Olusegun Adeniyi
This Day (Lagos)
March 17, 2005

Lagos: When President Olusegun Obasanjo last week received the House of Representatives leadership 24 hours after passing a resolution asking him to stop forthwith further debt service payments, the action was so uncharacteristic that I suspected there might be more to it.

While receiving the This Day Lifetime Award at his Ota Farm from This Day’s board of editors, President Obasanjo had said that Nigeria’s creditors must seize the moment by negotiating with the government on the way out of the present debt crisis otherwise, the country might be forced to take unilateral action. He also thanked the National Assembly, particularly the House of Representatives for their intervention on the issue. “I must thank the House because they passed that resolution out of frustration. I have done everything I can in the last six years, traveled extensively, got promises but anytime we are nearly there, they would give another condition.”¬†

The President, however, said he would still appeal to Nigerians to allow him pursue the path of dialogue. “There are options we can pursue at multilateral and bilateral levels but if all that fails, then we can resort to unilateral action”, he warned. From the reading of that statement, the President seems frustrated that all his efforts (including hundreds of foreign trips) in the last six years have not yielded any fruit. From his body language now, one could be tempted to conclude Obasanjo might not be totally averse to the Argentina model or perhaps the American model, because history records that repudiation of debts, (especially dubious debts like the one incurred by Nigeria) was started by the United States though we will come to that shortly.

What I find particularly sad today is that many Nigerians who should be interested in the ongoing debate tend to see it from the point of partisan politics whereas it should be seen as a national project. That perhaps explains the cynicism that attended the recent column by the Finance Minister, Dr. (Mrs.) Ngozi Okonjo-Iweala. Whatever our misgivings about the economic policies of this government, the debt issue, as my senior colleague, Kayode Komolafe, argued yesterday, is more about international politics than a purely technical economic issue and we should all join in the struggle to free ourselves from what is no more than another slavery.

While there seems to be local misunderstanding and apathy about this debt issue, there are many international organizations today championing the cause of African countries and perhaps one of the most radical of these groups is the Committee for the Abolition of Third World Debt [PDFver here] , CADTM. With the slogan “we don’t owe, we won’t pay,” it is the contention of the group that African countries are creditors to, and not debtors of, the West.

That was the essence of the 2002 Dakar Declaration for the total and unconditional cancellation of all debt by delegates of civil society groups from Latin America, Asia, and Europe who attended the meeting. The first paragraph of their communiqu?says it all: “We realise that Third World debt to the North is at once fraudulent, odious, illegal, immoral, illegitimate, obscene and genocidal; Countries of the North owe Third World countries, particularly Africa, a manifold debt: blood debt with slavery; economic debt with colonization, and the looting of human and mineral resources and unequal exchange; ecological debt with the destruction and the looting of its natural resources; social debt (unemployment; mass poverty) and cultural debt (debasing of African civilizations to justify colonization) . . .”

But while this position could be dismissed as no more than mere emotional rhetoric that would not solve the problem, there have been much more serious literary efforts on this debt issue. In their paper, “Africa’s Debt: Who Owes Whom?,” James K. Boyce and Léonce Ndikumana had argued that the total debt of sub-Saharan African countries reached a staggering $209 billion in 2001 while most of the loans that resulted in these debts have not served the people in any way. Given this situation, the writers made a strong case for repudiation in that under normal circumstance, borrowing decisions are usually motivated by expectations of positive returns on investment whereas most of the debts we are servicing in Nigeria today, as in most other African countries, were loans that could not be justified by either investment motive or that of development.

According to the writers, the responsibility for the diversion of borrowed funds falls not only on corrupt public officials, but also on their creditors, including private bankers as well as bilateral and multilateral institutions like the IMF and World Bank. “Knowingly or unknowingly, these creditors financed the accumulation of private assets with their loans. In many cases, creditors continued to pour loans in the hands of corrupt regimes, despite ample evidence that these funds were not being used for legitimate purposes. Sound banking practice would have dictated a moratorium on lending to such governments. Failure to halt lending suggests either that creditors were shielded from losses or that they were pursuing other objectives.”

