Relief - Rejoinding the Rejoinders
Mobolaji E. Aluko, PhD
August 28, 2005
I have read with keen interest several rejoinders on this issue of debt
relief, particularly in reference to my earlier intervention.
MONDAY QUARTER-BACKING: Debt Relief and Nigeria - To Emit or not to Emit
I have even compiled a few of the rejoinders in :
One set of arguments centers on the (un)realistic spread to be expected
between the reduced interest rate that we might/should be able to negotiate
with Paris Club and what we might earn if we invested $12 billion on our
own, rather than emit it to Paris Club members over a one-year period.
Another salient point is a reminder of Clinton's commonsensical dictum that
"managing the national economy is no different from managing one's personal
or family finances. The only difference is in the size of the national
economy vis a vis its household counterpart ", with the question of what one
would do if one in his own household if that household were Nigeria. The
third salient point has to do with uncertainties about 2007 and beyond.
Interest Rate Spread
If one takes a peek at all the principal repayment profiles listed in the
Standard Table A1 - principal repayment profile [Debt Reduction DR option; 6
year grace; 23 year repayment]
Standard Table A3 - principal repayment profile [Debt Service Reduction DSR
option; 33 year repayment, reduced interest rate]
Standard Table A5 - principal repayment profile [Debt Service Reduction DSR
one sees graduated interest rates hovering in the 7-8% (very last stage of
payment of Table A1] or 4-5% .
If we eschew any grace period, and the complications of graduated
semester-adjusted interest rates, it should be POSSIBLE for Nigeria to
negotiate a FIXED reduced interest rate of between 3% - 4%.
Having obtained a 3-4% reduced interest rate, our $12-15 billion INVESTED by
ourselves - at 6% ? 10% ? 15% ? 20% ? - rate of return over anywhere from a
10- to 20-year period should then be able to pay up on interest and some
principal if and when due.
The important thing here is that at the end of our payment period, we still
have our $12 billion back plus some, rather than having emitted it several
years back. Besides, we will be paying up our loans from this set-aside
money, not from the traditional budget pool the amount of which debt service
payment we keep comparing with what we spend on education, health,
In closing out this section, we must note here that NONE of the five
standard Naples options (DR, DSR, CMI, "commercial options" or debt swaps)
outlined under "Description" in
talks of "payment of arrears" and/or emission of large sums to qualify. Of
all the 44 countries that have been treated (10 treated) or are being
treated (34 active) on the Naples terms, not one has had to pay arrears or
emit - at least that has not been stated anywhere.
List of the countries that have benefited from Naples terms
Therefore, these conditions must have been either at the suggestion of
Nigeria (which Paris Club jumped at) or were an "extortionary" condition of
that cartel who were eyeing our "exceptional revenues" for themselves.
As to the Clinton "nation-as-family" doctrine of finance, if we must push
that anthromorphy, then we might as well push it to the limit., For example,
I can only quote a short piece of what I read in the Guardian today, viz:
.....Responding to the fact that Nigeria is paying $12 billion to the Paris
Club, Onyekpere queried whether this is the best thing that Nigeria could do
with her resources.
His words: "Nigeria is behaving like a father or guardian who starves his
children. When they are sick, they don't get correct medical attention, they
are sent out from school because they can't pay the fees, but at the end of
the year, the father calls his wife and the children and say, lets
celebrate, we have saved so much these years. How do you think the children
would react? Is it not with annoyance?"
"We have been piling up this money while neglecting our roads, schools,
electricity. So this piled-up money make our creditors to believe that we
have so much money, therefore the negotiation is wrong," he said.
It is this artificial "exception revenues" that both Nigeria and the Paris
Club are salivating about.
Besides, on this debt issue, my mortgage company, car note company, Sears
charge, credit card holders don't GANG up on me in a cartel (like the Paris
Club) and decide AMONG themselves how to divvy up what I am prepared to pay.
