NIGERIA CHANGES AUCTION RULES TO DEFEND THE NAIRA

  Nigeria's Central Bank has changed the
  rules governing its foreign exchange auctions in what analysts
  see as a means of defending the naira currency, which has
  depreciated steadily.
      The bank said in a statement that from April 2, banks
  bidding for foreign exchange would have to pay at the rate they
  offered and not, as presently, at the rate of the lowest
  successful bid made at the auction.
      This should discourage banks from bidding high to ensure
  that they were successful while paying the lower "marginal" rate,
  analysts said.
      "It should act as a brake because banks will know that if
  they bid high they will have to pay what they offered," a
  Western diplomat commented.
      The naira has depreciated against the dollar by 62 pct
  since the auctions, known as the Second-Tier Foreign Exchange
  Market (SFEM), began last September 26.
      At last week's session the Nigerian currency was fixed at
  4.0 to the dollar, the third fall in a row.
      "They were clearly worried... And this is the logical way of
  trying to stop the trend," the diplomat said.
      The Central Bank also announced the auctions would be
  fortnightly, not weekly, beginning on April 2.
      It was not immediately clear whether next Thursday's
  scheduled session would still take place, nor if the bank was
  planning to double the 50 mln dlrs which are normally on offer
  at each auction.
      Demand for foreign exchange has consistently outstripped
  supply, encouraging banks to bid high and thus further
  weakening the naira.
      If the normal weekly allocation is not doubled at the
  fortnightly session, high demand could undermine the objective
  of the new system, analysts said.
      Although bidding banks will now pay what they offered, the
  official exchange rate for the naira applying to business
  transactions will continue to be the marginal rate -- the
  lowest successful bid.
      SFEM is a central part of Nigeria's structural adjustment
  program, which is considered to be the most ambitious economic
  recovery plan in Black Africa.
      The program involves setting a realistic exchange rate for
  the naira, which was over-valued for many years, liberalising
  imports, boosting agriculture, removing subsidies and reducing
  inefficient government participation in the economy.
      The World Bank has played a prominent part in designing
  this dramatic blue-print and in selling it to an often
  sceptical public which fears inflation and lower living
  standards.
      Ishrat Husain, the World Bank's representative in Nigeria,
  said yesterday he was satisfied both with the adjustment
  program as a whole and the foreign exchange auctions.
      "So far so good" he told a meeting of bankers in Lagos,
  adding that only members of Nigeria's import-dependent elite
  would suffer hardship while the common man would benefit.
      Fears that the program would encourage inflation were
  incorrect, he said.
      Bumper harvests had reduced rural inflation and urban
  prices had already reflected the naira's black market value
  before the currency was allowed to find its true level last
  September.
  