In recommending repudiation as one of the options open to African countries, the writers said we could invoke the doctrine of “odious debt” in international law as well as historical precedents. “At the end of the 19th century, the United States government repudiated the external debt owed by Cuba after seizing the island in the Spanish-American war. The US authorities did so on the grounds that Cuba’s debt had not been incurred for the benefit of the Cuban people, that it had been contracted without their consent, and that the loans had helped to finance their oppression by the Spanish colonial government. For similar reasons, much of the debt of Sub-Saharan Africa can today be termed “odious.”

“If the creditors can document where the money went, and show that it benefited the citizens of the borrowing country via investment or consumption, then the debt will be accepted as a bona fide external obligation of the government. If, however, the fate of the borrowed money cannot be traced, then the present African governments must infer that it was diverted into private pockets, and quite possibly into capital flight. In such cases, the liability for the debt should lie not with the government, but with the private individuals whose personal fortunes are the real counterpart of the debt.”

On the face value, Nigeria actually has a compelling argument for debt repudiation. According to the Doctrine of Odious Debts, propounded by Alexander Sack, a Russian legal scholar, three conditions must be present before a state can repudiate a debt: The debt must have been incurred without the consent of the people of the state; the debt cannot have benefitted the public in that state and the lender must have been aware of these two conditions. From the records at the Debt Management Office (DMO) most of Nigeria’s debt can be classified as “odious” so those who argue for repudiation have good grounds.

That explains why as a theory this is sound and logical but in our circumstance today, it is difficult essentially because the contemporary international system is weighed heavily against the weak and there is little we can do about it. But it may be worthwhile for us to examine the example of Argentina being freely cited, so we can ascertain whether we can get away with debt repudiation without hurting our economy the more.

The Argentine president, Nestor Kirchner, shocked the world exactly three years ago when he announced a unilateral terms for restructuring about $75 billion of its debt obligations. These terms offered holders of defaulted bonds a deal worth 25 cents on the dollar. Expectedly, foreign investors responded with a flurry of legal action. But today, the unconventional economic policies of strong government intervention and antagonistic relations with the IMF and foreign private creditors have paid off, at least in the short run, with gross domestic product growth expanding last year by almost nine percent aside political and social stability already created in the country.

What the House members who cited Argentina as example, however, did not say or may not know is that it would be difficult for another country to try the same trick now and expect the same result, more so when the country has already gone back to its creditors. Exactly two weeks ago, Kirchner said that Argentina has left behind its sovereign debt default with its historic $102.6 billion debt swap. “We have completed these days the swap process for our debt in default. With this huge effort, our country has left the default behind,” Kirchner told the inaugural session of Congress for 2005.

Of course I have read a number of literature where it is argued that what Argentina did was not exactly debt repudiation and that it was borne by necessity. While I am not interested in all the semantics, one thing Argentina has shown the world is that the debtor nations, or in this particular instance, Nigeria is not entirely powerless. Given that most of the debts we are servicing can easily be classified as “odious debt,” the product of corruption, there is a strong temptation to follow the Argentina path.

But we are Nigeria and not Argentina, hence, if we try, we are likely going to be squeezed especially with President George Bush yesterday nominating Paul Wolfowitz to be President of the World Bank. This is a man trained to see “terrorism” in every action and would most likely treat such a decision coming from Nigeria as another declaration of war. In that situation, we cannot win especially when these predators (I mean creditors) can easily use their courts to seize most of our financial assets, which are with them anyway.

All we can do for now is to continue to plead for the understanding of our “creditors” while we build a national consensus on the issue. Because, at a time British Prime Minister Tony Blair has put the issue on the front burner and is doing everything to help, it would be unfortunate, to say the least, if Nigerians begin to sing discordant tunes. Meanwhile, we need to put our house in order and stop obtaining fresh foreign loans. Because if we don’t, even if we secure debt relief now, we may discover that we are merely rescued from the jaws of the sharks only to end up in the mouth of the hippopotamus, to borrow the conventional wisdom of Dr. Chris Ngige.