PEOPLE & POLITICS BY MOHAMMED HARUNA 

Debt Relief: Counting Our Chickens

kudugana@yahoo.com

 

 

The last edition of The News, called it “THE BIG LIE.”  This was the screaming headline on the cover of its July 18 edition.  However, inside, the story itself did not seem to square up with its sensational headline that claimed President Obasanjo told a big lie when he said in a national broadcast on June 20, that his government has secured a huge debt relief for Nigeria.

           

Within the ranks of the press, The News did seem to have stood alone in dismissing the Federal Government claim of the debt relief.  As I pointed out on these pages two weeks when I broached the issue, virtually all the Nigerian media seem to have swallowed the president’s claim hook, line and sinker.

           

However in standing alone in its dismissal of the president’s somewhat triumphalist claim of success with the Paris Club, The News, as I have just said, hardly did a good job of matching its bold headline with the body of its story.  What it did was essentially to leave the reader to chose between, on the one hand, the words of the minister of finance, Mrs. Ngozi Okonjo-Iweala and the Central Bank of Nigeria Governor, Professor Charles Soludo, and, on the other, those of Dr. Ayo Teriba, a financial expert who has consulted for the World Bank and was a visiting scholar at the IMF Research Department.  Both the minister and the CBN governor naturally echoed their boss’s claim that Nigeria has been given a debt relief of $18 billion by the Paris Club while Teriba said the Club did no such thing.

           

The magazine did publish the terse Paris Club statement on the so-called debt relief, but it did not offer any analysis of its own on the statement beyond the editor-in-chief’s short introduction of the story on page 19 of the magazine.  All told, on the basis of the body of its story, I don’t think The News was justified to call Obasanjo’s claim of a huge debt relief “THE BIG LIE”.  What, I believe, the president did was not to tell a big lie.  What he did was to tell half the truth.

           

The half that was true was that the Paris Club offered a huge debt relief IN PRINCIPLE.  That the offer was only in principle was clear not only from an ordinary reading of the Paris Club statement itself but also from a comparison of the captions on the debts of developing countries on the home page of the Paris Club website.  For example, the caption on Nigeria dated July 29, said “Paris Club creditors agree in principle on a comprehensive debt treatment of Nigeria.”  Compare this to the unequivocal captions on the debts of Zambia dated May 11, and Rwanda dated May 10; that of Zambia read “Paris Club reduces Zambia’s debt under the enhanced HIPC initiative” while that of Rwanda read “The Paris Club agrees to cancel 100% of Rwanda’s debt.”  Unlike with Nigeria, Zambia’s and Rwanda’s cases were not hedged with ifs and buts.

           

Soludo says in his interview with The News that an approval in principle is as good as an approval in fact.  “There is,” he said, “no country in the world that has an approval in principle without the eventual approval.  If you get the approval in principle, it is like you have crossed the rubicon.” Yet     Soludo, I am sure, knows there is difference, no matter how small, between a simile and a metaphor. 

 

His claim, which merely echoed the position of the Big Boss, is the half that was a lie.  This is because Soludo and his boss know that to actually cross the rubicon there are certain things that the country must do.  These include paying a hefty $6 billion up front before we can start negotiations.  Soludo made this sound like no big deal in his interview with The News.  “We will”, he said “pay $6 billion by September and pay the remaining $6.4 billion sometime next year and we are free.”

           

First, $6 billion is no exactly anyone’s idea of chicken change.  Soludo may be an economic wizard, but he cannot compare with Professor Jeffry Sachs on the subject of development economics.  Sachs, in case the reader does not know, received a tenured professorship in economics at Harvard at age 28.  Since then he has consulted the on subject for several countries and today is the adviser to the United Nations Secretary General on Millennium Development Goals.  Recently he authored a best seller on the subject of poverty titled The End of Poverty in which he detailed the steps necessary for eliminating poverty from the face of the earth.  High on the priority of his list was debt forgiveness.

           

Last week Sachs sounded bitter about the Paris Club offer of debt relief to Nigeria.  This was during a civil society group conference on Millennium Development Goals in Abuja.  “The $18 billion debt relief cancellation for Nigeria,” he said, “is good but it is less good than it should be.  The creditors are nasty and stingy.  To extract $12 billion from a country with an annual budget of $3 to 4 billion is callous.”

           

Even Sachs seems to assume there is an $18 billion debt relief already, which is clearly not true.  But even if it is, it is clear that someone is desperately trying to hide the high cost of the relief from Nigerians.

