One of the policies pursued by the previous CBN administration was inflation targeting. In the spirit of continuum, what is happening now?

I have a fundamental disagreement with inflation targeting, and I will explain to you. Please don't misunderstand me. I do not, in anyway, intend to criticise anybody.

There is a difference between inflation targeting and the general policy of seeking price stability. And I think it is important to understand this because when people say that we are not supporting inflation targeting, people read that to mean that we are saying that inflation is not important. That is not the issue.

Inflation targeting sets a specific inflation target usually in the lower single digit and commits the central bank to achieving that target, using monetary instrument at its disposal.

Now, the danger with inflation targeting in a less developed economy is that the pursuit of a low-single digit inflation target often is done at the expense of economic growth and development.

Today, you have a raging debate in South Africa. They have an inflationary rate of three to six per cent. They have refused to relax it, even at a time jobs are being lost, people are complaining; Botswana has broken away from it. New Zealand is having a second thought.

Secondly, Economies is a science and arts; but sometimes, people take it as a religion. And that's what happened with the Structural Adjustment Programme (SAP). It became a religion. People just said, "we have done Structural Adjustment Programme."

What that means to you and your people, nobody is talking about. Talking of our single digit target for inflation, I have asked the question: What is special about nine per cent rate of inflation? If you have vision 2020 programme and you say you want to be top 20, and for you to be top 20, you need to grow the GDP at 15 per cent, what you should be asking is: What is the rate of inflation that is consistent with that level of growth rate? Not that you set a target ab initio in a vacuum simply because the IMF and the World Bank are saying single digit inflation. The IMF and World Bank have been known to give prescriptions that have killed patients in the past. But we take it as a religion.

The Francophone West African centers had had inflation targeting. They have had low single digit inflation for a very long time; but they have not had economic growth.

Look at the numbers. If you look at imperical data, it will tell you that in Sub-Saharan Africa, the link between money supply growth and inflation has not been established; and it is not tied to low levels of inflation.

Money supply seems to have only fuelled a high rate of inflation when you got rates in excess of 25 to 30 per cent such as Ghana in the 1970s and 1980s.

In all places, where inflation has been below 20 or 25 per cent range, there has been no link.

I have looked at the numbers in Central Bank. Money supply has been growing between 2004 and 2005. Remember that oil price had been growing up to $147 per barrel. All that oil revenue were also being monetised, which led to a rapid increase in money supply as credit in the banking sector. Did that lead to hyper-inflation? It did not.

So, first of all, the link between money supply aggregate in the sector and the rate of inflation was not established, because inflation has dynamics.

People think that because they studied Economics Ð EC101 or EC 201Ñ and have an elementary knowledge of inflation, they can run a complex economy. No. The knowledge of Economics you require to manage inflation is more complex; it is not a simple money supply growth, equals inflation.'

Inflation can come from movement of money supply. It can come from movement in exchange rates when you have an import dependent economy. It can also come from structural supply shocks. And if people don't understand the dynamics of inflation, they will not know how to control it.

I will give you an example with this current MPC. Inflation went up. Now, the simplistic Ð what I call the infantile approach Economics Ñ is to say inflation has gone up, so Central Bank should tighten the screws. But why is inflation going up? Was it because there was too much money supply? There wasn't. In fact, I have about N600 billion sitting in the Central Bank from the banking system. I have about N400 billion sitting in the Central Bank as capital expenditure authorised and not paid.

The government is not spending it, the banks are not lending. Money supply is contracted.

Now, if I say because inflation has gone up by 12.3 per cent, I will further contract money supply, I will simply aggravate the problem and stamp down growth. Interest rate will go up, credit will further get squeezed. That was what happened with the Great Depression of 1929.

The reason we are having inflation is that we announced deregulation, but we did not implement it. People are already paying black market price for petroleum products. There are supply bottlenecks, because we don't have enough supply of petroleum products. These have impacted on transportation.

In fact, increase in transport cost has fed into the various components of CPI, including food because moving food to the urban areas has become more expensive. So, it is a structural problem and the address is fiscal. Implement deregulation; pay back whatever money the government owes marketers so that they can pay the banks and the banks can lend to them.

Bring in these products, fix the refineries, bring down the cost of transport and you address inflation. It is not a monetary issue.

