make its economic and financial policies friendly to Africa if the desired results must be achieved.

According to him, if the policies become very harsh and not comfortable to the people that ought to benefit from them, they  become unnecessary.

Speaking, yesterday, in Abuja when he recieved the IMF MD, Lagarde, in his office, Mark, who noted  that any economic policy that brings pains rather than succour to the people was worthless, he said: “The impression people have about IMF is that of an organisation that prescribes an economic solution that hardly works or practicable in any country.

“It is a challenge for the IMF to disabuse our minds by making its economic policies practicable. The policies could be laudable but it sometimes does not fit into local arrangements. You must take cognisance of local situations in your prescriptions, because a uniform policy may not work for all nations.”

Senator Mark who stressed  that condition of respective nations was imperative because a template may out work for all countries, however urged them to ensure that European countries should make their markets accessible to Africans.

 

 

The Time has come for an African to head IMF

With the demise of the Managing Director of IMF, Dominique Strauss-Kahn who has just resigned his position due to alleged sexual rape, the momentum is gathering for the job opening to be filled. This time around the Bretton Woods institute that has always European and American boss may be willing to widen its scope of its applicants. Emerging nations are asking that the position of managing director to be filled by one of them. The time has come to give an African a chance to lead the organization at the dawn of 21 century.

 African nations including emerging and developing nations grip on IMF are getting stronger. According to Dr. Jason Wingard, Wharton school of the University of Pennsylvania, " Based on IMF statistics, voting blocks are changing -- largely due to economic shifts in global production. For instance, the European Union's voting block percentage for its 27 member countries will drop from 32.4% to 29.4% after post-2010 reforms. Developing countries will have a combined voting block that is almost 8% larger than European nations. If the next managing director is elected rather than appointed, over two-thirds of post-2010 reform votes will be cast by non-European Union countries' representatives."

This is a good sign which bodes well for global financial and economic integration. It shows that in the changing world that developing and emerging nations will have a say in making of monetary and economic decision that effect the entire global village. With the rising and ever increasing power of China and India it is logical that a house of IMF is rearrange and has them and others accommodated.

IMF a lender of last resort mostly caters to developing nations of southern hemisphere and has a stronghold in Africa due to increasing integration of the continent to global economy as its share of global economic activities gets stronger and bigger with increasing GDP.

Economically, Africa is the fastest growing landscape at above 5 percent. The economic outlook for Africa is encouraging and on its recent report IMF states that, " Sub-Saharan Africa’s recovery from the crisis-induced slowdown is well under way, with growth in most countries now back fairly close to the high levels of the mid-2000s. Growth this year is expected to average 5½ percent, and 6 percent in 2012. "

Ex-IMF Boss Dominique Strauss-Kahn with a group of African ambassadors and diplomatic representatives

To encourage the continent of Africa for its economic gains and progress is to have Africa produce the managing director of IMF at this point in time. An African leading the powerful institute is a sign that world is serious of bringing in Africans at the table where big deals and decisions are made.

Dominique Strauss-Kahn - IMF

It is not a news anymore neither it is a secret that Africans were not happy with application of the pre-lending requirements before funds were released to the nations of Africa. The criterion that comes with austerity measures embedded in structural adjustment program sapped and arrested African economic development in 1980s and 1990s. The position of IMF boss for Africa will be a compensation and recognition of African endeavor to overcome past mistakes by IMF in Africa.

One great thing of having an African as an IMF chief is that its neutrality in dealing with China and the West will be good for the global economy. The issues of trade deficits, currency assessment and debts will be deliberated with an African in neutrality.

The reclaiming of Nigerian and African dignity

The value and worth of a currency is determined by the wealth of a nation. In this era of global capitalism, a wealth of nation goes beyond the conventional valuation based on the natural and human resources. A nation’s image, perception, security and stability also played an important role in the determination of a nation’s wealth. Therefore currency and its value become the bellwether and principal indicator of the economic status and financial wellbeing of a given nation.