           

And this cost is not just what we have to pay upfront.  Perhaps even more costly than the upfront payment, is the issue of a policy support instrument (PSI).  ‘Creditors,” said the Paris Club statement on the so-called debt relief, “welcomed Nigeria’s willingness to conclude a policy support instrument AS SOON AS THIS NEW INSTRUMENT IS APPROVED BY THE BOARD OF THE IMF to pay all its arrears towards Paris Club creditors and to treat them equitably” (emphasis mine).  Not only would the IMF have to approve our PSI, the agreement, the statement said, “would be phased in relation with appropriate IMF review under the PSI”.

           

The question is what is this policy support instrument?  What do we have to do to get IMF’s stamp of approval for it and how long or short would it take the IMF to review the PSI?  Questions and questions and questions for which we are not getting any answers at all.  Instead we are simply expected to roll out the drums and celebrate a victory that may in the end turn out to be pyric.

           

Apart from the “callous” (Sachs’ words) upfront and backend payment of $12 billion dollars and the nebulous PSI thing, there are at least five other reasons for skepticism about the “debt relief.”  First, there are the rules and principles of the Paris Club.  Among these is the principle of consensus.  “No decision,” says the Club, “can be taken within the Paris Club if it is not the result of a consensus among the participating creditor countries.”

           

This means if even one of its 18 Western member countries plus Japan and Russia dissent during negotiations, then there is no deal.  Regardless of what Okonjo-Iweala and Soludo may say, the fact is that what we have is an offer not a done deal, as the Americans would say. Given the record of broken commitments by Western nations, the negotiations are as likely to breakdown as they are to succeed.

           

Second, according to its rules of operation, the “Agreed Minute,” which is what is signed at the end of a negotiation, is not legally binding.  Rather “it is”, to quote the Disclaimer on the club’s website, “a recommendation by heads of delegations of participating creditor countries to their governments to sign a bilateral agreement implementing the debt treatment.”

           

Third, the Paris Club offer talks about the debt relief ensuring “long term debt sustainability.”  This sounds confusing to me.  If we are being offered a total exist from Paris Club debts, why the talk about “debt sustainability”? Isn’t this one of these doublespeak for which the governments of Western countries are accomplished masters?

 

Fourth, Nigeria is not the first country to have been offered a debt relief under the Naple Terms.  Before Nigeria, 34 other countries are listed on the Paris Club website to have benefited from the terms which, at debt cancellation of up to 67 percent, is the most favourable terms compared to, say, Toronto terms of up to 33.3% and London terms of up to 50% debt cancellations. The Naple terms may not be as good as those of the Highly Indebted Poor Countries (HIPC) which were recently offered 100% debt relief, but this offer was in a class of its own.

           

Now out of these 34 countries that got debt relief on the Naple terms, seven – Ghana, Tanzania, Mozambique, Burkina Faso, Bolivia, Mauritania and Benin Republic – are listed on the Paris Club website to have “fully repaid”.  However, going through the list it was not clear, at least to me, whether the seven countries had also chosen Nigeria’s exit strategy, i.e. to completely pay off their debts to the club.  What is clear, however, is that whatever option they chose, the IMF conditionalities they had to fulfill, homegrown or not – a rose by any other name is still a rose – has left them not much better off to achieve the Millennium Development Goals.  They may have achieved higher growth rates, but growth alone does not guarantee an end to poverty.

           

Last but by no means the least, the BBC News Online carried a news item on July 15 which should be food for thought for President Obasanjo, his minister of finance and his governor of the CBN, as they go about telling the world that they have a done deal with the Paris Club.  “G8 debt deal,” said the BBC the story, was “under threat at IMF.” 

           

This was a story in which we were told barely a few weeks ago that the entire debts of the highly indebted poor countries have been forgiven.  Now, according to the BBC, not only are small Paris Club countries like Belgium, developing cold feet about the offer, even large ones like Germany are also doing the same.  Lately they have been talking, among other things, about the “moral hazard” of such an offer, meaning it may encourage debtor countries to be reckless with loans in future while discouraging those that had been frugal with their loans from their frugality.

           

Here it is important to note that at the IMF you need no more than 15% of the votes of its member countries to block any agreement between the creditor and debtor nations.

 

For all these reasons alone, it seems to me that the president’s national broadcast of June 30 on the debt cancellation, a broadcast that was swallowed hook, line and sinker by not only the media but by many otherwise sensible and intelligent Nigerians, amounted to counting his chickens before they hatch.  As a now famous chicken farmer, the president surely knows that this is very risky, if not foolish, thing to do.  My fear is that the president, in his desperation to prove that all this past six years of democracy under his leadership have not been without any significant dividend, decided to count his chickens even before the eggs were laid.