So, in a less developed economy, the decision to target inflation has to be weighed against our understanding of what our dynamics are. I am of the view that, in Nigeria, inflation is driven more by structural constraints than supply shocks, and more by exchange rate than by money supply. And to that extent, what we need to do, as a Central bank, is to engage strongly with government as economic adviser to address these issues.

Just imagine what will happen today if you provided power and revived the industrial clusters that you have, what will happen to the petroleum sector today, if the refineries started working, what will happen to growth and output if you revived your textile industry so that the cotton you are producing in the north will get into the textiles and the products are coming out? The leather industry with hides and skin will come back.

Therefore, it is a real sector structural issue, that will be addressed by government working, not by Central Bank. I can control inflation by tightening money supply; it's very simple. But what happens? You tighten money supply, interest rates go up, more factories close down, and more people suffer.

Yes, I can show that I achieved seven per cent rate of inflation (I'm a successful governor of central bank). How about the human beings out there, who are hungry?

So it is an ideological issue. For me, it's not Economics. A lot of these things are ideologies and they are presented as Economics. Today, as I speak to you, there is a debate even within the European Central Bank with some officials of the IMF, because the IMF has said maybe the ECB should relax its inflation target from two per cent. And they said it is an unhelpful comment.

So, even the IMF recognises that. But in a developed economy, an inflation of four or five per cent in England, France or United States can be a major problem.

In our economy, the priority is how to create jobs. How do you eradicate poverty? And anybody that tells you, based on some economic theory, that we should not spend money to have poverty alleviation because of fear of inflation, is taking an ideological position; it is not Economics. He is saying that poor people do not matter. It is the profit of the rich that matters.

So far, what are the strategic options being considered by the CBN to ensure an improved management of the foreign exchange market?

When I became governor of the Central Bank, the gap between the official and the parallel market rate was about 25 per cent.

Starting from August 2009, that gap has shrunk to two per cent.

There is this thought that the current exchange rate is not realistic, that the Naira is seriously undervaluedÉ(Cut in)

I'm an Economist. And one of the fundamental rules of economic analysis is that you should state what the assumptions are. The Naira is undervalued in relation to what? What is the basis for arriving at an ideal value of the Naira? I hold the view that in every economy, the exchange rate is amenable to what I call multiple equilibra.

At my Senate screening, I told the Senators that for me, the level of the Naira is not the critical matter. Stability of the exchange rate in a developing economy tends to attract foreign direct investments and promote private investments. It should provide a certain nominal anchor for the formation of price and profit expectations.

People said that the exchange rate was N135 when I became governor. It was not N135. Officially, we might have been selling it at N135 or N140 but at the Bureaux de Change, it was going for N185 or N190. And that was the price.

Now, it is down to N152. 50. So, in effect, we've had a massive revaluation from N189 to N152. So, don't look at N135 to N150. Look at what is the highest price people were paying.

Secondly, what we have said (and I know that IMF doesn't like it) is that we are going to resist volatility. The Naira was being attacked. There were speculative attacks on the Naira. People were looking at oil price, looking at the foreign reserves, and said that Nigeria cannot sustain the Naira at this level and were therefore buying dollars.

The banks were round-trapping. So, the first task before me was to cut off the oxygen from round-trippers and speculators. What I said was, "look, we have foreign reserves of $40 billion. These banks that are playing come and buy $200 million. What is their total balance sheet? Let us hit them." And the moment I found out that somebody has come to buy too many dollars, I would go into the inter-bank market and hit him by dumping dollars on the market. And by the time people got burnt once or twice, they stopped it.

Then, we created what people called classes A, B, C, and D, and thereby created an imperfect market structure.

So, you have these people who put in N500 million to get class A; but it was also fake because you put in N500 million and get a licence. Then, they come and release the N500 million to you. So what was the difference? After they come and see your business then they give you your money back. So, what was the difference between you and the man who paid N40 million for the lower class? Nothing. It was not as if the money was locked up; we just created new levels of black markets.

For an investor investing in the Nigerian capital market, in Federal Government bonds and you bring in your dollars and it's N150 to the dollar, what you want to know is that six months from now, when you want to take out your money, the Naira has not crashed to N200 because you will make a loss. It doesn't matter if it is N150 or N200; you want to be sure that there is stability.