The principal factor in a currency regulation and determination is rooted on the forces of supply and demand, most especially nations that are exposed to global trade and currency transactions. Most currencies are not rigidly fixed but are allowed to float and checkmated by the forces of the market. The gold standard that was tied to a currency has been abandoned and determination of a currency was replaced by the forces of the market and the wealth of a nation. A currency is more than medium of exchange, for a currency is principally used as a settlement of debt both domestic and international.

A wealth of a nation consist of its currency backed by the size of the economy (GDP) which includes of course the natural and human capital, credit worthiness and the debt of a nation.

International Monetary Fund (IMF) an international elite organization is empowered by the member nations to be advisory regulatory of the financial wellbeing of the global market economy. In this case IMF becomes a watchdog to the financial and economic standing of nations, more or a less a financial policeman that can bark but sometimes it can also bite. The later became functional and operational when a nation seeks the aid of the Brentwood institute for a financial counsel and credit due to economic hardship. In this case a nation invites the financial entity and it will come and rearrange the financial house before it accept to help the host. Sometimes IMF can interject without invitation on the grounds of doing public good and protecting the world from financial and economic pandemonium that comes with great recession and sometimes depression.

Never for one second believes and accepts the propagated notion that IMF is just only a financial institution devoid of politics, the whole truth is that IMF is also a political institution. Political economy is bedrock of economic evaluation and determination of a nation’s wealth. Advanced nations have more clout before IMF more than developing nations of south of the hemisphere especially countries of Africa. IMF bureaucrats can prescribe some conditions and criteria to African member nations and the implementation may cause unforeseen hardship but those policies will not be accepted by the more powerful economies of northern hemisphere. The less developed nations bear the brunt of IMF overwhelming control and intimidation.

With this in mind, let’s reflect on Africa of 1980s that ran to IMF for financial bailout due to economic hardship and a laden-back breaking foreign debt caused by herculean mismanagement and corruption. Those were days of capital flights, military coups and political instabilities in Africa. The African dictators asked for credits from international financial institutions but they were directed to go through IMF. The ramifications of the emitted IMF’s austerity measures that come with currency devaluation on African nations brought economic collapse of the continent. There were massive unemployment and brain drains that decimated African economic outlook and prospect. Prices of essential commodities rose beyond the affordability of an average African.

African producers and manufacturers import most of their raw materials with devalued currency and subsequently higher price of dollar makes it impossible to continue production. Literally and figuratively Africa was in mundane hell endowed with higher and rising inflation. The prices of cash crops produced by African countries nosedived because they were instructed to devalue their respective currencies. The once respected and dominant naira was so devalued that many companies went bankrupt with red financial balance sheet. These were the prescriptions given to powerless and poor nations of southern hemisphere.

Most African nations were not producing materials and commodities for export but rely on one or two cash crops for making of small foreign exchange and these nations are receptors of donations from abroad donors to balance their budgets. Therefore what is the meaning and logic behind devaluing their already weak currencies that were streamlined by inflation and political instability? Instead of any gain, it brought about the crash of the currencies that brought stagnation and hyperinflation together with malnutrition and penury in Africa.

The connected and acceptable African economists and government bureaucrats who were anointed by IMF elites were the mouth piece of the goodness of currency devaluation and austerity measures. The government was asked to reject welfare state, therefore to cut down on spending and to remove subsidies from the essential commodities that the poor needed for survival. The IMF Ivy league elites and their puppets have no meat in what is happening to Africa, it is all about policies and economic theories and experiments on Africans. Our leaders were intimidated to challenge those unproven economic theories; moreover African dictators do not want to rock the boat and asked about their democratic credentials. Can IMF point to any success story that came out of Africa as a result of their economic and financial pills it prescribed to Africa?

Then comes Nigeria of 1980s, she has no business asking for help from IMF but she did and she paid dearly for it. Nigeria in 1980s could not acquire credit lines for international transactions due to her weakness in serving her debts and foreign obligations. Nigeria an oil-rich nation has no reason to fall behind in her financial obligations and payments of her foreign debts. But inertia, mismanagement and corruption had claimed a large chunk of her operational and financial integrity.

