New debt-free start
Ann Pettifor tells the inside story of how Nigeria convinced the world it was a good bet for debt relief.
It was 8 pm on the 17th May, 1999, just two weeks before President Obasanjo was to be inaugurated – Nigeria’s first democratically elected president in 16 years. I was waiting nervously for a meeting with the President-elect. The venue was a poorly-lit living room in a modest house in Abuja, the capital city at the very heart of Nigeria. Charles Aniogolu, a distinguished Nigerian journalist had steered me on the journey from London to Abuja via the vibrant city of Lagos – where laissez faire prevails over every aspect of economic and social life.
We had come to explain that Jubilee 2000 was determined to support the call for debt cancellation for Nigeria. However, we needed reassurance from the new President that money from debt relief would be used well; and that corruption would be challenged. To our delight, he agreed to a meeting.
The room that night was quiet. There were three or four other guests sitting respectfully on sofas decorated with white embroidered lace. The clock on the wall ticked audibly.
Suddenly the silence was shattered by raised voices. Six men entered the room and fanned out around the walls. Charles signalled to me to stay calm. Then more voices, and a film crew entered, and began setting up directly in front of me. I became uneasy. What was going on?
Soon the man himself swept into the room, impressive in his elegant Nigerian ‘Agbada’ a traditional outfit made up of yards of flowing cotton fabric. On his head perched a colourful, floppy Yoruba cap. He sat next to me, oblivious of my presence. Instead he looked straight into the camera and said: “Rumours of my death are greatly exaggerated. I am fit and well. Will you please all go home”.
Word had circulated that day in Lagos that the President-elect had been assassinated. Five people had already been killed in riots. Obasanjo had experienced political assassination first-hand, when, as Deputy-President, his leader, President Murtala Mohammed was killed in the streets of Lagos in 1975. Nearly 25 years later President Obasanjo needed to deny rumours of a similar crisis, and calm things down. It was a sobering introduction to the risks facing any Nigerian president.
The film crew wrapped up; the soldiers shuffled out, and he turned to me. “Well young lady, what can I do for you?”
Thus began a long collaboration with the one African president that was prepared to nail his flag to the mast of debt cancellation. Not just for Nigeria, but for Africa as a whole.
President Obasanjo was confronted by a mountain of debt on his election to the Presidency. Back in 1979, he had overseen the transfer of power to a civilian government with President Shagari at its helm, and had then retired to his farm. President Shagari’s election coincided with the liberalisation of capital flows worldwide, and with an oil boom. The new governments of Mrs Thatcher and Ronald Reagan guaranteed large loans to a series of Nigerian governments. However much of this was, at best, mismanaged, at worst, corruptly diverted – often to banks in the US and Europe. Soon Nigeria fell victim to a series of military takeovers. Between 1992 and 1998, Nigeria’s dictators simply stopped debt service payments to the Paris Club of creditors. As a result interest on the debt was compounded and massive penalties added.
In 2000 President Obasanjo pressed Nigeria’s creditors hard, and succeeded in securing an invitation to the Paris Club. But creditors were only willing to offer a re-scheduling of the debt, not a write-off. By then, interest and penalties constituted nearly $10 billion of the $24 billion rescheduled. Still the re-scheduled debt continued to grow – not because Nigeria continued to borrow, but because of foreign exchange movements. As a result, for the five years before 2005, the debt stock rose by $5 billion due to currency changes alone.
Nigeria’s average debt service due to the Paris Club each year was $2.4 billion. But as the government prioritised spending on vital services, it could only afford to pay on average $1.2 billion. Arrears kept rising with penalties added.
In the absence of any framework of justice for the resolution of international debt crises, the Nigerian government could only rely on the goodwill of powerful creditors. If Nigeria had been a company, then the law of bankruptcy would have ensured a “fresh start” by relieving Nigeria of most debts, and by repaying creditors only to the extent that resources were available for repayment. Sadly, there is no such framework for debtor nations.
By his second term in 2003, President Obasanjo had resolved to deepen economic reform within Nigeria, by further challenging corruption and stabilising the economy. He appointed the formidable Finance Minister, Mrs Ngozi Okonjo-Iweala, to carry out these reforms. Mrs Okonjo-Iweala has a distinguished academic background (Harvard and MIT) and is a former Vice-President of the World Bank. Dr Mansur Muhtar, another Harvard graduate, was appointed Director General of the Debt Management Office, and Mrs Obi Ezekwizili was put in charge of formalising procedures for government contracts. Dr Nuhu Ribadu was made chairman of the Economic and Financial Crimes Commission – the body responsible for going after crooks.
Dr Muhtar and his team at the Debt Management Office undertook the Olympian task of pulling together the records and data of outstanding Nigerian debt, and reconciling these with creditor demands. Domestic law was changed to ensure that Nigeria’s 36 states contributed to the repayment of debts they had incurred and to discourage further borrowing.
Working in tandem, President Obasanjo and his finance minister, backed by Dr Muhtar, then began a sustained campaign to persuade creditors to write off Nigeria’s debts. By this time the debt had become a major political issue inside Nigeria.
