2 DEBT SERVICING PROFILE AND ILLUSION OF GLOBALIZATION Globalization is at best an illusion in view of the high indebtedness of the countries of the South. The debt-servicing scheme has virtually created a perpetual debtor in the less developed countries, and has dehydrated the national economy and stultified growth, which erodes the much-taunted gains of globalizations. Using Nigeria as example, as Garba (2005:156) opines, it is no news that the servicing of the nation’s external debt had severely encroached on resources available for investment, growth, socio-economic development and poverty alleviation. And although since 1986, the nation had taken a decision to limit debt service to not more than 30 per cent of oil receipts, it has not brought much relief as external debt overhang, adversely affecting the inflow of foreign capital investment. The picture created by this debt service regime is that any attempt to underestimate the crucial linkage between debt, growth, development and poverty reduction will create a distorted view of globalization and its side effects. One of these is the unenviable role of the lowest rate possible. Typically, as noted by Akin Arikawe (2003:21), such a conflict of interest causes excess volatility in interest rates, as the Central Bank of Nigeria (CBN) swings back and forth between holding down interest rates in order to borrow money as inexpensively as possible and raising interest rates in order to control inflation and defend the exchange rate of the naira. From a paltry debt stock of $ 1 billion in 1971, Nigeria had towards the end of 2005 incurred close to $40 billion debt with over $30 billion of the amount owed to the Paris Club (an informal group of official creditors who find co-ordinated and sustainable solutions to the payment difficulties experienced by debtor nations) alone. Although, Nigeria’s debt was more than the total of those of the 18 other poor countries (14 of them African countries) classified as Heavily Indebted Poor Countries (HIPCs), it had been a Herculean task convincing the creditors that debt cancellation was the most desirable option. As noted by Onimode (2003:15), prior to Nigeria’s $18 billion debt cancellation deal, these eighteen other poor countries i.e. Benin Republic, Bolivia, Burkina-Faso, Ethiopia, Ghana, Guyana, Honduras, Madagascar, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, Senegal, Tanzania, Uganda and Zambia had secured a 100 percent debt cancellation totaling $40 billion. The Nigerian President, Olusegun Obasanjo had waged a six-year war on debt cancellation wherein he hired Nigerian-born former World Bank official Ngozi Okonjo- Iweala as Finance Minister to prosecute the war. In their bid, they joined several other anti-poverty campaigners to argue that by so doing, the Group of 8 (G8) countries will be stopping 30,000 children from dying each day of hunger, lack of clean water and diseases (Christian Science Monitor as cited in Time magazine (2005:38)) . The argument is that the poor countries of the world pay over $100 million dollars everyday as interest alone on loans which kept pilling. Before the debt cancellation deal, Nigeria was to pay a whopping $2.3 billion every year on debt servicing. This amounted to $32 billion between 1985 and 2001 alone. At the Gleneagles meeting, Britain’s campaign that something must be done about the debt burden worked. World leaders saw reason, but tied debt forgiveness to good governance. President Bush for instance canvassed a partnership with Africa that is different from a relationship of “check-writer”. As he said, (cited in Time magazine (2005:39)) “We have got obligations and so do people we are trying to help”. According to the Centre for Global Development (CGD), Nigeria’s actual borrowing in the 1970s was $2.1 billion. The monumental debt build up was substantially due to highly controversial interest rates regime and penalties for not meeting attendant obligations. After intense negotiation, Nigeria was classified into the 60% debt forgiveness zone. The creditor nations felt Nigeria was not in the 100% zone of countries rated as extremely poor. Nigeria’s rich potentialities in natural resources and the oil deposit accounted for this feeling. Mrs. Okonjo-Iweala collaborated with her former World Bank colleagues now working with the Centre for Global Development (especially Nancy Bedsol and Todd Morse) to ensure that Nigeria was able to borrow from both the concessional arm of the Paris Club – the International Development Association (IDA) rather than the Commercial arm – the IBRD. With the reclassification as an IDA – only – country, the proposal for 67% reduction was tabled. Nigeria’s perception as having worked hard in the last few years to enthrone sustainable economic development was then used to secure the debt relief. The debt relief was simply put: pay $12 billion to buy back $18 billion and exit Paris Club. The details as provided by the Nigerian Finance Minister included the idea that paying back $18 billion for the next 23 years would no longer be required. Also, the $1 billion allocated to debt servicing annually can now be plough back to developing critical sector of the economy. Noteworthy, paying the $30 billion over a period of 23 years would have amounted to paying a total sum of $50 billion in the final analysis. Whichever of the options taken, Nigeria would still have to pay about $5 