Today’s Nigeria is the one that can say no to IMF and tell the global financial elites that they do not need them. The country’s economy is growing above 7 percent for more than two years. The country is relatively at peace with an economic expansion of 7.8 percent that is the envy of the whole world. This is not to say that Nigeria is perfect and has reached economic zenith but presently Nigerians are serious about building a strong and prosperous economy. Nigeria is committed to democracy and capitalism, with the successful concluded election the prospect for greatness is geometrically growing.

Therefore for IMF to lately ask Nigeria to devalue her currency is just another gimmick to slow the country down and to control the destiny of the nation. Nigerians and Africans must refuse to be used as a Petri dish for IMF vexing theories. Therefore Nigerian financial actors at CBN and at ASO Rock have done the country well to tell IMF to leave naira alone.

 

 

 

 

 

Friday, 06 May 2011 13:23

NIGERIAN ECONOMY AND IMF FORECASTING

IMF comes with depressing forecast of lower productivity and higher inflation

There is no doubt about this assertion; International Monetary Fund (IMF) is adamant and committed about being an important entity on Nigerian economic and financial scene. IMF the self-appointed chief financial adviser to Nigeria has made its annual econometric forecast on country’s economy. IMF the bearer of the depressing news is predicting that Nigerian economy will slow down from its above 8 percent growth to 6.9 percent, thus resulting to a GDP lowered by 17.9 percent. Still on the bad news IMF said the economic slowdown will be accompanied with higher inflation.

IMF do not produce any commodity or provide a recognized service that contribute to growing of the country‘s economy. Rather IMF officials have managed to have the ears of the managers of the economy simply on the ground that it is a global monetary and financial institute. But Nigeria must ask herself what has IMF done for her lately.

What has IMF done for Nigeria? That is an easy question to answer; lately IMF has advised Nigeria to devalue her currency naira without giving a logical reason for their advice. For naira that is already weakening by rising inflation to be devalued is for Nigeria to be inviting economic woes voluntarily. Nigeria with undiversified economy with crude oil as a major export to venture to the path of currency devaluation is trekking to road of higher inflation, higher prices of essential commodities and slows down of economic output.

IMF assertion and extrapolation on the Nigerian economy was not elaborated with a particular point of view, principle, proofs and genesis of the declaration. On what logic and economic basis are the elites of IMF making this forecast? This is not to cast a doubt or a shadow on their forecasting, but economics is not based on natural laws because it is a social science. In econometric forecasting nothing is written on stones due to the malleability of economic principle, therefore there is a quantifiable probability that IMF forecasting may not come true.

Nigerian economic and financial gatekeepers must take this with a grain of salt, as an opportunity to review their economic inventory and make necessary adjustments where needed. But one thing that they cannot afford to do is to swallow it as a given, without ready to make their research and analysis. Nigerians must not say ok! And sit down waiting for the rough times to come. The country must be pro-active and be in charge of their economic destiny not waiting for IMF to tell them what to do.

The point must be made perfectly clear that Nigeria should listen to IMF by separating the grain from the chaff. In some aspects of Nigerian economy IMF has some good points. In terms of cutting down on spending and slowing down on the excessive borrowing, there are truths to that. But in some cases when rising spending becomes inevitable as resources are being invested on the people with regards to providing education facilities and social infrastructures, then it will be a return that will eclipse the down side of increasing spending. There are investments on the society and the people that may have short term effects including budget deficits but at the long run it will aid to strengthen the nation by increasing productivity and wellbeing.

image                                                                                                                       

L-R: FINANCE MINISTER, DR OLUSEGUN AGANGA AND CBN GOVERNOR, MALAM LAMIDO SANUSI

Instead of IMF over emphasising about economic slowdown in Nigeria, it should also look at the positive development and growing maturity of the country. IMF can put more emphasis on the economic correlation between increasing investments and good elections. IMF can use their global megaphone and tell the rest of the world that credible election held in Nigeria shows stability and continuation, that Nigeria is truly ready to do business with world. That can help to attract foreign investments thus averting economic slowdown.

 IMF should and can significantly impact the country positively by counseling Nigeria on how energy conservation and its availability can help to checkmate inflation and trade deficits. When Nigeria has ample electric energy to operate their local industries that can ultimately aid to retard and stop excessive and unnecessary importations.

