Debt Relief, Outdated Ideology And Common Sense

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Debt Relief, Outdated Ideology and Common Sense

 

By

 

Ngozi Okonjo-Iweala

 

 

 

culled from ThisDay, July 19, 2005

 

 

It is rarely my style to respond to articles or opinion pieces except where they deliberately misinform and mislead the public as Mr. Simon Kolawole's two articles on the recent debt relief do.  It is clear that Simon Kolawole is not in possession of the facts on how the Paris Club debt works otherwise he would not have made some of the misguided arguments he put forward in those two articles.  His lengthy pieces are full of factual errors and errors of logic garnished with populist 1960's ideology much of which is pass√©.  Quite frankly, some of his arguments defy common sense.


Let me just take two of the key points he made.  First, he argues that Nigeria should just refuse to pay its debt obligations as nothing will happen.  And he cites the Abacha years when we refused to pay as an example when nothing happened.  Well, it is amazing to hear that the country‚??s accumulation of over $5 billion in interest and punitive penalties which have partly accounted for our debt ballooning to what it is today is regarded by Mr. Kolawole as nothing happening.  


It is important to clarify that the Paris Club debt is sovereign debt owed to other countries.  It is quite different from the type of private sector or commercial bank debt owed by countries like Argentina where there is much more room to practice the type of debt repudiation tactics suggested by Mr. Kolawole.  In the case of Paris Club sovereign debt when a debtor country refuses to pay, the creditor countries just sit tight and calculate the interest, penalties, and interest on penalties contained in the credit agreement signed by the hapless debtor.  This continues for as long as the country refuses to pay until the original debt balloons sometimes beyond recognition.  Unlike the private sector, commercial or investment banks of creditor countries, are not interested in coming to the negotiating table to settle bad debts, neither will they take the debt off their books.  They wait and let it pile up comfortable in the knowledge that the debtor country's image in international financial circles will be increasingly damaged and the country's private sector will find it increasingly difficult to do business overseas.


What I have just described is exactly what happened to Nigeria when we refused to pay before and during the Abacha years.  The debt ballooned, and the problem did not go away.  Instead, the problem worsened.  It was this bad situation that President Obasanjo inherited when he took office in May 1999.  And he decided to do something about it!  The President, myself, and members of the Economic Team have had to work very hard to restore confidence in the country within international financial circles, and then persuade our creditors to come to the negotiating table. 


So, the bottom line is that the country has already tried what Mr. Kolawole suggested and it didn't work.  It defies logic and commonsense to refuse to learn from past mistakes and for someone to actually recommend that we repeat these mistakes.  The tragedy of this country is that it has people like Mr. Kolawole who keep trying to lead the country down the same bad old path that it has already trodden.  But the triumph of this country is that it now has discerning leadership and followership that will not let this happen. 


Now, to a second point made by Mr. Kolawole which is that we should not get rid of all of our debt by paying off the remainder after the debt reduction but we should negotiate our debt down to $15 billion or thereabouts, continue to remain indebted, and continue to pay for many more years to come.  Well, congratulations to Mr. Kolawole.  What he is advocating is exactly what our creditors want.  They are very happy for us not to pay off the remainder, but to reschedule it over 18 years at a market rate of interest.  This is what they typically do with countries in Nigeria's category that get debt relief.  They do not allow them to pay off the balance of the debt not forgiven, but they must reschedule it.  That way, the creditors continue to collect payments and have an assured stream of income from this rescheduled debt for many years.  Anyone who has dealt with creditors or money lenders know that they are not interested in letting a debtor go free but would rather keep him or her in debt and keep collecting as much as they can for as long as they can.  Mr. Kolawole's insistence on this point that we must reschedule our debt and remain indebted to the Paris Club for another 23 years is rather surprising to me because it differs radically from the sentiments of the overwhelming majority of Nigerians.  By their letters, phone calls, emails, and other means Nigerians have made their opinion known to us that they want to be free of this Paris Club debt.  Mr. Kolawole does a very good job of making the creditors' case that we remain indebted.  This does make one wonder.


Let me say that Nigeria got an unprecedented breakthrough in getting an agreement from the Paris Club to pay off the rest of its debt and exit.  We did some technical and analytical work to show that the extreme volatility of oil prices being experienced in the world these days could expose Nigeria to extreme uncertainty in the future regarding debt payment and this would be unfair.  Several of our G-8 creditors especially the U.K., and our partners in the international financial institutions, bought this argument and championed our cause before the others enabling us to get this concession.  We must not squander this opportunity.  We must not allow our attention to be diverted from our objective by spurious arguments, but must seize this opportunity and get ourselves free.  It is clear to me that while many Nigerians did not believe that we would ever get debt relief, deep inside them most Nigerians prayed and wished fervently that God would look favourably on us in this matter.  And God has done so and Nigerians are joyful.  But a tiny minority are not happy because neither did they believe we would get debt relief nor did they really want us to.  Debt relief took them by surprise and they are bereft and confused.  So they have taken to calling it a Big Lie, or to propagating opinions implying relief has no benefits and we should therefore strive to remain in bondage. 
Let me note at this point that no amount of opinion pieces will change facts.  The fact is that we have got debt relief to the tune of about $18 billion.  In addition, Nigeria has been given an unprecedented chance to rid itself of the remainder of its Paris Club debt.  Whether this tiny minority likes it or not, Nigeria will make use of this chance!  The wishes of the majority to solve this long lasting problem must be respected.


Finally, let me say on a personal note that many comments made by Mr. Kolawole in his two articles go beyond the bounds of decency.  Mr. Kolawole stated, for example, that there is a rush to conclude the debt deal because commissions will be made in excess of $300 million by those who will handle the debt buy back.  First, who are these people who will handle the buy-back?  Would Mr. Kolawole care to name them?  Mr. Kolawole must know far more than the Paris Club, Mr. President, myself, the DMO and others working on this because we do not know what and whom he is talking about.  The statement is libelous, disrespectful and in extremely poor taste.  I leave Nigerians to judge whether Mr. President and myself are rushing to conclude a deal for Nigeria so that someone can make money. The mere fact that Mr. Kolawole could make such a statement shows the quality of man he is and the quality of intellect he has.  It is extremely disappointing that Mr. Kolawole and other cynics like him misuse the wonderful freedom of expression we have in this country to misinform, miseducate and mislead others.  Their writing is largely devoid of facts and based on outdated ideology, emotion and sentiment.  But Nigeria will survive them too!


Dr. Ngozi Okonjo-Iweala is the Finance Minister

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