billion owed another group of creditors the London Club (an informal group of private creditors that reschedules commercial debt). According to the Punch Newspaper (2005:16): The $18 billion debt cancellation for Nigeria is good but is less good than it should be. The creditors are nasty and stingy. To extract $12 billion immediately from a country with an annual budget of $3 - $4 billion is callous. Why would they be demanding so much from a country where children are dying, millions are not in school and hunger and disease pervade? This testament of dubious debt relief or cancellation package espoused by Professor Jeffrey D. Sachs, Professor of Economics and Director of the Earth Institute at Colombia University captures the perfidious attempt of the Paris Club and other Bretton Wood institutions to ensure the retrenchment of the Nigerian economy – an economy assessed to be of great potentialities but approached with debilitating economic policies surreptitiously packaged as contributions to getting a reprieve. The history of Nigeria mounting debt profile can hardly exonerate its decades of misrule and the continued recklessness of its leadership. As can be gleaned from the table below, Nigeria debt stock in 1971 was $1 billion. By 1991, it has risen to $33.4 billion, and rather than decrease, it has been on the increase, particularly with the insurmountable regime of debt servicing and the insatiable desire of political leaders to obtain frivolous loans for the execution of dubious projects. Year Total Debt stock USD $Billion According to The Journal of Pan African Studies (2006), below is the Debt stock of Nigeria. 1971-1.0 1972 -1.0 1973 -1.7 1974 -1.8 1975 - 1.7 1976 -1.3 1977- 3.2 1978- 5.1 1979- 6.2 1980- 8.9 1981- 11.4 1982- 12.0 1983- 17.6 1984 -17.8 1985 -18.6 1986 -22.2 1987- 29.0 1988- 29.6 1989- 30.1 1990- 33.4 1991- 35.5 1992- 29.0 1993 -30.7 1994 -33.1 1995 -34.0 1996 -31.4 1997- 28.4 1998 -Not Available 1999 -28.7 2000 -31.935 2001 -Not Available 2002- Not Available 2003- 32.916 2004 - (June) More than 34.0 2005 - (December) More than 35.0 The Paris Club debt cancellation deal of 2005 was to the effect that poverty stricken Nigeria would cough out $12 billion to buy its exit from a $30 billion debt trap. It can be deduced, and rightly too that the creditor nations have come to realize that the debt profile of close to $40 billion had become not only unmanageable but unpayable despite Nigeria’s rich economic potentials. It was therefore logical to write-off a significant part contingent upon instant payment of the balance – a whopping $12 billion. It was also evident that with the meager annual budgetary allocation of $1 billion to debt servicing, Nigeria would probably remain in the high debt profile zone forever and the interest rate regime would compound the crisis to an unmanageable proportion. The journal of Pan African Studies (2006) further espoused It would be recalled that shortly before the $18 billion cancellation deal, members of the Nigerian National Assembly had voted to advise the executive arm of government to discontinue payment or servicing of the debt. Although, this would have carried severe penalty, the Paris Club sensing the danger ahead, and knowing fully well that the entire debt portfolio is nothing but the interests that have accrued over the years took the most sensible path for recovering the money. After the $18 billion debt cancellation, Nigeria may soon return back to the group of highly indebted countries for some reasons as given by Punch Newspaper (2005:16): (1) the political leaders are unable to resist the temptation not to borrow because of pecuniary interests, and some of the money borrowed never fully go into executing the projects for which they were meant; (2) there is no serious legal instrument to regulate external debt accumulation, and where one exists, its currently being canvassed (it has always been very easy to circumvent it and borrow; (3) the seeming magnanimity of the Paris Club and her Western allies constitute a half way measure. For instance, how can we understand partial debt cancellation that is not matched with unfettered access of African economy and its products to Western markets? Instead, what we have is restricted and guided access coupled with inconsequential aid regime; (4) the aid regime has remained inconsequential, and adduced that the rich world has given Africa around $1 trillion over the past four decades. If this is significant, why has Africa remained poorer? Many have argued and partly right too, that Africa’s woes can be dumped at the doorstep of misrule and corrupt leadership. But the corrupt leadership loot is kept in Western banks. It is equally true that what has come to Africa in terms of aid is less than required. This explains the Tony Blair’s crusade at the last G8 summit where he canvassed for heavy debt pardon and other concessions. What Africa deserves is a “big bang” injection of aid and better trade conditions. Africa needs a platform or avenue to sell its grains, fruits and vegetables to the rest of the world. As Time magazine observes (quoted from Punch Newspaper (2005:16)), Forgiving debt without opening up markets would be like sponsoring a sports team and then asking the players to take the field, with their hands tied behind their backs.
Posted on: Tue, 16 Jul 2013 22:16:31 +0000
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