The point to be made is that IMF can go beyond the gateway of financial control. But also IMF can enhance its responsibility as a financial disciplinarian by becoming a cheerleader to a documented progress in a nation and that can in turn bring in goodwill and economic gains.

 

 

Published in Archive

The devaluation of Naira recommendation by IMF is without logic

The International Monetary Fund (IMF) is an organization founded with a prime objective of stabilizing international monetary exchange rates and facilitating development through the application and enforcement of liberalizing economic policies to its 187 member countries which includes Nigeria.

This time around IMF has definitely proven to us that its recent prescription for Nigeria to devalue her currency naira is not based on sound and logical economic proposition. Not that any time in the past that IMF monetary recommendations on and for developing economies have been logical. In the 1980s when many developing nations especially in Africa were cash scrapped and were in deep recession they turned to IMF as a lender of last resort. The period marked the nadir point of haplessness in Africa due to IMF‘s structural adjustment program known as conditional ties given to these countries before they could be eligible for the loans they were asking from the institution.

Nigeria this time is not asking for any intervention from IMF. The economy of Nigeria is growing progressively at above 7 percent and naira is relatively strong and stable. The weak point that can be perceived from the economy is the growing deficit trade especially from China, rising inflationary pressure and continuous depletion of the crude account by excessively withdrawal. Even with that Nigeria has a substantial foreign reserve which falls to U.S $33.12 Billion in January. But thanks to rising oil price the reserve will commence to replenish and grow.

The volume of the foreign reserve is not bad by any standard especially with regards to the country‘s GDP which was growing at 7.4 percent in first quarter 2011. The point is that Nigeria has adequate war chest to defend naira and ward-off aggressive currency speculators. Therefore IMF suggestion that currency is overrated has no basis for Nigeria can defend her currency standing in the global currency market. Moreover the local high demand of dollar has become a check on the value of naira.

Lead Image

Dominique Strauss-Kahn, Managing Director International Monetary Fund (IMF)

Afripol organization experts discussed the issue of IMF and naira’s devaluation. Afripol concluded that there is absence of monetary logicality for devaluation of naira.

Gideon Nylan, an expert on political economy of developing nations at Afripol, concluded, "The Nigerian middle class has yet to recover from the IMF devaluation of 1986. Suddenly teachers, lawyers, doctors, and civil servants saw their life savings disappeared. In order to support their families and create a better living for themselves, they left the country for greener pastures in other countries."

Emeka Chiakwelu, Principal policy Strategist at Afripol commented, "Bretton Woods institution (IMF) asking Nigeria to devalue her currency is akin to throwing kerosene to a burning fire. There is no logic to that, Nigeria’s currency has already been steadily diminished by the rising inflation and further devaluation is contrary to a sound economic judgment."

Chiakwelu noted that, "IMF should be in business of enhancing an economy by giving logical counsel not by depreciating methodology. IMF has the power to increase Nigeria’s special drawing rights (SDRs) and including naira into ‘basket of currencies’. Instead IMF chose to play a role that will be increasing the price of foods and raw materials in Nigeria by devaluation of naira. "

Beware of Trojan horse coming as IMF helping- hand because history has proven that it has severe ramification. What will be the justification for Nigeria to devalue her currency?

The economy is not wholly export base except crude oil and the economy is not diversified with array of manufactured products for export. The logic of devaluation is to induce and increase export by lowering the prices of local manufactured products making them attractive for export. But that is not the case with Nigeria, a mono-product exporting country, crude oil which generates about 90 percent of the country’s foreign exchange. By devaluating naira the price of oil will nosedive and country’s foreign reserve will dwindle, while the incentive to buy Nigerian fiduciary bonds and securities in international market will depreciate.

To be factual Nigerian currency naira has already be weaken by rising inflation. At this point in time the inflationary trend is gradually creeping into the monetary base and with that naira is gradually but steadily losing its ground. Therefore what is logic of further devaluating a currency already weaken by rising inflation and by so doing summon a hardship that will be felt by majority of Nigerians. Most of the products and materials utilized by final consumers and raw materials in Nigeria are mostly imported from abroad. With the devaluation of naira importation and oversea products will become more expensive and out of reach of majority of Nigerians.

