External debt is more political than economic

Kayode Komolafe
This Day (Lagos)
March 16, 2005

It would be useful if the government’s campaign for the cancellation of the nation’s foreign debt could generate a productive debate at home. Such a debate will channel to the external creditors the depth of feelings of the people about the debt burden. It will also draw attention to government’s responsibility in the matter and how Nigeria could extricate itself from the debt trap.

However, an important aspect of the debt issue should be emphasised to illuminate the discussion: the debt issue is more political than it is economic. The external debt of a nation is not just about book-keeping. Far from being a mere technical economic problem, it is a central issue of the political economy. Contrary to the position that the matter is just an accounting problem, debt ought to be seen as one of the issues that define the relationship of Nigeria with the creditor-nations within the context of the world economy. 

What is the proof of this claim? When it becomes unbearably crushing, the debt crisis can engender a political crisis in the debtor nation. President Olusegun Obasanjo made reference to this recently when he said that creditor nations should not wait for governments to fall before hearkening to the prayers for debt relief. More significantly, debt is a political instrument in the hands of the imperialist creditor nations. It is an open secret that external lending is used in the foreign policies of the creditor-nations. The creditor-nations also use the International Monetary Fund and World Bank to exert political pressures on the debtor. The creditors are organised into collectives ?Paris Club and London Club. This enables the creditors to engage the debtors in collective bargaining. But the debtors are expected to go before the creditors to bargain like sheep being led into the slaughter’s slab.

What is the foregoing if not politics? So let no one equate the debt of a nation with the debt owed by an individual or a corporate citizen to a bank. The challenge before Nigeria and other poor countries in Africa, Asia and Latin America is not how to be smart in the uncertain terrain of economics of debt but how to play the politics of debt effectively. That is why the government of debtor countries should mobilise the different social classes in their respective nations behind them in the campaign for debt forgiveness.

Besides, the standard argument against debt forgiveness is untenable. They say it would affect the credit-worthiness of the debtor-nation adversely while having the potential of rupturing the international financial system. They also point to the irresponsibility of the governments that incur these debts.

But when the tsunami happened in Asia on Boxing Day last year in Asia, debt forgiveness became a veritable instrument of foreign policy. Compassion superceded technical economic calculations. So, the affected countries were offered debt forgiveness in the light of the distress they found themselves. Now, that was not an economic decision. It is a laudable foreign policy informed by clear socio-political considerations. That was the point that the Finance Minister, Dr. Ngozi Okonjo-Iweala, was making on CNN the other day when she said creditors should not wait for a tsunami to happen before appreciating the excruciating pains of external debt. She also argued that cumulatively, that consequences of diseases, ignorance and hunger are also destructive in the lives of the people of debtor-nations.

Furthermore, this lack of appreciation of the many dimensions of the problem is sharply brought into focus by the reactions to a recent clarification made on the issue by the finance minister. In a piece published on this page on February 28, Okonjo-Iweala sought to place on the table some “facts” to inform the debt debate. She concluded as follows :

“The road is hard and long but together, these efforts would assist in wealth creation and poverty reduction for Nigerians. No one can guarantee that we’ll get debt relief. We might make all the efforts and still not get it. But there is no reason why we shouldn’t try our very best to qualify and then leave the rest in God’s hands!

“The developed countries say they want to assist African countries more this year in going forward. The UK, in particular, has said that the focus of its chairmanship of the G-8 and the EU this year will be Africa. They have produced the Commission for Africa report indicating specific ways they want to assist African countries, including through granting debt relief.

“Since we are already working hard to improve our economy for the benefit of our people through NEEDS, we should not be shy to leverage our efforts into asking for consideration for debt relief. Not trying at all would be a disservice to our people.”

There is a lot to compel a re-think about the debt debacle from the minister’s explanation. Unfortunately, the reactions to her explanation have been a mixture of skepticism and cynicism. And this does not help matters much. For Nigeria to be taken seriously on this issue, there is the need to forge a national consensus not just on the desirability, but also the imperativeness of debt cancellation. The issue is central to finding solutions to our socio-economic problems. It is not a sustainable strategy to keep squeezing lives out of people by paying interest rates on debts with resources that could have been better spent on education, health and water supply. Those Nigerians who, ironically, think that Nigeria does not deserve debt cancellation refer to corruption and mismanagement in the land. They point to rapacious acquisition of properties of Nigerian officials abroad. They remind us of looting of the treasury.

