The PUNCH, Wednesday, April, 27, 2005
Wednesday, April 27 2005

Foreign creditors panic over Nigeria's next move

International financial markets were jittery on Monday as creditors and analysts awaited a possible repudiation by Nigeria of her $34.5billion external debt.

Tension was heightened after a five-man delegation from the National Assembly arrived in London, at the start of a four-nation tour to seek for debt forgiveness for Nigeria.

Tough comments by the House of Representatives' Finance Committee Chairman, Alhaji Farouk Lawan, immediately sent the British pound sterling into retreat against the US dollar, as it fell from £1 to $1.91, to $1.9050 before steadying slightly.

According to The Guardian of London of April 26, creditors and Western nations feared that like Argentina, Nigeria could repudiate her debts.

The Nigerian delegation issued a warning that Nigeria could certainly default, except Western creditor-nations helped out to enable the country's ongoing reforms take firm root.

Other members of the delegation include Senate Chief Whip, Senator Udoma Udoma; the Chairman, Senate Committee on Local and External Debts, Senator Patrick Osakwe; and the Chairman, House Committee on Loans, Aid and Debt, Alhaji Sanusi Sadiq.

With them on the trip is the Director-General of the Debt Management Office, Dr. Monsur Muhtar.

The team will also visit Washington, Rome and Berlin.

Lawan said, "It is unconscionable that Nigeria has paid £3.5billion in debt service over the past two years, but our debt burden has risen by £3.9billion – without any new borrowing. We cannot continue. We must repudiate this debt."

Lawan had moved a resolution in the House last month, calling on the government of President Olusegun Obasanjo to repudiate the debt and said the National Assembly might trigger a crisis by refusing to approve funds to pay creditors.

"We are getting close to saying that we won't pay," he said.

Britain is Nigeria's largest creditor with 21 per cent of its debt, and the Chancellor of the Exchequer, Mr. Gordon Brown, has been backing an initiative to use Nigeria's windfall from higher oil prices to pay the creditors a fraction of what they are owed.

Treasury sources in the United Kingdom said that no figures were at present on the table, although the starting point for negotiation has been a paper from a Washington think-tank suggesting that Nigeria should pay 30 cents for every dollar owed.

That would mean Nigeria paying around $9billion from its current $17billion reserves.

The UK believes a strong Nigeria is vital for growth in the whole of West Africa, and has been seeking to broker a deal.

Other creditors have questioned whether Nigeria has really overcome the corruption that has bedevilled the country for decades and have expressed concerns about the lack of an International Monetary Fund economic reform programme.

Udoma sought to sell the idea of forgiving some of Nigeria's debts.

He said, "The best immigration policy is to invest in poor countries. As the Nigerians say, `If your neighbour is hungry, your chickens are not safe'."

He added that the creditors would benefit in the long run because the country would grow more quickly and increase imports of western goods and technical expertise.

"The debt is keeping us down. We are spending three or four times as much on debt service as we are on education and 15 times as much as we are spending on health. Time is running out. The level of frustration is very high," he said.

The group said Nigeria's plight was far worse than that of Argentina, which this year presented its creditors with a take it or leave it offer to pay 30 cents for each dollar owed.

Lawan said 79,000 children under five were dying every month through a lack of healthcare, clean water, food and shelter.

Todd Moss, of the Center for Global Development in Washington, which came up with the proposals for the debt write-down, said the creditors should accept an offer.

"In 2005 Nigeria has an unusual amount of cash on hand and an opportunity finally to resolve its problem.

The creditors also have solid political, strategic and humanitarian reasons to cut a deal. Missing this opportunity will not only lose creditors their best chance to collect this debt but could also threaten the economic and democratic reforms in one of Africa's largest and most pivotal countries."

"The UK holds 21 per cent of total Nigerian foreign debt, suggesting that sterling will suffer most on the likely debt default," said Hans Redeker, global head of foreign exchange strategy at BNP Paribas.

The pound dropped from above $1.91 towards the $1,9050 mark, before steadying slightly.

The euro was also changing hands at $1.2983 against 1,3002 late on Monday in New York, 137.43 yen (137.38), 0.6810 pounds (0.6794) and 1.5438 Swiss francs (1.5435).

"We cannot continue. We must repudiate this debt," Lawan reportedly said during a visit to London on Monday.