Devaluation may discourage importation and foreign products in Nigeria as a result of the subsequent appreciation of foreign currencies for trading notably dollar as naira loses value. But with that Nigeria may not gain or take the advantage because the economy is not diversified and our local production is still at the rudimentary stage. Nigerian industries are still dependent on foreign expertise and raw materials to function at a reasonable capacity and with devaluation of naira the prices of dollar and pound will soar with relative to naira. Subsequently, it will have adverse effect in our growing local industries. The prices of food and agricultural products will be high away beyond the masses in a nation where 70 percent of the population survived with less than two dollars per day.

African experience in 1980s with IMF left a bad taste in their mouths, when the cash strapped African nations turn to IMF for credit. It became a disaster for Africa and the consequences of Africa's entanglement with IMF sow the seed for economic depression in today's Africa. IMF‘s conditional ties for loans were so stringent for these nations to swallow. It was called structural adjustment programs which will supposedly reform the economies.

The pathways to IMF’s structural adjustment initiative were paved with hardship and misery. These nations, poor nations of Africa were compelled to cut their spending drastically without putting into consideration the suffering of the masses especially women and children. On the wise counsel of IMF and its Ivy League experts African nations devalued their currencies on the grounds that it will increase export.  They failed to see that most African nations were not producing anything but relied on agricultural crops and donors to finance their budgets. With the devaluation the price of crops decline sharply on the international market and Africa’s yoke enhanced.

The criteria for obtaining loan by devaluation of currency coupled with neo-liberal economic policy based on liberalized trade and open market was once IMF prescription for Nigeria in 1980s. At that point in time Nigeria was being heaped with foreign debt and was falling behind in the service of her foreign debt. Thus it became difficult, if not impossible for the country obtain line of credits unless the swallow the austerity measures given by IMF. The consequences were annihilation of infant industries and untold hardship of average Nigerians. The problem of Nigeria then was more of mismanagement and misplacement of priority.

But that is not the case with the present Nigeria that is not seeking any loan or aid from IMF. Nigeria GDP is bulging with economy projected to grow at more than 7 percent in 2011, although with vulnerabilities of inflation and excessive spending and depletion of foreign reserve. The withdrawal may make sense because the country needs to defend the value and stability of naira from international and aggressive speculators.

Nigerians for one moment can walk a little taller, knowing quite that the caliber of men and women at Central Bank of Nigeria (CBN) led by Governor Sanusi Lamido are willing to stand up when necessary and defend the economic and financial interest of the country.

 

 

 

 

 

 

 

Monday, 26 July 2010 14:17

IMF: INCREASING SDR CAN BENEFIT AFRICA

Economic perspective and analysis by Emeka Chiakwelu

 

International Monetary Fund (IMF) will substantially increase its Special Drawing Rights (SDRs) from its lower original reserve to 204 billion which is proportionate to $324 billion. In the last G-20 summit held in America, the members of this important group of the largest economies gave the IMF the green light for creation of significantly larger SDRs.



SDR is a form of proxy or representative currency created by IMF. This "quasi currency" can be converted into four established and chosen currencies referred as "basket of currencies" - dollar, euro, pound and yen. Every member-nation of IMF has a holding according to the stake they have in the institution and the holdings are allocated the so-called SDRs.


According to IMF, "The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries' official reserves. Its value is based on a basket of four key international currencies, and SDRs can be exchanged for freely usable currencies. With a general SDR allocation that took effect on August 28 and a special allocation on September 9, 2009, the amount of SDRs increased from SDR 21.4 billion to SDR 204.1 billion (currently equivalent to about $324 billion)."




America and the rest of Group -20 nations supported the increment because the poor and developing nations who were severely impacted by global recession can have access to liquidity. This can relief the credit crunch and aid in reviving the global economy.



The African nations can benefit from the readily availability and increment of reserve asset of IMF. But African nations are skeptical about IMF and its role as lender of last resort. African experience in 1980s with IMF left a bad taste in their mouths, when the cash strapped African nations turn to IMF for credit. It became a disaster for Africa and the consequences of Africa's entanglement with IMF sow the seed for economic depression in today's Africa.