You must congratulate Governor Soludo because at the time oil was $118, he resisted the temptation for a massive revaluation, because we could have gone to N70 to a dollar when oil prices were very high. And that would have being a big problem. We would not have built up the foreign reserves. But that's why we've got the reserves so that when we get through a period of shock, we should be able to run down the reserve a bit to support the currency and have some stability.

Oil prices go up and down and we cannot allow our exchange rate to be going up and down. Any time oil price goes up, the Naira grows very strong, which was what you have suggested. Then, when oil price crashes to $40, the Naira now crashes too. The manufacturer, who imports raw materials at N150 to a dollar, produces goods and sells, finds that after selling the goods, when he comes back to buy dollars to fund the next batch of raw materials, he cannot replenish because the naira has lost 20 per cent of value. He, therefore, has to go and get a higher loan from the bank and increase his interest cost. And that's how businesses collapse.

So, exchange rate management in a less developed economy has to focus on stability. And I've given numbers. Volatility in exchange rate reduces GDP growth.

A country like Nigeria can have one per cent growth addition to GDP due to stability in exchange rate. That is empirical.

I stated (and I have no apologies for it) that I will allow the Naira to float within a band, but I will defend the Naira even if I have to run down the reserves. I will use the reserves to defend the Naira against speculative attacks.

Now, if we feel, for instance, that there is a long-term likelihood that oil price will be at $40, and therefore, a long-term likelihood of foreign exchange reserves diminishing, we will devalue. But we will not do what was done in December by crashing the Naira by 28 per cent. We will gradually move towards what we think should be the new equilibrium.

Could you tell us more about the blueprint you released recently? Do we expect a more comprehensive document?

You could go and ask the Minister of Finance or National Planning, I don't think there had ever been anytime in the recent past, when you have the level of cooperation with the Central Bank.

What happened was that the Minister of State said something about a blueprint. But in everything we have done, we've discussed with the Finance Minister and the Presidency.

The Permanent Secretary, Ministry of Finance, and the Accountant General of the Federation are board members of the CBN.

So, there is no way anybody can say that the Ministry of Finance was not aware of what the Central Bank has been doing, because two of their officers are on our board.

Now, in the United States, they have this issue. A few weeks ago, they set up a committee to review what happened and came up with a blueprint, and they gave them 18 months. They had this one in 2007. We intervened in August 2009 and our blueprint is out.

We stated exactly where the issues were, We ve stated where the problem was; we've said what we intend to do and we have started doing it.

These things unfold overtime; you cannot move bank lending from speculation to the real economy over night. You have to take steps.

What steps have you taken so far?

I will give you an example. In December, we had a retreat in Enugu with all bank CEOs and talked about how banks would be lending lend to the real sector. We said we would focus on power infrastructure and agriculture.

We also talked to the state governments to see what their projects were and how we could help them. Between December and now, we have had a session with the Governor of Lagos State; we've had a session with the Governor of Delta State. I'm in Lagos this weekend (last weekend), and on Friday, we will talk with Governor of Rivers State. Yesterday, we met with the Governor of Ogun and Kaduna states. We were asking them to show us where their infrastructure projects are.

Instead of having them go round and looking for banks, I put in one room myself, the Deputy Governor of Central Bank, all the 24 banks CEOs and investment bankers. We listened to the Governor, we asked questions. After that, we set up a technical team from the banks Ð groups of three banks Ð to look at power, infrastructure and agriculture. They identified, among those projects, those ones that are viable. So, we have already gone far with Lagos.

The report for the Delta team has just been presented. And we are setting up teams to go and look at Rivers, Ogun and Kaduna states. It is a process that will take time; but by the time the money starts flowing into those projects, over time, we will begin to see a shift in the portfolio of banks from this speculation and money market activities into real sector financing.

We have provided this N500 billion intervention fund to refinance some of these exposures. We have also gone very far in reviewing the prudential guidelines, because prudential guidelines, as structured, do not encourage lending to the real sector. You lend to a manufacturer; three months later, you have to make 10 per cent provision. Six months later, you take 50 per cent provision. One year later, you take 100 per cent provision.

Sometimes, you have issues and delays. In places like Pakistan and India, what they've always done is to say: For lending to these sectors that don't encourage credit, the prudential guidelines are a bit more liberal. We know that when you lend to a manufacturer of plastic, for instance, it is not the same as lending to Unilever. Some people may be facing challenges, given the nature of their industry.