Interestingly, spokesmen of the creditors tend to strike the same chord as these critical Nigerians. For instance, only recently the French Ambassador to Nigeria, Mr. Yves Gauduel argued that Nigeria has the capacity to pay [its] debt. His words: “If you compare the size of Nigeria and the debt (about $35 billion) and the country’s Gross Domestic Product (GDP), then the debt is sustainable.” Just like some Nigerians have done legitimately, the ambassador also expressed worries about what would happen to savings that would accrue from debt relief. Will the money be channelled into employment generation and provision of infrastructure to enhance economic activities and make social life more comfortable? The creditors are, of course, right if they insist that these and other emergent issues about debts should be negotiated.

However, valid as this inward-looking may be, it does not nullify Nigeria’s claims for debt relief. The internal woes do not absolve the creditors of culpability in how the debt trap came into being. The internal problem does not explain the moral, historical and socio-political dimensions of the debt crisis for which the creditors should be held responsible. The corruption or irresponsibility of Nigerian government officials could not be a justification for fraudulent transfer-pricing, unequal exchange and interest rates manipulation which have defined the relationship between the creditors and debtors for decades.

Some years back, the drive for debt forgiveness was largely spearheaded by Jubilee 2000, a British-based coalition of non-governmental organizations, aid agencies and trade unions. Jubilee 2000 got support from varied constituencies and personalities such as Pope John Paul II, religious groups and prominent musicians and athletes. Oxfam, a non- governmental development agency said in a 1997 report on debt relief for poor countries that: “Debt repayments have meant health centers without drugs and trained staff, schools without basic teaching equipment, and the collapse of agricultural extension services.”

The premise of these humane supporters of debt forgiveness is simple: Any relief to the poorest countries of their burdensome debt payments should enable them to focus spending on vital social programs such as health care and education.

In this debate, the history of this debt should not be ignored. That is, aside from the fact that some of these debts have dubious origins. From the profile of the debts, they began to mount from the 1960s and 1970s, when international lending to developing countries began in earnest. Intriguingly, this coincided with the wave of decolonisation. The pretext of the lenders then was that the newly independent countries would use the assistance to rebuild and prosper. They easily cited the model of European countries which were successfully rebuilt under the Marshall plan. The American government provided direct grants and loans to ravaged European countries immediately after World War II.

The trend continued during the Cold War with more loans to developing countries. The political objective of loans was to sway the newly independent countries from allying themselves with the Soviet Union. Loans were provided to arm those countries in their struggles against communist neighbours and to defend them against insurgencies from within their borders. Such policies were not based on mere technical economic calculations. But they served political and ideological purposes. The lenders never meant to spur economic development with these loans in the first place. The matter became worse with the economic recession in the 1980s and the struggle began for debtor-nations to begin repaying their debts.

It is against this backdrop of the politics of debt that the recent resolution of the House of Representatives [in Nigeria], calling on the President to stop debt servicing, should be appreciated. The House deserves all the kudos for decoding the political dimension of the debt issue correctly. Other institutions and organisations should take a cue from this clear-headed position. The campaign for debt cancellation should not be seen as that of the Obasanjo administration alone. It should be an all-Nigeria campaign.

What is more, British Prime Minister Tony Blair is favourably disposed to debt relief. Canada is considering debt pardon for Nigeria and other poor, heavily indebted countries. Before now, former American president, Bill Clinton made a case for debt forgiveness for some of the poorest countries saying: “I don’t think we can, in good conscience, say we support the idea that they should choose between making interest payments on their debt and investing in their children’s education.”

There is, however, little appreciation of this trend in the responses of some compatriots to the government’s campaign for debt relief.

Is it not an irony that there are Nigerians who do not appreciate the need for debt forgiveness? The campaign for debt cancellation must be intensified.

Categories: Africa, Nigeria, Odious Debts

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