Rather, if I suddenly had a large amount of cash in my hands, I would tally
up my debts based on three things:
1. how much I owe each creditor (I''ll group-rank from lowest to highest);
2. how much interest rate I am paying to each creditor (I'll group-rank from
highest to lowest);
3. how much I detest each creditor, either because he bothers me too much to
pay up, or is always trying some tricks to add on to my debt, or I got the
loan from him at a time when I was desperate even though I don't like him a
bit etc. (I'll group-rank from most disliked to least disliked or from least
tolerant to least tolerant)
I would be prepared to pay down some or ALL of my debt depending on the
group ranking (the higher the rank, the more likely I will pay), negotiate
with some of them for interest reduction in exchange for some lump payments,
but not necessarily pay off ALL of my debt even if I had the money to since
I may turn around to get loans again from some of these same people - for
college for kids, a business venture that I had always wanted to start, etc.
Paris Club DOES not allow for such disaggregation between their members,
otherwise, Nigeria could have paid off HALF of the 15 countries that we owe
money to, so that we can be beholden to FEWER countries.
So even if I have ENOUGH money to PAY OFF ALL OF MY DEBT, nothing says that
I should pay them right off right away.
2007 and Uncertainty of Succession
What I quoted above (by Onyekpere) is part of a larger write-up, more of
which I now quote:
Sunday, August 28, 2005
A debt reprieve without relief
By Bukky Olajide
FINANCIAL experts, after a deeper look at the recent debt relief offer from
the Paris Club of Creditors concurred that a raw deal has manifestly been
negotiated for the country.
The experts, in separate chats with The Guardian, explained that depletion
of the country's resources by $12 billion has little relationship with
prudent economic management, based on the situational factors on the ground.
....Adedipe said that "the way the Paris Club structured it is that they see
us realising a lot of revenues from the sales of crude oil far in excess of
what is budgeted for."
Historically, he said, "we have been spending everything until recently when
instead of spending the excess, we made it accrued to build a reserve
coupled with an account dedicated to the excess revenue."
He said: "Therefore, looking at those things, Nigeria suddenly finds itself
having about $30 billion between reserve and excess revenue. And so it
became quite attractive to our creditors that if you have this much, why
don't we take advantage of that now, make an offer to you. Why don't you pay
$12 billion now and then we can write off the remaining $18 billion. That
looks sensible. It will appear as a good offer from Paris Club," he said.
Subjecting it to analysis, Adedipe said that $12 billion invested now with a
minimum of five per cent interest per annum in 18 years will bring $28
"So that means that if I invest now what I would get as return would be
almost double, equal to what I am supposed to be asking of as debt. So we
can actually look at that $12 billion as the future value of what Nigeria is
owing now," he said.
Disproving some peoples' opinion that Nigeria will no longer need to service
again, therefore we will be able to save $1 billion every year, Adedipe said
that one can't save what he has not earned.
He said: "When you talk of savings, savings come from your previous earning
in which case, you saved from earnings, therefore saving is generated out of
purpose that comes from the past. You can't save based on what is coming in
"So, proposing that Nigeria is going to save this much over that period does
not make economic sense in any way. In fact, it's a financial aberration to
talk of savings that you claimed to have made when you have not formally
repudiated the loan," he said.
Going further, the research economist said that, of course, these
multilateral agencies connected their claim with the political side.
To them, 2007 is coming and who knows the kind of a person that assumes
presidency will be, what will be the kind of fiscal discipline the person
will have, would he still behave like the current government that saved.
Perhaps, they think it is better for them now that Nigeria has much money to
take their own money and get out of this relationship.
It is this simplistic reasoning - lack of confidence in succession after
2007 - that is really the bottom line to the administration's argument, even
if it will not be publicly admitted.
Finally, although many of them are keeping quiet now, I can predict that if
and when we emit the $12 billion, Nigeria, Nigerians and the world will be
INUNDATED by econometric analyses FROM THESE SAME Paris Club PEOPLE who are
asking for our money now. They would then be telling us what THEY would have
done DIFFERENTLY if they were in our shoes. Then they would make us look
like fools all over again.