We also reviewed the prudential guidelines. So, reform is an ongoing process.

This bit we are, the AMC and recapitalisation, is an easy bit. The real challenge is getting banks to reconstruct their balance sheets so that the financial system plays its role of being a transmission agent of monetary policy to the real sector of the economy.

You talked of recapitalisation as an easy bit. Let's say that the shareholders decide to provide the needed funds, would you give them back their banks?

But they haven't done that. In fact, some of the banks had board meetings, and the shareholders said they want to recapitalise. I said okay, the amount of capital you require is N300 billion; bring it.

I have met non-executive directors of banks. The process we are going through is one that is driven by the boards. It is not run by the CBN. We have given guidelines, now people have expressed their interest. We would do the AMC and buy toxic assets.

If we need to inject more capital through the AMC, we will do that. The reality is that, at the end of the day, the only condition we have as Central Bank is that we are not going to allow the banks to return to the corporate governance standards that they had, which led them to where they are.

So, when you say shareholders, whom do you mean? Do you mean that if Cecilia Ibru today brings money, I would allow her? I would not. You have to make a distinction. Given what we have seen about Akingbola, for instance, I will not. We have seen what he had done with the bank before.

However, if shareholders of any of the other banks that were not involved in this management, come together and show us that they are bringing in capital and that they are bringing in the management and governance structure that will make sure that we'll relax, why not?

You seem to trust foreign investors more than the locals.

No. I remember one of the funny things you guys did to me. I went to London and I met correspondent banks and creditors, and I said to them that they should have confidence in Nigeria's financial system. I also told them what we have done; and it was a very successful outing. But I came back to read the story that when I was in London, I met foreign investors and negotiated the sale of five of the banks. After a few weeks and nothing happened, they now came up with a story that foreign governments had warned their banks not to invest in Nigeria.

Now, a new pattern is emerging. We know people that do Renaissance Professionals' adverts. Who are the stakeholders? Are they banks? Are they stockbrokers' ? Who are they? Let them continue advertising. At the end of the day, when we get a conviction, all that money will have to come out.

For many years, I was involved in public debate. I used to write articles in The Guardian and Thisday. And I have always believed that newspapers are an integral part of civil society for education and good governance. So, we don't mind criticisms. I think public officers should accept criticisms.

Attacks from groups like Renaissance Professionals are to be expected. In fact, I'm pleasantly surprised at the mildness of the attacks. You don't expect people to walk into jail without fighting.

Are you saying that the Renaissance Professionals are the same CEOs you sacked?

I know the person that started it. I know about N300 million that was the seed capital. I know the person who went to Ghana and was collecting the money.

I know that there is a journalist who is a senior member of the Guild of Editors, who started writing the adverts. We know the advisers that they have among capital market researchers.

I will not claim to know everybody that is funding them, but we know the people who set them up and we know the mode of their operation.

But it is immaterial because it is to be expected.

You don't seem to be responding adequately to some of the issues the group has raised?

This is a response. I have said it before. Look at the issue of Atuche's property. Has the Central Bank ever said anything on Atuche's property? EFCC is investigating. Even his lawyers published that there was campaign of calumny by the Central Bank and the EFCC. The issue was that we removed him and we have our reasons for doing that. If he goes to court, we will bring our reasons for removing him.

But you were once quoted as saying that you would send the EFCC after some of these CEO's.

When we removed the MDs, we removed them for putting their banks in grave situation, and we had the right to do that.

Now, whether there was a criminal activity or not is a different matter. If in the course of those examinations or even after we take over the investigation, we find that there was a fundamental breach of trust and criminal activity, we will hand them over to the appropriate authorities and tell them that this is what we have seen, come and investigate.

They send their detectives, they investigate, prepare their charges and arraign them in court. We have told EFCC that; we are not the judiciary. But we have the responsibility to report criminal activity to the authorities. But that has nothing to do with the EFCC's investigative work. Where they find some assets that belong to people and freeze those assets, that is part of EFCC work.

I'm not saying that the CBN should dissociate itself from EFCC. But it's very interesting that nobody will ask where and when the CBN has said something about assets belonging to some people.

