Nigerian legislature calls for repudiation of debt

11 March 2005 by Ben Agande Abuja , Josephine Lohor Abuja , Olusegun Adeniyi


Three articles from Nigerian press about the Nigerian legislature calls for repudiation of debt.

The Verdict: To Hell With Our Creditors?
by Olusegun Adeniyi
This Day (Lagos), March 17, 2005

When President Olusegun Obasanjo last week received the House of Representatives leadership 24 hours after passing a resolution askinghim to stop forthwith further debt service Debt service The sum of the interests and the amortization of the capital borrowed. payments, the action was so uncharacteristic that I suspected there might be more to it.

While receiving the THISDAY Lifetime Award at his Ota Farm from THISDAY 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 fail, 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, 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 communiqué 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 IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org
and World Bank World Bank
WB
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

. "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 Sahara 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 GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.

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 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 Sovereign debt Government debts or debts guaranteed by the government. 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 that 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", 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 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 hippopotamus, to borrow the conventional wisdom of Dr. Chris Ngige.


Stop Payment of Foreign Debts, Reps Tell Obasanjo
By Ben Agande Abuja
Vanguard (Lagos) March 9, 2005

THE House of Representatives yesterday adopted a motion asking the executive arm of government to stop forthwith further payment of foreign loans owed the Paris and London Clubs, saying the money should be used for the development of the country.

The adoption of the motion followed a marathon executive session where the leadership of the House briefed members on the need to join the executive arm of government in its fight to have the country’s foreign loans which currently stands at $35 billion cancelled. The motion which was sponsored by the Deputy Speaker of the House of Representatives, Mr Austin Opara, and 27 others would be transmitted to the Senate for concurrence.

The motion reads: “Whereas the Federal Government of Nigeria has over the past 25 years been under undue burden over debt allegedly owed to foreign creditors, manly the Paris and London Clubs of creditors;”Whereas the government and people of Nigeria have over the past five years done all that is humanly possible towards establishing the economy on a path of sustainable growth despite complexity of constraints;

Whereas in spite of all these achievements, Nigeria’s creditors and development partners have failed and refused to grant Nigeria substantial debt relief to enable her consolidate on the gains for sustainable growth of the Nigerian economy;Whereas the president of the Federal Republic of Nigeria, Chief Olusegun Obasanjo, has made several appeals and visits to foreign countries and groups of creditors for relief and cancellation of Nigeria’s debts without success;

Whereas Mr. President and the government of Nigeria have established sound economic policies to reposition the Nigerian economy as encapsulated in the National Economic Empowerment and Development Strategy programme;Whereas Nigeria’s debt stock Debt stock The total amount of debt as at 1985 was about 19 billion USD and between the said 1985 and 2005 Nigeria has repaid a total of 37 billion USD to all her creditors including the Paris and London Clubs of creditors;

Whereas despite the above, the debt stock as at December 2004 was 35 billion USD outstanding to all external creditors of Nigeria;Whereas from 1984-1999 Nigeria was under military dictatorship with devastating impact on economic, political and social stability placing Nigeria in the same category of countries emerging from war “This House do call on Mr. President to cease forth with further external debt payment to any group of foreign creditors.

Speaking on the motion, the deputy speaker observed that more than 20 per cent of the country’s budget was dedicated to debt payment and servicing thereby leaving vital areas like health, education and other social infrastructure to suffer.

The chief whip, Mr Bawa Bwari, challenged the group of foreign creditors to “go to hell” and urged the president to call their bluff.

Vanguard reliably gathered that the idea of the motion might have come from the executive which is frustrated by its failure to have debt cancellation. A member of the House told Vanguard that the executive decided to seek parliamentary support because of the brick wall it was encountering in having the debt cancelled.

What we have done is to strengthen the president’s resolve to move the country forward without the strangulating effect of debt servicing and payment. As representatives of the people, our wish is the wish of the Nigerian people. We can no longer continue to repay the so-called foreign debts and we know the president will take this very seriously,” a principal officer of the House told Vanguard.


Obasanjo to House: Give Me More Time
By Josephine Lohor Abuja
This Day (Lagos) March 10, 2005

Says unilateral option not the best

President Olusegun Obasanjo reacting yesterday to a motion passed by the House of Representatives that Nigeria immediately stop servicing its foreign debts, appealed for more time to enable him continue his campaign with the nation’s creditors and development partners.

The President, who recalled that since 1999 he has “gone round the world not once” on the debt issue, however emphasised that it was much better to embark on bilateral and multi-lateral talks than going unilateral.
He added that if his numerous appeals “fall absolutely on deaf ears, then I will come back and report to you, House of Representatives,”.

Obasanjo who made the plea when Speaker Aminu Bello Masari, led a team to the State House to present a formal letter titled ’Repudiation of Foreign Debt - HR. 10/2005’ concerning the motion on the foreign debt, described the motion as “the first shot.” “The second shot may even be a law. If it becomes law, there is no way that I can appeal to you because it has to be implemented,” he said.

The House stated in the memo that it “was convinced that from 1999 to date, your administration had established sound socio-economic structures to attract cancellation of Nigeria’s huge foreign debt. Accordingly, it resolved to call on Mr. President to cease forthwith further external debt payment to any group of foreign creditors”.

While observing that debt relief was yet to come Nigeria’s way even though the Federal Government has embarked on far-reaching reforms that are receiving world acclaim, the president noted that he believes “that if the international community has any morals left, it should be morals of compassion and sympathy for us in this part of the world.”What we have been doing wrong in the past, we are trying to right now. Not only that, Nigeria bears the burden of looking after the situation in Togo, in Liberia. Before the international community was ready, we were already there. Even in Darfur. We are our brothers’ keeper but we are also doing it for the world. We have accepted to bear the brunt of this responsibility but what do we get out of it?

“When everything seems to be right then we hear things like how is your budget going?” Obasanjo said while asking Masari to allow him “use the best effort of government and those men and women of goodwill Goodwill The difference between the assets on a company’s balance-sheet and the sum of its tangible and intangible assets. When one company takes control of another company, the acquiring company generally pays a price that is higher than the value of the net assets. Goodwill generally consists of intangible elements, such as brands, which are evaluated subjectively. out there. For instance, I have just read the report of the British Commission for Africa where they are recommending 100 per cent debt relief for low income countries and Nigeria falls within that low income country. Maybe we can work with them and see how far we can go.

He also asked the House “to put into writing the acknowledgement of this motion, the expression of solidarity with you on the way you feel and the appeal that you should give me a bit of time to see what we can do on the bilateral or even multilateral talks with the Paris Club Paris Club This group of lender States was founded in 1956 and specializes in dealing with non-payment by developing countries.

and other clubs so that we can sail through without unilateralism
”.

Obasanjo also noted that the House “rightly observed that debt forgiveness is not an economic issue. It is purely political. When you look at the situation of Nigeria and Iraq and Pakistan, what is it that makes them to be entitled to debt relief by almost 100 per cent and does not make Nigeria?

When they talk about oil, with our population of almost 150 million, what we get from oil is less than 50 Cents per person per day. It is not even near the so-called abject poverty level of $1. As you rightly observed, from the time I won election in 1999 I have gone round the world not once.”I have met all the people that matter politically in the group of 8 and Group of less than 8. Occasionally, I get good words. Then they prescribe that you must do this, you must do that. And one of the things that they wanted us to do very much is reform and as you know, we have very deep and very comprehensive reforms going on", the President added.




CADTM

COMMITTEE FOR THE ABOLITION OF ILLEGITIMATE DEBT

35 rue Fabry
4000 - Liège- Belgique

00324 226 62 85
info@cadtm.org

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