IMF‘s conditional ties for loans were so stringent for these nations to swallow. It was called structural adjustment programs which will supposedly reform the economies. The pathways to IMF’s structural adjustment initiative were paved with hardship and misery. These nations, poor nations of Africa were compelled to cut their spending drastically without putting into consideration the suffering of the masses especially women and children. On the wise counsel of IMF and its Ivy League experts African nations devalued their currencies on the grounds that it will increase export. They failed to see that most African nations are not producing anything but relied on agricultural crops and donors to finance their budgets. With the devaluation the price of crops decline sharply on the international market and Africa’s yoke enhanced.



Those African nations that finally got loans and credits could not pay it back. This became the genesis of the famous African foreign debt which has become a manacle on Africa.
Therefore with this SDR: "All the IMF's 185 members would get more SDRs in proportion to their stake in the IMF. Wealthy countries that don't need the SDRs may be able to lend them to poor nations that do." This can benefit Africa.





SDR for Settlement of debts


Instead of the highly indebted African nations using their hard currencies to pay for their foreign debts, I will suggest the use of SDR to repay the lingering foreign loans. Africa received $540 billion loans from 1970-2002, she paid back $550 billion and she still owned $295 billion as at the end of 2002.






"The countries of sub-Saharan Africa are generally very poor, and the burden of servicing their foreign debt is often insurmountably heavy. On the average, African countries owe 46% of their foreign debt to official bilateral lenders, 32% to multilateral institutions, and 22% to private creditors. However, most of their debt payments (57%) go to private creditors, while multilateral creditors receive 21% and bilateral creditors22% of the total. Little of the bilateral debt is owed to the United States. In recent years, multilateral agencies and bilateral creditors have forgiven substantial amounts of debt, in order to reduce the poor countries’ debt burden to "sustainable" levels. However, debtors many still have difficulty servicing their debts. There have been calls for 100% forgiveness of multilateral debt. Many analysts suggest, however, that such forgiveness could substantially limit the ability of the multilateral agencies to provide future aid."





"External debt Despite the HIPC Initiative's objective to reduce Africa's total debt, total external debt and the burden of debt service payments still remains high. In 2003 African countries owed a total of US$307 billion to creditor countries and institutions, of which $218 billion was owed by the countries in Sub-Saharan Africa. This debt more than doubled from US$120 billion in 1980 to US$307 billion in 2003. Almost 80 percent of Africa's debt is owed to official institutions, of which approximately 33 percent is multilateral debt owed mainly to the IMF and the World Bank. At the same time, total debt service paid by the continent increased from US$3.3 billion in the 1970s to a peak of US$28 billion in 2003, of which Sub-Saharan Africa's share was US$15 billion. In this context, the decision by the G8 countries to grant a 100 percent multilateral cancellation of the debt owed to the IMF, the World Bank, and the African Development Bank by 14 African countries that have reached the HIPC Initiative completion point could reduce the heavy debt burden and boost pro-poor growth by freeing resources for social and productive sectors."






Therefore SDR can become a powerful instrument to wipe out all the African debt. IMF can create more SDRs and issue an allocation specifically for debt payment without triggering global inflation. With total debt settlement African people can use their resources, talents and energy to engage in more resourceful initiatives rather than campaigning endlessly for debt forgiveness.




SDRs can come to the rescue as instrument to payoff African debts. Then funds for servicing and paying debts will be invested in healthcare, education and other areas that need immediate attention in the continent.




Image result for emeka chiakweluMr. Emeka Chiakwelu is the Principal policy strategist at Afripol Organization. Africa Political and Economic Strategic Center (Afripol) is foremost a public policy center whose fundamental objective is to broaden the parameters of public policy debates in Africa. To advocate, promote and encourage free enterprise, democracy, sustainable green environment, human rights, conflict resolutions, transparency and probity in Africa.    www.afripol.org
e-mail: This e-mail address is being protected from spambots. You need JavaScript enabled to view it

 

 

 

 

 

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