We published debtors list, yes, we did that. And I have always said that I have no regrets for that. If anybody felt embarrassed, it wasn't my fault, he should go and pay back the debt.

You admitted some errors in some of the details and names you published as bank debtors.

Yes, if you published some 1000 names and you leave one or two mistakes, it's collateral damage. Some of the mistakes were very stupid. For example, you have the Accountant General Office, and somebody published Accountant General of the Federation. Or you have somebody whose name was published because he was a director in a company but the company didn't tell the bank that he has resigned.

I saw a publication by the Central Bank in 2008 or 2009 and it still had Shamsudeen Usman as deputy governor because somebody that was supposed to check had not done so.

So, those things happen when you go to the banks' records. You see these names as directors of the company. In a few cases, where we actually made mistakes, we came out and admitted such. All the others that were talking, claimed that they were not there but they later went round to negotiate their way out.

Back to the CBN itself, how far have you gone with the restructuring exercise. Do we expect job losses?

No. In fact, by the structures that we are having in place, we may not even have enough staff.

So, you may soon be employing more workers?

Yes, people can apply. We may not even have enough staff. We are increasing our five departments to 17. I have not seen a situation where you increase the number of departments and people are saying that there will be job losses. I saw the story and I don't know where they got it.

However, what is going to happen is that people will be held more accountable for what they do, because we need to ensure that we perform our job in a professional manner.

We cannot be supervising the banking system and be operating a lousy operational services. We cannot invest money in IT and not be able to offer efficient back - up to the system.

We are the banker to the banks and government. We are settlement bank for the capital market. We need to ensure that we perform at the level of banks like Zenith, GTB and Citibank. That's what we should aim for. And we need to get to the level where people understand that the fact that this is Central Bank does not mean that they have a guaranteed job and they can just sit down and not do anything.

So, people who do not live up to expectations will be shown the way out. This is what is going to happen. But, in terms of the structure that we have, there won't be any job losses.

For example, we didn't have any department for policy and regulation. What was the result of that? We have problem of margin lending. There was no guideline from Central Bank that says, for instance, if you do margin lending, you must sell if it gets to 120 per cent, or that you must have the equipment to monitor it, or that you cannot have more than x per cent of your portfolio in it.

In First Bank, we have an internal policy that say we cannot have more than 10 per cent of our portfolio exposed to the capital market. We monitor that consistently. Once margin gets to 120 per cent, we sell.

Yes, there were still losses but at the end of the day, if you have those kind of policies, you will not run into troubles. Some of the banks that got into trouble didn't have those guidelines.

A regulation from the Central Bank would have made that possible. In the United States today, even the stocks that are marginable are monitored by the Federal Reserve, and it goes not just to the banks, but to the stockbrokers.

Banking stocks, for example, are not marginable. You cannot do margin lending against shares of banks. Not just your bank, but other banks. That way, the kind of things that happened in Nigeria could not have happened, where some people got loans just to manipulate share prices of another bank. It can never happen again, because, you cannot take banking shares as collateral for margin lending.

That is a law in the US. We probably would come up with regulations like that. It covers the entire gamut, from lending to stockbrokers, to what stockbrokers themselves could onlend.

So, Central Bank and SEC are now working together to produce a regulation that covers margin lending in the industry.

You now have a policy and regulation department, the regulation that says that bank CEOs shouldn't spend more than 10 years for instance, is gazzetted.

That directive has also been criticised by some analysts.

First of all, there have been precedents to this. We have 2006 Code of Corporate Governance for banks. That code says that non-executive directors of banks can serve for a maximum of three terms of four years. It's already there. It says the same audit firm cannot audit the same bank for more than 10 years consecutively. So, already, there have been precedents in the banking industry. Part of the reason is that you take measures that are tied to the nature of your problem. If dominant CEOs are the problem, then you should be able to place a timeline on how long they stay. Bank CEOs understand that. Some of the things that happened in the industry could only happen because the CEOs were sure that they were there for as long as they wanted to be there. And when they leave, they probably would transmit to be chairmen or put them there. But that is not to say that every CEO who has served for a long time and who has a son in the business cannot do that. Look at Paschal Dozie. He managed the bank for a long time. He had a son and he is the chairman of the bank yet there has never been any incident with him.