There were several major obstacles. First, Nigeria did not have an IMF programme, nor was one politically possible – debt cancellation had only ever been granted to countries with sustained IMF programmes. Second, Nigeria had not been granted IDA status by the management of the World Bank – and was not eligible for concessional debt relief. Furthermore, some creditors regarded Nigeria as ‘oil-rich’ and argued the debt was affordable, especially after the rise in the oil price. In reality, Nigeria’s oil revenues amount to only 50 cents for each of the country’s 135 million people per day. Finally Nigeria suffered from what's known as “reputational overhang” as a result of high levels of corruption. There was very little public support in OECD countries for debt cancellation.
Early on, President Obasanjo won the backing of the British government, with Gordon Brown promising to use the opportunity of the G8 finance ministers’ meetings to promote debt relief to other creditors. But other leaders had to be persuaded. And so the President embarked on an exhausting round of formal visits to meet heads of government in Japan, France, Germany and the newly-elected President Bush of the US. In the meantime Mrs Okonjo Iweala was likewise holding a series of meetings, not least with influential women: Ms Anne Krueger – deputy managing director of the IMF; Condoleeza Rice, then National Security Adviser to President Bush; and Nancy Birdsall, director of the Center for Global Development in Washington. Pretty soon the US had put its weight behind debt relief for Nigeria.
Nevertheless the Nigerian government recognised that, because of its “reputational overhang” many more still had to be won over – not least public opinion in OECD countries. I was pleased to be asked to help as a consultant in providing platforms in these countries for Nigerians to put their case to key audiences.
Mrs Okonjo-Iweala and Dr Muhtar embarked on endless meetings and flights to capitals across the globe – meeting with finance ministry officials, checking and reconciling data and briefing officials on Nigeria’s economic reforms. At the same time they worked closely with the World Bank and IMF to produce a report on the sustainability of Nigeria’s debt – vital in the final stages of this complex geo-political exercise.
Back home in Abuja the National Assembly grew restless and called for debt repudiation. Because the constitution rules out a third term for the President, it therefore became increasingly urgent to resolve the whole complex issue quickly, well ahead of the next Presidential election campaign. It was particularly important to demonstrate that a democratic government could achieve debt relief for the people of Nigeria. A military government might have taken the route of default.
After the National Assembly voted to repudiate the debt, Senators advised caution, and recommended instead that a delegation of legislators meet directly with creditors and press the case for orderly debt cancellation.
Two representatives from the Senate and two from the National Assembly travelled to put the case for Nigeria to officials, politicians, civil society and the media in the US, UK, France, Germany, Italy and Japan.
Before long, this hard graft and exhausting travel generated support from all the G8 finance ministries. However, just before finance ministers were to meet in London in June, 2005, non-G8 creditors began to object. What right had the G8 to settle these matters outside of the consensual framework of the Paris Club? The Nigerian debt ship began to list dangerously in the high seas of creditor disputes. Dr Muhtar once again flew to the US and then Europe; travelling from Vienna to the Hague, Madrid, Copenhagen and Oslo – reassuring officials here, persuading others there.
Finally the great day dawned on 11th June, 2005, with the announcement by the UK’s Chancellor, Gordon Brown, that G8 finance ministers had agreed a massive, and unprecedented debt deal for Nigeria.
Nigeria was to be asked to pay back arrears of $6.4 billion. Creditors then agreed to write off $18 billion. In addition, and exceptionally, creditors agreed to allow Nigeria to buy back the balance at a discount. This discounted buy-back is an opportunity denied to Russia and other debtors and means that by April, 2006, Nigeria will have cleared $30 billion of debt owed to foreign creditors. The deal will save Nigeria almost $47 billion over the next 15 years.
The Paris Club negotiation, while remarkable in many respects, was to prove controversial. Non-G8 creditors thought the deal too generous, and believed that Nigeria was fully capable of servicing her debts in full. Months after the June announcement, Nigeria attended the formal negotiating meeting of the Paris Club only to find that a number of creditors were digging in their heels. Negotiations dragged out for a full 48 hours, while some creditors, angry at the overall deal, tried to extract even more in payments from Nigeria.
On the other hand, back home in Nigeria, and in NGO circles, many thought the deal far from generous. It was argued that a country as poor as Nigeria should not have to make such large repayments upfront. Britain – largely responsible for making the deal happen – found itself the surprising target of NGO criticism, because the multilateral Paris Club deal resulted in Nigeria paying $1.7 billion (in arrears) to the UK.
Many were unaware of the huge obstacles Nigeria had overcome to get this far. Few understood that creditors had been deeply reluctant to rally behind the British government. Only the agreement to pay back arrears, and to use windfall oil revenues to buy-back the balance had persuaded the most recalcitrant creditors to come to the table. Without a multilateral deal, Nigeria would only have had piecemeal debt relief.
Nigeria’s free press, and its vociferous National Assembly scrutinised the deal carefully and debated its merits vigorously. Ultimately, they supported their battle-weary President who, six years after that fateful meeting in Abuja, had successfully steered his country through the complex geo-politics of the post 9/11 world, to witness the achievement of one of his most treasured goals: the clearing of $30 billion of debt, and Nigeria’s exit from the Paris Club of creditors.
The President’s achievement will be a lasting legacy to his people. However, while the struggle for debt relief has been hard, the toughest road lies ahead. The savings from debt repayments must now be used to lift millions of Nigerians out of poverty. Only then will Nigerians appreciate the scale of their President’s achievement.