But a pattern has emerged over time, that some of these breaches come because you have those who are dominant shareholders, yet they don't disclose their shareholding. They are the ones who appoint the directors, they come and give these directors loans that they do not pay back and compromise them, so that they are able to do what they want to do. You then need to make sure it doesn't happen.

Afterall, the governor of Central Bank does not stay more than 10 years. So, let it be industry standard. Everybody go and spend 10 years and move on; let the next person come in. I don't know why a person will like to be in a place after 10 years.

The president of the country leaves after eight years. So what is the problem?

Recent comments averred that the CBN governor's office was being strengthened at the expense of institutional building. How do you react to that ?

I was a bit surprised about the viciousness of personal attacks from a friend about this. I was also surprised that that position was taken on face value. How do you build institutions without individuals? Therefore, it was a false logic. How do you separate individuals ffrom the institutionÉ.

Some of these things come up and they get spread. The reality is that the only way we can build strong institutions is by having a sustained process of having individuals that are committed to institution building. If you are a bank CEO, you have all the powers but you have to be able to allow yourself to be governed by institutional guidelines. You have a policy. So, you apply the policy.

You know, I keep saying that as Governor of Central Bank, people have come to me with CVs and wanted them recruited. But somebody from Human Resources came to me and showed me the requirements and I had to call these guys to say sorry, based on our rules, you don't qualify.

A strong man is not just about taking action; they are people who are able to resist the temptation to use their position in power to subvert the institution. And that's how institutions are built.

Now, what you call entrepreneurship and dynamism sometimes suffer, if you have the kind of abuses that we have had. We are all in the banking industry. The things that some of these people did, anybody who is an MD of a bank would have done. It was just a choice that people took.

If people chose on their own to take these risks, and to do these things, it means that individuals can destroy institutions. Individuals can also build institutions.

I read Mazi Sam Ohuabunwa's interview today (last Sunday) where he was saying that I should speak less. But if you grant interview to a newspaper, I have to respond on the same pages. You cannot say something about the CBN in a newspaper and expect the governor to respond privately. No, I have to respond, because you have spoken to Nigerians. Having spoken to Nigerians, I have an obligation on behalf of the Central Bank to speak to Nigerians.

At the beginning, there was the issue of northern agenda and Islamic agenda. I have a responsibility to speak up because silence in that circumstance could be misconstrued. Now, I can be silent to the Renaissance Professionals because all the issues they have raised, are issues I had addressed anyway. And I don't know who they are officially.

If people want me to talk to them, they should come out and show their faces.

If people say Sanusi did this, I come out and show my face to say you are lying. Let them come out and show their faces and talk. When they do that, then we will talk.

What signal has the recent Supreme Court judgment on Bernard Longe sent to the industry?

I don't know what the details of the judgment are. But the Supreme Court is a supreme court. You will note that the judgment at the lower courts were in favour of the bank.

I think the fundamental point of difference is that Longe was the managing director, a director and employer. He is on the board, but typically he is a staff, who gets promoted in most institutions. And when you act as managing director in certain circumstances, are you acting in your capacity as a director or as a management staff of the bank?

I believe in the case of Longe, the board of the bank removed him, based on the actions, which they considered he had taken as management; and this is the basis, I think both the lower court and the Court of Appeal ruled in favour of the bank.

Now, the Supreme Court said that, irrespective of what he did, there was a procedural flaw in calling a board meeting and not inviting him as a director. So, the issue was not what he did or did not do, or whether or not, he deserved to be dismissed, but that a board meeting was called but that as a director, he did not receive notice. A decision was taken at that meeting. Therefore, that meeting shouldn't have taken place.

That was based on CAMA anyway. It has nothing to do with us, because we are a regulator; and we acted under BOFIA, not CAMA.

In any case, even though we have BOFIA, we made sure we had the best legal advice for every step we took.

You have been accused of taking some actions that contravened corporate governance procedures even within the CBN. Did you get your own board approvals before issuing out most of these directives?

Yes. Let's look at the decision to remove bank CEOs. When we were setting up the team, I looked at the Expanded Discount Window (EDW), the numbers and accounts of banks

and knew the banks that had issues, even without going into the banks.

I'm a risk manager, that's my job. We called the IMF; we didn't give them the names of the banks. We gave them the financials of all 24 Nigerian banks.

They did a stress test and came out with the banks that were most at risk, and they were those that we were talking about.